Electronic Payment Systems. Dr Sherif Kamel

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1 Electronic Payment Systems Dr Sherif Kamel

2 Payment Evolution Important Factors Interoperability and portability Security Ease of use Transaction fees Regulations and procedures Acceptability and trust

3 Electronic Payments epayments: payments made online The overwhelming majority of web purchases are made with credit cards This may change in the future??? (role of banks) ebanking v mbanking epayment is a financial exchange that takes place online between buyers and sellers

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5 Transaction Payments Consumer transactions generally are mainly paper-based Cash and checks are more expensive to process (however they are more trusted and people are more accustomed to them) Financial institutions are encouraging electronic payments because they are: Less costly Quicker More efficient But, how to build the confidence and trust from the customers side?

6 Traditional Payment and Online Shopping Lack of convenience not matching the trends of the digital economy, make a call or send a check Traditional payment are not suitable for online shopping (mainly international) Real-time online shopping means that the transaction is completed when the consumer hits the pay button on the web (need to be 3 clicks away) Traditional payment implies that at a point in time the buyer or seller will be physically present in each other s location and delays will result in the payment to detect fraud, overdraft, etc Lack of support for micro-transactions for low value payments

7 Innovations in Electronic Payments Cards Credit cards (including virtual cards) Debit cards (including store-value cards) Smart cards Cash and Checks Digital cash Electronic checks Electronic Banking

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9 Using Payment Cards Online Credit cards Holding credit to make payments up to a certain limit Visa, MasterCard, AmEx (GoldCard) Charge cards Payments should be paid in full upon receipt of the monthly statement AmEx (GreenCard) and Diners Club Debit cards Payments comes directly from the holder s check account MasterCard, Visa

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11 Electronic Payment Methods Cards Credit/Debit Cards (unencrypted over public networks) Key factor is security (low level); authentication is a vendor s problem Customer surveys shows reluctance in buying online (lack of trust) Emergence of Internet credit cards Fastest growing electronic transactions Authentication is provided via the PIN number Virtual Credit Cards epayment systems in which a credit card issuer gives a special transaction number that can be used online in place of regular credit card numbers Encrypted Credit Cards Encryption does not remove insecurity all together Cost of credit card transaction Low level payments might be denied (micro-payments) Use of a third party to collect and approve payments between different clients

12 Virtual credit card

13 Electronic Payment Methods Cards Stored-value card payments Card that has monetary value loaded onto it, and is usually rechargeable Some cards show account numbers Most store the information in encrypted form ewallets Software component in which a user stores credit card numbers and other personal information; when shopping online, the user simply clicks the ewallet to automatically fill in information needed to make a purchase Payments made electronically at kiosks (ATMs)

14 Electronic Payment Methods Cards Smart cards Electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card epurse Used to purchase products and services, control access to accounts IC technology to store customer information including ecash Smart card application that loads money from a card holder s bank account onto the smart card s chip

15 Electronic Payment Methods Cards Smart cards

16 Electronic Payment Methods Cash Electronic (digital) cash (several variations) Digital equivalent of paper currency and coins, which enables secure and anonymous purchase of low-priced items Digital cash combines computerized convenience with security and privacy that improve on paper cash Digital cash is becoming the principal payment methods online Cash is still #1 option for global consumers despite innovations and development in electronic payment systems Loyalty cards Prepaid stored-value cards

17 How to get ecash? ecash is purchased from an online currency server Establish an account (a must) Maintain sufficient money to back purchases Customer would purchase notes with a serial number in exchange of a value amount of money with digital signature Security is guaranteed by buyer and seller by checking on bank s digital signature Bank is protected against forgery Seller is protected against the bank s refusal to honor a legitimate digital note Buyer protected against false accusations and invasion of privacy

18 Digital cash

19 Digital cash

20 Digital cash

21 Electronic Payment Methods Checks Modeled on paper checks, initiated electronically using digital signatures for signing and endorsing (need a certificate authority-ca) Require use of digital certificates to authenticate the buyer, bank and bank account (third-party approval) Authentication is done via encryption (real-time) Security is high (relatively) Mechanism for individual micro-payments (not solved by credit cards) as well as serves corporate markets (large payments) It reduces the merchant s administrative costs by providing faster and less paper-intensive collection of funds

22 echecks Advantages Mechanism for individual micro-payments (not solved by credit cards) Validation is automated via cryptography (real-time) Serves corporate markets (large payments)

23 Electronic checks

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25 Information Technology Industry Development Agency (ITIDA)

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