Internet Payment & Banking

Internet Payment & Banking
Internet Payment Systems
 electronic payment is a financial exchange that takes place online between buyer
and sellers.
 The content of this exchange is usually some form of digital financial instrument
(eg. credit cards, digital cash, or electronic cheques) that is backed by a bank or an
intermediary.
 Four payment systems within the syllabus:

o Credit Card-based System
o Digital Cash System
o Electronic Cheque System
o Smart Card System
1
1. Credit Card-based System
 The Players
 Cardholder
 Merchant (seller)
 Issuer (your bank)
 Acquirer (merchant’s financial institution, acquires the sales slips)
 Brand (VISA, Master Card)
2
1. Credit Card-based System: Offline Usage Process
A cardholder requests the issuance of

a card brand (like Visa and
MasterCard) to an issuer bank in The authorization of card issuance by
which the cardholder may have an the issuer bank, or its designated
account. brand company, may require
customer’s physical visit to an office.
A plastic card is physically
delivered to the customer’s
address by mail.
The card can be in effect as the
cardholder calls the bank for
The cardholder shows the card to initiation and signs on the back
a merchant to pay a requested of the card.
amount. Then the merchant asks
for approval from the brand
company. Upon the approval, the merchant
requests payment to the
The acquirer bank requests the merchant’s acquirer bank, and pays
issuer bank to pay for the credit fee for the service. This process is
amount. called a “capturing process”
3
1. Credit Card-based System: Offline & Online Procedure
capture
Cardholder Merchant
credit
card Payment authorization,
issue credit payment data
card
Card Brand Company
account debit data payment data
Issuer Bank Acquirer Bank

Cardholder Merchant
Account Account
4
M6: Internet Payment & Banking
STT, SEPP, SET
 Originally two major protocols were developed..

 SEPP: Mastercard, IBM and Netscape joined to develop the Secure
Electronic Payment Protocol (SEPP). STT: Visa and Microsoft worked
together to establish the Secure Transaction Technology (STT). In early
1996, these two groups agreed to establish a single payment system
which became SET.
 In other words, SET is the superset of the earlier proposed payment
systems STT and SEPP.
 SET (Secure Electronic Transaction) protocol is an Internet standard
designed to provide a high level of security and anti-fraud assurances
for payment card transations over the Internet.
 SET makes use of Netscape's Secure Sockets Layer (SSL (Secure Sockets
Layer)), Microsoft's Secure Transaction Technology (STT), and Terisa
System's Secure Hypertext Transfer Protocol (S-HTTP).
5
SSL, HTTPS, S-HTTP
 Secure Sockets Layer, a protocol developed by Netscape for transmitting

private documents via the Internet. SSL works by using a private key to
encrypt data that's transferred over the SSL connection.
 Both Internet Explorer and Netscape Navigator/Comm ( ) support SSL,
and many Web sites use the protocol to obtain confidential user
information, such as credit card numbers. By convention, Web pages that
require an SSL connection start with https instead of http
https://vs01.tvsecure.com/~vs01000/manual/manual3.html
 S-HTTP is an extension to the HTTP protocol to support sending data

securely over the World Wide Web.
 S-HTTP was developed by Enterprise Integration Technologies (EIT), which
was acquired by Verifone, Inc. in 1995.
 S-HTTP secures data, while SSL secures the communications channel.
6
Security with SSL vs S-HTTP/S-MIME/SET/PGP
7
2. Digital Cash System
 A system that allows a person to pay for goods or services by

transmitting a number from one computer to another.
 Like the serial numbers on real dollar bills, the digital cash numbers
are unique. Each one is issued by a bank and represents a specified
sum of real money.
 One of the key features of digital cash is that, like real cash, it is
anonymous and reusable. That is, when a digital cash amount is
sent from a buyer to a vendor, there is no way to obtain
information about the buyer. This is one of the key differences
between digital cash and credit card systems.
8
2. Digital Cash System: eCash Demo
 The demonstration shows what shopping experience will be like

when pay with eCash currency.
1. Will first see a Web page for the demo merchant Planet Coffee. This page
looks like a typical online Web store.
2. Click one of the Buy Me Now buttons to see how easy it is to buy coffee or a
French press using eCash.
3. Will then see a payment screen that shows the product selected, the total
cost, and a variety of payment options.
4. Select the payment option, and then click the Submit Payment button.
5. Will be asked if agree to the payment. After clicking Yes, will receive the
order confirmation.
http://www.ecashtechnologies.com/Consumers/ConsDemo.asp
9
2. Digital Cash System: eCash Demo (cont)
1. Will first see a Web page for the demo merchant Planet Coffee. This page looks like a typical online Web store.
2. Click one of the Buy Me Now buttons to see how easy it is to buy coffee or a French press using eCash.
10
3. Will then see a payment screen that shows the product selected, the total cost, and a variety of payment options.
4. Select the payment option, and then click the Submit Payment button.
11
5. Will be asked if agree to the After clicking Yes, will receive the order confirmation.
payment. 12
3. Digital Cheque System
 A digital check has many of the same features as a paper check. It

functions as a message to the sender’s bank to transfer funds, is given
to a receive, and the receiver presents it to the bank to obtain funds.
 However, with electronic checks, senders can protect against fraud by

encoding their account number with the bank’s public encryption key,
so the number is not revealed to the merchant.
 Digital certificates (DC) can be used to authenticate the payer, bank,

and bank account. DC is an attachment to an electronic message used
for security purposes. The most common use of a digital certificate is to
verify that a user sending a message is who he or she claims to be, and
to provide the receiver with the means to encode a reply.
 CheckFree Demo: http://www.checkfree.com/

13
3. Digital Cheque System: Checkfree Demo
1/6: Writing a Digital Check
2/6: Click to “Pay Now”
14
3. Digital Cheque System: Checkfree Demo (cont)
3/6: List of Bills
4/6: List of Bills
15
3. Digital Cheque System: Checkfree Demo (cont)
5/6: Status of Payment
6/6: Electronic view of actual bill
16
4. Smart Card System
 A smart card is a credit card-sized device that has an embedded

microprocessor, a small amount of memory, and an interface that
allows it to communicate with a workstation or network.
 Smart Cards provide several capabilities:
 Portable Storage – card carried by owner and therefore can be

used anywhere and the owner is not confined to a single
computer.
 Secure Storage – passwords, money value etc. can be stored

without being easily tampered with.
 Trusted Execution Environment – smart cards are not vulnerable

to viruses and intrusion risks, and can therefore be given a greater
degree of trust.
17
4. Smart Card System: Components
18
4. Smart Card System: Usage over the Web
19
4. Smart Card System: Mondex
 Mondex is an innovative electronic cash system

that combines the best features of traditional cash
with the convenience of electronic payment.
 Mondex electronic cash is digitally stored on a

reloadable and highly secure microprocessor
computer chip. The chip is embedded in a plastic
card that looks and feels similar to a debit or credit
card. (See Right  )
 Mondex will enable retailers to receive Mondex

cash immediately at the time of transaction,
without settlement or clearing. And, with its distinct
flexibility and state-of-the-art security, Mondex is
equally at home in the physical world of the corner
store or the virtual world of electronic commerce.
20
Internet Banking: History & Functions
 Historical Banking Industry  Functions provided by

o Physical Banking Offices & Buildings
Banks:
o Paper Based Documents and Processes
1. Handle Cash
 1980’s Banking 2. Investments
o Telephone Banking o Savings
o Account Balances, Funds Transfer, o Securities
Electronic Bill Payment
o ATM: Automated Teller Machines 3. Loans / Credit
4. Bill Payments
 Mid-Late 1990’s Banking o Paper Based (checking)
o Electronic Banking
o Electronic
o Web-Based Presence
5. Insurance
o Competitive Pressure
21
Internet Banking: Transaction Costs
22
Internet Banking: 4 Phases – Services & Benefits
http://www.dynamicnet.net/news/white_papers/internetbanking.ht
m
23
Internet Banking: Disadvantages
 New developing technology: Internet Banking is a developing technology

supporting self-service delivery channel. Developing technologies such as
Internet Banking, though, run the risk of getting too far of ahead of the
banks; therefore, the banking industry will not be able to sell to the
customer.
 Unknown Strategy: The banking industry’s biggest challenge is in

establishing an electronic banking strategy and fully understanding its
options and implications. The Internet is a new alternative delivery
channel, which requires new thinking and marketing efforts.
 Investment Cost: The initial cost investment of Internet Banking

technology is higher than the other forms of alternative delivery systems.
Due to inexperience, banks that attempted to establish Web home pages
run up against major problems.
24
Internet Banking: Disadvantages (cont)
 Security: The Internet is a security nightmare because of its characteristics:

public, open, network of peer to peer networks, flat and mesh topology,
connectionless datagram routing, no central authority, protocols based on
mutual trust, and naïve users. Banks need to establish an infrastructure
that incorporates both security policies and management staff to support
information security.
 User Knowledge Barrier: Not everybody has the expertise needed in order
to access to home banking in the way it is today. A minimum knowledge on
PC's an Internet is needed and this suppose a barrier of access for many
users.
25
Internet Banking: HSBC Demo
1/8: Login Screen
2/8: View Account
http://www.banking.us.hsbc.com/InternetBanking/demo.as
p 26
Internet Banking: HSBC Demo (cont)
3/8: Account Summary
4/8: Transfer between accounts
27
5/8: Adding a payee
6/8: Making payment
28
7/8: Read mail
8/8: Customer Information
29
M7 Security Issues in Electronic Commerce
Paper on ”An Overview of Security Issues for Electronic
Commerce and Electronic Service Delivery”
30

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Internet Payment & Banking

Internet Payment Systems

 Four payment systems within the syllabus:

A cardholder requests the issuance of

Issuer Bank Acquirer Bank

 Originally two major protocols were developed..

 Secure Sockets Layer, a protocol developed by Netscape for transmitting

 S-HTTP is an extension to the HTTP protocol to support sending data

 S-HTTP secures data, while SSL secures the communications channel.

 A system that allows a person to pay for goods or services by

 The demonstration shows what shopping experience will be like

 A digital check has many of the same features as a paper check. It

 However, with electronic checks, senders can protect against fraud by

 Digital certificates (DC) can be used to authenticate the payer, bank,

 CheckFree Demo: http://www.checkfree.com/

1/6: Writing a Digital Check

2/6: Click to “Pay Now”

3/6: List of Bills

4/6: List of Bills

5/6: Status of Payment

6/6: Electronic view of actual bill

 A smart card is a credit card-sized device that has an embedded

 Smart Cards provide several capabilities:

 Portable Storage – card carried by owner and therefore can be

 Secure Storage – passwords, money value etc. can be stored

 Trusted Execution Environment – smart cards are not vulnerable

 Mondex is an innovative electronic cash system

 Mondex electronic cash is digitally stored on a

 Mondex will enable retailers to receive Mondex

 Historical Banking Industry  Functions provided by

 New developing technology: Internet Banking is a developing technology

 Unknown Strategy: The banking industry’s biggest challenge is in

 Investment Cost: The initial cost investment of Internet Banking

 Security: The Internet is a security nightmare because of its characteristics:

1/8: Login Screen

2/8: View Account

3/8: Account Summary

4/8: Transfer between accounts

5/8: Adding a payee

6/8: Making payment

7/8: Read mail

8/8: Customer Information

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