Electronic Payment System & Security

© Prentice Hall, 2000

Chapter 8Electronic Payment Systems

and Security

1

2© Prentice Hall, 2000

Learning Objectives

Describe typical electronic payment systems for EC Identify the security requirements for safe

electronic paymentsDescribe the typical security schemes used to meet

the security requirements Identify the players and procedures of the

electronic credit card system on the InternetDiscuss the relationship between SSL and SET

protocols


Discuss the relationship between electronic fund transfer and debit card

Describe the characteristics of a stored value card

Classify and describe the types of IC cards used for payments

Discuss the characteristics of electronic check systems

Learning Objectives (cont.)


Security requirements

Authentication: A way to verify the buyer’s identity before payments are made

Integrity: Ensuring that information will not be accidentally or maliciously altered or destroyed, usually during transmission

Encryption: A process of making messages indecipherable except by those who have an authorized decryption key

Non-repudiation: Merchants need protection against the customer’s unjustifiable denial of placed orders, and customers need protection against the merchants’ unjustifiable denial of past payment


Security SchemesThe key security schemes adopted for

electronic payment systems are : Encryption Digital signature Message digest Use of certificates and certifying authorities


Security SchemesSecret Key Cryptography (symmetric / Private)

the same key is used by a sender (for encryption) and by receiver (for decryption) Data Encryption Standard (DES) algorithm is used for Data encryption. The problem with single key is that it needs to be transmitted to a counterpart.

Scrambled Message

Original Message

Sender

InternetScrambled Message

Keysender (= Keyreceiver)

Encryption

Original MessageReceiver

Keyreceiver

Decryption


Security SchemesPublic Key Cryptography (Asymmetric)

Use two different keys. The public key is known to all authorized users. The

private key is known to its owner. The private key is generated at the owner’s

computer and is not sent to anyone. The message is encrypted by the receiver's public

key and it is only be decrypted with the receiver’s private key.

The RSA(Rivest, Shamir, and Adelman) algorithm is used for this purpose.


Public Key Cryptography

Sender

Original Message

Scrambled Message

Scrambled Message

Public Keyreceiver

Original Message

Receiver

Private Keyreceiver

Internet

Security Schemes (cont.)

Message

Sender

Original Message

Scrambled Message

Scrambled Message

Private Keysender

Original Message

Receiver

Public Keysender

InternetDigitalSignature


Digital Signature

A digital signature is attached by a sender to a message encrypted in the receiver’s public key

The receiver is the only one that can read the message and at the same time he is assured that the message was indeed sent by the sender

Sender encrypts a message with his private key

Any receiver with senders public key can read it


Analogous to handwritten signature It is used for the authentication of senders.


Certificate

Name : “Richard”key-Exchange Key :Signature Key :Serial # : 29483756Other Data : 10236283025273Expires : 6/18/96Signed : CA’s Signature


Identifying the holder of a public key (Key-Exchange)

Issued by a trusted certificate authority (CA)


Certificate Authority - e.g. VeriSign

RCA

BCA

GCA

CCA MCA PCA

RCA : Root Certificate AuthorityBCA : Brand Certificate AuthorityGCA : Geo-political Certificate AuthorityCCA : Cardholder Certificate AuthorityMCA : Merchant Certificate AuthorityPCA : Payment Gateway Certificate Authority

Hierarchy of Certificate AuthoritiesCertificate authority needs to be verified by a government or well trusted entity ( e.g., post office)


Public or private, comes in levels (hierarchy) A trusted third party services Issuer of digital certificates Verifying that a public key indeed belongs to a

certain individual


Security Schemes (cont.)Digital Envelop

Process of encrypting a secret key with the receiver’s public key

The DES key is encrypted in this manner, because the DES key should be opened first to decrypt the message contents with the key.

Time Stamp Cryptographically unforgeable digital attestation that

a document was in existence at a particular time. A CA may keep these evidence at the CA’s computer

upon the request of customer.

Secure Socket Layer (SSL) Protocol

1. The message is hashed to a prefixed length of message digest.2. The message digest is encrypted with the sender’s private

signature key, and a digital signature is created.3. The composition of message, digital signature, and Sender’s

certificate is encrypted with the symmetric key which is generated at sender’s computer for every transaction. The result is an encrypted message. SET protocol uses the DES algorithm instead of RSA for encryption because DES can be executed much faster than RSA.

4. The Symmetric key itself is encrypted with the receiver’s public key which was sent to the sender in advance. The result is a digital envelope.

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Sender’s Computer


Sender’s ComputerSender’s Private Signature Key

Sender’s Certificate

+

+

Message

+Digital Signature

Receiver’s Certificate

Encrypt

Symmetric Key

Encrypted Message

Receiver’sKey-Exchange Key

EncryptDigital

Envelope

Message

Message Digest


5. The encrypted message and digital envelope are transmitted to receiver’s computer via the Internet.

6. The digital envelope is decrypted with receiver’s private exchange key.

7. Using the restored symmetric key, the encrypted message can be restored to the message, digital signature, and sender’s certificate.

8. To confirm the integrity, the digital signature is decrypted by sender’s public key, obtaining the message digest.

9. The delivered message is hashed to generate message digest.10. The message digests obtained by steps 8 and 9 respectively, are

compared by the receiver to confirm whether there was any change during the transmission. This step confirms the integrity.

Receiver’s Computer

Secure Socket Layer (SSL) Protocol (cont.)


Receiver’s Computer

DecryptSymmetric

Key

Encrypted Message

Sender’s Certificate

+

+

Message

compare

DigitalEnvelope

Receiver’s Private Key-Exchange Key

Decrypt

Message DigestDigital SignatureSender’s Public Signature Key

Decrypt

Message Digest



Secure Electronic Transaction Protocol

Initially designed for Visa and MasterCard in 1997.SET defines the message format, certificate format

and procedure of message exchange. In SET protocol, there are four entities:

Card holder, merchant, CA, and payment gateways.The role of payment gateway is to connect the

internet and proprietary networks of bank.The software Digital Wallet or Electronic Wallet is

necessary to keep the customer’s certificate in his or her personal computer or IC Card.

Entities of SET Protocol in Cyber Shopping

IC CardReader

Customer xCustomer y

With Digital WalletsCertificateAuthority

Electronic Shopping Mall

Merchant A Merchant B

Credit CardBrand

ProtocolX.25

Payment Gateway



SET Vs. SSL

Secure Electronic Transaction (SET) Secure Socket Layer (SSL)

Complex Simple

SET is tailored to the credit card payment to the merchants.

SSL is a protocol for general-purpose secure message exchanges (encryption).

SET protocol hides the customer’s credit card information from merchants, and also hides the order information to banks, to protect privacy. This scheme is called dual signature.

SSL protocol may use a certificate, but there is no payment gateway. So, the merchants need to receive both the ordering information and credit card information, because the capturing process should be initiated by the merchants.


SSL Vs. SET: Who Will Win?

A part of SSL (Secure Socket Layer) is available on customers’ browsers it is basically an encryption mechanism for order taking, queries and

other applications it does not protect against all security hazards it is mature, simple, and widely use

SET ( Secure Electronic Transaction) is a very comprehensive security protocol it provides for privacy, authenticity, integrity, and, or repudiation it is used very infrequently due to its complexity and the need for a

special card reader by the user it may be abandoned if it is not simplified/improved SET use digital wallet.


Electronic Credit Card Systemon the Internet

The Players

Cardholder

Merchant (seller)

Issuer (your bank)

Acquirer (merchant’s financial institution, acquires the sales slips)

The Card Brand (The bank card association of issuers and acquires like VISA, Master Card)


The process of using credit cards offlineA cardholder requests the issuance of a card brand (like Visa and MasterCard) to an issuer bank in which the cardholder may have an account.

Electronic Credit Card Systemon the Internet (cont.)

The authorization of card issuance by the issuer bank, or its designated 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 initiation and signs on the back of the card.

The cardholder shows the card to a merchant to pay a requested amount. Then the merchant asks for approval from the brand company.

Upon the approval, the merchant requests payment to the merchant’s acquirer bank, and pays fee for the service. This process is called a “capturing process”

The acquirer bank requests the issuer bank to pay for the credit amount through brand company

Cardholder Merchantcredit card

Card Brand Company

Payment authorization, payment data

Issuer BankCardholder

Account

Acquirer BankMerchantAccount

account debit data payment data

Credit Card Procedure (offline and online)23

payment data

amount transfer


Issue Credit Card


Electronic Fund Transfer (EFT)on the Internet

An Architecture of Electronic Fund Transfer on the Internet

InternetPayer

Cyber Bank

Bank

Cyber Bank

Payee

AutomatedClearinghouse

VANBank

VAN

PaymentGateway

PaymentGateway


Debit Cards (Check Card)

Card that authorizes the EFT.The debit card allows you to spend only what

is in your bank account.Frees you from carrying cash, traveler’s check,

or a checkbook.Less protection than credit card purchases for

items that are never delivered or are defective.


Financial EDIIt is an EDI used for financial transactions

EDI is a standardized way of exchanging messages between businesses

EFT can be implemented using a Financial EDI systemSafe Financial EDI needs to adopt a security

scheme used for the SSL protocolExtranet encrypts the packets exchanged between

senders and receivers using the public key cryptography


Electronic Cash and Micropayments

Smart Cards The concept of e-cash is used in the non-Internet

environment Plastic cards with magnetic stripes (old technology) Includes IC chips with programmable functions on

them which makes cards “smart” Recharge the card only at designated locations,

such as bank office or a kiosk. Future: recharge at your PC through internet. MCB Smart Card


Representation of E-Cash SystemTo design an e-cash system, we need to

identify how to represent and move the e-cash. Electronic money with a unique value and

identification number. Stored value cards


Electronic Money

DigiCash The analogy of paper money or coins Banks affiliated with DigiCash issue electronic

bills, each with a unique identification number. Expensive, as each payment transaction must be

reported to the bank and recorded Conflict with the role of central bank’s bill

issuance Legally, DigiCash is not supposed to issue more

than an electronic gift certificate even though it may be accepted by a wide number of member stores. IT IS NOT POPULAR IN REAL WORLD.


Stored Value Cards

No issuance of money Debit card — a delivering vehicle of cash in an

electronic form Either anonymous or onymous Advantage of an anonymous card

the card may be given from one person to another Also implemented on the Internet without

employment of an IC card


Closed Vs Open E-Cash SystemIn Closed E-Cash System, the cash value in

the IC card can only be recharged from a Bank’s account, and the used money, which was collected in the memory of IC card readers.

The direct transfer between IC cards is prohibited.

In Open E-Cash System, allow direct transfer of money value between IC Cards.


Smart card-based e-cash Can be recharged at home through the Internet Can be used on the Internet as well as in a non-

Internet environmentCeiling of Stored Values

To prevent the abuse of stored values in money laundry

S$500 in Singapore; HK$3,000 in Hong KongMultiple Currencies

Can be used for cross border payments


Contactless IC Cards

Proximity Card Can be read up to 1 foot from the reader. Used to access buildings and for paying in buses

and other transportation systems Bus, subway and toll card in many cities

Amplified Remote Sensing Card Good for a range of up to 100 feet, and can be

used for tolling moving vehicles at gates Pay toll without stopping (e.g. Highway 91 in

California)


Electronic Check SystemElectronic implementation of paper check

system.Security schemes for e-check are basically

the same as those in SET. Only the usage procedure are different.

More important in B2B EC, a highly secured system is needed, especially for large payments.


Electronic Check Systems (cont.)

Counterpart of electronic wallet To be integrated with the accounting information

system of business buyers and with the payment server of sellers

To save the electronic invoice and receipt of payment in the buyers and sellers computers for future retrieval

Example : SafeCheck

Payer’s checkbook

agent

Payee’s check-receipt

agent

Payer PayeeIssue a check

Receipt

A/CDB

A/CDB

controlagent of payer’s bank

controlagent of payee’s bank

clearing

Checkbook,screened result

Request of screening checkissuance

present

report

payer’s bank payee’s bank

Internet

The Architecture of SafeCheck 36© Prentice Hall, 2000


Integrating Payment MethodsTwo potential consolidations:

The on-line electronic check is merging with EFT The electronic check with a designated settlement date is

merging with electronic credit cardsSecurity First Network Bank (SFNB)

First cyberbank Lower service charges to challenge the service fees of

traditional banksVisa

VisaCash is a debit card ePay is an EFT service


Five Security Tips Don’t reveal your online Passcode to anyone. If you think your

online Passcode has been compromised, change it immediately. Don’t walk away from your computer if you are in the middle of a

session. Once you have finished conducting your banking on the Internet,

always sign off before visiting other Internet sites. If anyone else is likely to use your computer, clear your cache or

turn off and re-initiate your browser in order to eliminate copies of Web pages that have been stored in your hard drive.

Bank of America strongly recommends that you use a browser with 128-bit encryption to conduct secure financial transactions over the Internet.

Managerial Issues Security solution providers can cultivate the opportunity of providing

solutions for the secure electronic payment systems Electronic payment system solution providers can offer various

types of electronic payment systems to electronic stores and banks Electronic stores should select an appropriate set of electronic

payment systems Banks need to develop cyberbank services to be compatible with the

various electronic payment system Credit card brand companies need to develop an EC standard like

SET, and watch the acceptance by customers Smart card brand should develop a business model in cooperation

with application sectors and banksCertificate authority needs to identify the types of certificate to provide


Documents

Electronic Payment System & Security