Ecommerce Chap 08

© 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.)


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


Payments, Protocols and Related Issues

SET Protocol is for Credit Card Payments

Electronic Cash and Micropayments

Electronic Fund Transfer on the Internet

Stored Value Cards and Electronic Cash

Electronic Check Systems


Security requirements

Payments, Protocols and Related Issues (cont.)

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 Schemes

Secret Key Cryptography (symmetric)

Scrambled Message

Original Message

Sender

InternetScrambled Message

Keysender (= Keyreceiver)

Encryption

Original Message

Receiver

Keyreceiver

Decryption


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

InternetDigital

Signature


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 her private key

Any receiver with senders public key can read it


Analogous to handwritten signature


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


Electronic Credit Card Systemon the Internet

The Players

Cardholder

Merchant (seller)

Issuer (your bank)

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

Brand (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.

Cardholder Merchantcredit card

Card Brand Company

Payment authorization, payment data

Issuer Bank

CardholderAccount

Acquirer Bank

MerchantAccount

account debit data payment data

Credit Card Procedure (offline and online)14

payment data

amount transfer


Secure Electronic Transaction (SET) 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.

15

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

Encrypt

DigitalEnvelope

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 Electronic Transaction (SET) 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


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.


Electronic Fund Transfer (EFT)on the Internet

An Architecture of Electronic Fund Transfer on the Internet

Internet

Payer

Cyber Bank

Bank

Cyber Bank

Payee

AutomatedClearinghouse

VANBank

VAN

PaymentGateway

PaymentGateway


Debit Cards

A delivery vehicle of cash in an electronic form

Mondex, VisaCash applied this approachEither anonymous or onymousCyberCash has commercialized a debit card

named CyberCoin as a medium of micropayments on the Internet


Financial EDI

It 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 system

Safe Financial EDI needs to adopt a security scheme used for the SSL protocol

Extranet 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” One e-cash card for one application Recharge the card only at designated locations,

such as bank office or a kiosk. Future: recharge at your PC

e.g. Mondex & VisaCash


Mondex Makes Shopping Easy

Shopping with Mondex

Adding money to the card

Payments in a new era of electronic

shopping

Paying on the Internet


Electronic Money

DigiCash The analogy of paper money or coins 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


Stored Value Cards

Electronic Money (cont.)

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


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 environment

Ceiling of Stored Values To prevent the abuse of stored values in money

laundry S$500 in Singapore; HK$3,000 in Hong Kong

Multiple Currencies Can be used for cross border payments

Electronic Money (cont.)


Contactless IC Cards

Proximity Card 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 Systems

Check

Signature

RemittanceInvoice

Secure Envelope

Remittance

Check

Signature

Certificate

Certificate

Remittance

Secure Envelope

Certificate

Certificate

EndorsementCertificateCertificate

Signature “Card”Signature“Card”

Workstation

Mall statementE-Check line item

Payer’s BankDebit account

Payee’s BankCredit account

E- MailWWW

ACH

ECP

Clear Check Deposit check

Payer Payee

E-mail

AccountReceivable

Procedure of Financial Service Technology Consortium Prototype


Electronic Checkbook

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 Used mainly in B2B

Payer’s checkbook

agent

Payee’s check-receipt

agent

Payer Payee

Issue 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 32© 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 cards

Security First Network Bank (SFNB) First cyberbank Lower service charges to challenge the service fees of

traditional banks

Visa VisaCash is a debit card ePay is an EFT service


How Many Cards are Appropriate?

An onymous cardis necessary to

keep the certificates forcredit cards, EFT, andelectronic checkbooks

The stored value inIC card can be deliveredin an anonymous mode

Malaysia’s Multimedia Supper Corridor projectpursues a One-Card system

Relationship Card by Visa is also attemptinga one card system


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 banks

Certificate authority needs to identify the types of certificate to provide


Education

Ecommerce Chap 08