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E-commerce Systems Electronic Payment Systems 1
E-payment systems • To transfer money over the Internet • Methods of traditional payment – Check, credit card, or cash • Methods of electronic payment – Electronic cash, software wallets, smart cards, and credit/debit cards – Scrip is digital cash minted by third-party organizations 2
Requirements for e-payments • Atomicity – Money is not lost or created during a transfer • Good atomicity – Money and good are exchanged atomically • Non-repudiation – No party can deny its role in the transaction – Digital signatures 3
Desirable Properties of Digital Money • • Universally accepted Transferable electronically Divisible Non-forgeable, non-stealable Private (no one except parties know the amount) Anonymous (no one can identify the payer) Work off-line (no on-line verification needed) No known system satisfies all. 2/16/00 4
Types of E-payments • E-cash • Credit card 5
Electronic Cash • Primary advantage is with purchase of items less than $10 – Credit card transaction fees make small purchases unprofitable – Micropayments o Payments for items costing less than $1 6
E-cash Concept Merchant 5 4 Bank 3 2 1 1. Consumer buys e-cash from Bank 2. Bank sends e-cash bits to consumer (after charging that amount plus fee) 3. Consumer sends e-cash to merchant 4. Merchant checks with Bank that e-cash is valid (check forgery or fraud) 5. Bank verifies that e-cash is valid 6. Parties complete transaction: e. g. , merchant present e-cash to issuing back for deposit once goods or services are delivered Consumer 7
Electronic Cash Issues • E-cash must allow spending only once • Must be anonymous, just like regular currency – Safeguards must be in place to prevent counterfeiting – Must be independent and freely transferable regardless of nationality or storage mechanism • Divisibility and Convenience • Complex transaction (checking with Bank) – Atomicity problem 8
Advantages and Disadvantages of Electronic Cash • Advantages – More efficient, eventually meaning lower prices – Lower transaction costs – Anybody can use it, unlike credit cards, and does not require special authorization • Disadvantages – Tax trail non-existent, like regular cash – Money laundering – Susceptible to forgery 9
Characteristics of payment system
SECURE ELECTRONIC TRANSACTION (SET)
Requirements That SET Must Accomplish • Provide confidentiality of ordering and payment information. • Ensure the integrity of all transmitted data • Provide authentication that a cardholder is a legitimate user of a credit card account. • Provide authentication that a merchant can accept credit card transactions through its relationship with a financial institution.
Key Features of SET • Confidentiality of information. • Integrity of Data. • Cardholder account authentication. • Merchant authentication.
Confidentiality of Information A credit card holder’s personal and payment information is secured as it travels across the network. An interesting feature of SET is that the merchant /seller never sees the credit card number; this is only provided to the issuing bank. Conventional encryption using DES is used to provide confidentiality.
Integrity of Data Payment information sent from cardholders to merchants include order information, personal information and payment instructions. SET guarantees that these message contents are not altered in transit. RSA digital signatures, using SHA-1 hash codecs, provide message integrity.
Cardholder Account Authentication SET enables merchants to verify that a cardholder is legitimate user of a valid card account number. SET uses X. 509 v 3 digital certificates with RSA signatures for this purpose.
Merchant Authentication SET enables cardholders to verify that a merchant has a relationship with a financial institution allowing it to accept payment cards. SET uses X. 509 v 3 digital certificates with RSA signatures for this purpose.
Typical SET Purchase Trans. Card. Holder Merchant Payment Gateway PInit. Req PInit. Res PReq Auth. Res PRes Cap. Req Cap. Res
How SET Transactions Work Figure 6. 5, Page 320
An important innovation introduced in SET is the dual signature. The purpose of the dual signature is the same as the standard electronic signature: to guarantee the authentication and integrity of data. It links two messages that are intended for two different recipients. In this case, the customer wants to send the order information (OI) to the merchant and the payment information (PI) to the bank. The merchant does not need to know the customer's credit card number, and the bank does not need to know the details of the customer's order. The link is needed so that the customer can prove that the payment is intended for this order. The message digest (MD) of the OI and the PI are independently calculated by the customer. The dual signature is the encrypted MD (with the customer's secret key) of the concatenated MD's of PI and OI. The dual signature is sent to both the merchant and the bank. The protocol arranges for the merchant to see the MD of the OI without seeing the PI itself, and the bank sees the MD of the PI but not the OI itself. The dual signature can be verified using the MD of the OI or PI. It doesn't require the OI or PI itself. Its MD does not reveal the content of the OI or PI, and thus privacy is preserved.
Dual Signature • customer creates dual messages – order information (OI) for merchant – payment information (PI) for bank • neither party needs details of other • but must know they are linked • use a dual signature for this – signed concatenated hashes of OI & PI DS = E(PRc , [ H(H(PI) || H(OI))]) 7 -21
SET Purchase Request • SET purchase request exchange consists of four messages Initiate Request - get certificates 2. Initiate Response - signed response 3. Purchase Request - of OI & PI 4. Purchase Response - ack order 1. 7 -22
Purchase Request – Customer 7 -23
Purchase Request – Merchant 1. verifies cardholder certificates using CA sigs 2. verifies dual signature using customer's public signature key to ensure order has not been tampered with in transit & that it was signed using cardholder's private signature key 3. processes order and forwards the payment information to the payment gateway for authorization (described later) 4. sends a purchase response to cardholder 7 -24
SET Purchase Request • SET purchase request exchange consists of four messages Initiate Request - get certificates 2. Initiate Response - signed response 3. Purchase Request - of OI & PI 4. Purchase Response - ack order 1. 7 -25
Purchase Request – Merchant 7 -26
Payment Authorization 1. Purchase-related information - PI+Dual Signature+OIMD+Digital Envelop 2. Authorization-related information - Authorization block (Transaction ID, PRm) - Digital Envelop, E(PUG(Ks)) 3. Certificates Cardholder’s CA, Merchant’s CA, and Merchant’s Key-Exchange CA 7 -27
Payment Gateway Authorization 1. verifies all certificates 2. decrypts digital envelope of authorization block to obtain symmetric key & then decrypts authorization block 3. verifies merchant's signature on authorization block 4. decrypts digital envelope of payment block to obtain symmetric key & then decrypts payment block 5. verifies dual signature on payment block 6. verifies that transaction ID received from merchant matches that in PI received (indirectly) from customer 7. requests & receives an authorization from issuer 8. sends authorization response back to merchant 7 -28
Payment Capture • merchant sends payment gateway a payment capture request • gateway checks request • then causes funds to be transferred to merchants account • notifies merchant using capture response 7 -29
EDI: Electronic Data Interchange • What is EDI? – Exchange of electronic data between companies using precisely defined transactions – Set of hardware, software, and standards that accommodate the EDI process 30
Electronic Data Interchange Figure 11. 2 Benefits of EDI 31
Electronic Data Interchange Figure 11. 3 Suppliers, manufacturers, and retailers cooperate 32 in some of the most successful applications of EDI.
Electronic Data Exchange • How does EDI work? (Figure 11. 4) – Supplier’s proposal sent electronically to purchasing organization. – Electronic contract approved over network. – Supplier manufactures and packages goods, attaching shipping data recorded on a bar code. – Quantities shipped and prices entered in system and flowed to invoicing program; invoices transmitted to 33 purchasing organization
Electronic Data Exchange – Manufacturer ships order. – Shipment notice EDI transaction sent (not shown) – Purchasing organization receives packages, scans bar code, and compares data to invoices actual items received. – Payment approval transferred electronically. – Bank transfers funds from purchaser to supplier’s account using electronic fund transfer (EFT). 34
Electronic Data Interchange Figure 11. 4 35
Electronic Data Interchange • EDI Standards – EDI requires companies to agree on standards • Compatible hardware and software • Agreed upon electronic format – Established EDI standards • Automotive Industry Action Group (AIAG) • X. 12 de facto umbrella standard in U. S. and Canada • EDI for Administration, Commerce, and Trade (EDIFACT) umbrella of standards in Europe 36
Electronic Data Interchange • How to Subscribe to EDI – Larger companies purchase hardware and software – Medium and small companies seek third -party service • Value-added networking (VAN) • Managed network services available for a fee 37
Electronic Data Interchange • EDI on the Web – Advantages of Web EDI • Lower cost • More familiar software • Worldwide connectivity – Disadvantages of Web EDI • Low speed • Poor security 38
Electronic Data Interchange • The Importance of EDI – Need for timely, reliable data exchange in response to rapidly changing markets – Emergence of standards and guidelines – Spread of information into many organizational units – Greater reliability of information technology – Globalization of organizations 39
What are Micropayments? n Very small payments made over the Web. n Transactions too small for credit cards. n Can be as little as a fraction of a cent. n Alternative to subscription and advertising. n Can go in either direction. 40
Cybercash Micropayments - by Ricardo Szmit 41
Digicash Micropayments - by Ricardo Szmit 42
Millicent Micropayments - by Ricardo Szmit 43
Strategies of Marketing
Web Marketing Strategies • Four Ps of marketing – Product • Physical item or service that company is selling – Price • Amount customer pays for product – Promotion • Any means of spreading the word about product – Place • Need to have products or services available in different locations 45
Product-Based Marketing Strategies • When creating a marketing strategy – Managers must consider both the nature of their products and the nature of their potential customers • Most office supply stores on the Web – Believe customers organize their needs into product categories 46
Customer-Based Marketing Strategies • Good first step in building a customer-based marketing strategy – Identify groups of customers who share common characteristics • Customer-based marketing approaches – More common on B 2 B sites than on B 2 C sites • B 2 B sellers – More aware of the need to customize product and service offerings to match their customers’ needs 47
Communicating with Different Market Segments • Identifying groups of potential customers – The first step in selling to those customers • Media selection – Can be critical for an online firm • Challenge for online businesses – Convince customers to trust them 48
Trust and Media Choice • The Web – An intermediate step between mass media and personal contact • Cost of mass media advertising – Can be spread over its audience • Companies can use the Web – To capture some of the benefits of personal contact, yet avoid some of the costs inherent in that approach 49
Trust in Three Information Dissemination Models 50
Market Segmentation • Targeting specific portions of the market with advertising messages • Segments – Usually defined in terms of demographic characteristics • Micromarketing – Targeting very small market segments 51
Market Segmentation (Continued) • Geographic segmentation – Creating different combinations of marketing efforts for each geographical group of customers • Demographic segmentation – Uses age, gender, family size, income, education, religion, or ethnicity to group customers 52
Market Segmentation (Continued) • Psychographic segmentation – Groups customers by variables such as social class, personality, or their approach to life 53
Television Advertising Messages Tailored to Program Audience 54
Behavior-Based Categories • Simplifiers – Users who like convenience • Surfers – Use the Web to find info and explore new ideas • Bargainers – In search of a good deal • Connectors – Use the Web to stay in touch with other people • Routiners – Return to the same sites over and over again 55
Site Sponsorships • Give advertisers a chance to promote products, services, or brands in a more subtle way • Helps build brand images and develop reputation rather than generate immediate sales 56
E-Mail Marketing • Sending one e-mail message to a customer – Can cost less than one cent if the company already has the customer’s e-mail address • Conversion rate – The percentage of recipients who respond to an ad or promotion • Opt-in e-mail – Practice of sending e-mail messages to people who request information on a particular topic 57
Technology-Enabled Customer Relationship Management • Clickstream – Information that a Web site can gather about its visitors • Technology-enabled relationship management – Firm obtains detailed information about a customer’s behavior, buying patterns, etc. and uses it to set prices and negotiate terms 58
Creating and Maintaining Brands on the Web • Key elements of a brand – Differentiation • Company must clearly distinguish its product from all others – Relevance • Degree to which product offers utility to a potential customer – Perceived value • Key element in creating a brand that has value 59
Elements of a Brand 60
Affiliate Marketing Strategies • Affiliate marketing – One firm’s Web site includes descriptions, reviews, ratings, or other information about a product that is linked to another firm’s site • Affiliate site – Obtains the benefit of the selling site’s brand in exchange for the referral • Cause marketing – Affiliate marketing program that benefits a charitable organization 61
Viral Marketing Strategies • Relies on existing customers – To tell other people about products or services they have enjoyed using 62
Search Engine Positioning and Domain Names • Search engine – Web site that helps people find things on the Web – Spider, crawler, or robot • Program that automatically searches the Web • Index or database – Storage element of a search engine • Search utility – Uses terms provided to find Web pages that match 63
Paid Search Engine Inclusion and Placement • Paid placement – Option of purchasing a top listing on results pages for a particular set of search terms – Rates vary • Search engine placement brokers – Companies that aggregate inclusion and placement rights on multiple search engines 64
Web Site Naming Issues • Domain names – Companies often buy more than one – Reason for additional domain names • To ensure that potential site visitors who misspell the URL will still be redirected to intended site • Example: Yahoo! owns the name Yahow. com 65