Unit 4

SSL (Secure Socket Layer)

• TCP: provides a reliable end-to-end service.

• TCP & SSL: provides a reliable & secure end-to-end service.
• HTTPS: HTTP over SSL (or TLS)
–Typically on port 443 (regular http on port 80)
• SSL originally developed by Netscape
• subsequently became Internet standard known as TLS (Transport Layer
Security)
• SSL has two layers of protocols

How SSL Works:

• Step 1: your browser introduces itself to the secure server
• Step 2: the server responds by sending back a message with the
certificate included
• Step 3: Your browser tells the secure site to prove its identity, that it really
is who it says it is.
• Step 4: The secure server proves who it is by creating a message for the
browser, generating a “fingerprint” of that message, and encrypting the
“fingerprint” with the private key.
• At this point the browser is sure that the server is how it says it is. It can
send it secret messages encrypted with the public key provided in the
 certificate. The server (and only the server) can decrypt these messages,
because only it has the private key.
• You’ll use a completely different key for encrypting traffic to the web site
every time you connect. This makes cracking communication more
difficult.

Types of Electronic payment systems

E-Commerce or Electronics Commerce sites use electronic payment where

electronic payment refers to paperless monetary transactions. Electronic
payment has revolutionized the business processing by reducing paper work,
transaction costs, labour cost. Being user friendly and less time consuming than
manual processing, helps business organization to expand its market reach /
expansion.

An electronic payment system needs to be

• Widely recognized and accepted
• Hard to fake
• Hold its value
• Convenient to use

Some of the modes of electronic payments are following.

 Credit Card
 Debit Card
 Smart Card
 E-Money
 E-cash
 E-check
 E-wallet
  Electronic Fund Transfer (EFT)

Credit Card
Payment using credit card is one of most common mode of electronic payment.
Credit card is small plastic card with a unique number attached with an account.
It has also a magnetic strip embedded in it which is used to read credit card via
card readers. When a customer purchases a product via credit card, credit card
issuer bank pays on behalf of the customer and customer has a certain time
period after which he/she can pay the credit card bill. It is usually credit card
monthly payment cycle. Following are the actors in the credit card system.
 The card holder - Customer
 The merchant - seller of product who can accept credit card payments.
 The card issuer bank - card holder's bank
 The acquirer bank - the merchant's bank
 The card brand - for example , visa or mastercard.

Credit card payment process

Step Description
Bank issues and activates a credit card to customer on his/her
Step 1
request.
Customer presents credit card information to merchant site or to
Step 2
merchant from whom he/she want to purchase a product/service.
Merchant validates customer's identity by asking for approval from
Step 3
card brand company.
Card brand company authenticates the credit card and paid the
Step 4
transaction by credit. Merchant keeps the sales slip.
Merchant submits the sales slip to acquirer banks and gets the
Step 5
service charges paid to him/her.
Acquirer bank requests the card brand company to clear the credit
Step 6
amount and gets the payment.
Now card brand company asks to clear amount from the issuer
Step 6
bank and amount gets transferred to card brand company.

 Consumer can’t detect fraud until the statement arrives

o Internet access has reduced the window somewhat
 Merchant carries the risk of fraud in card not present transactions
  Consumer liability is limited
 Originally far more merchant fraud than consumer fraud
 Credit card companies assume liability for their merchants; banks with
cheques don’t.

Debit Card
Debit card, like credit card is a small plastic card with a unique number mapped
with the bank account number. It is required to have a bank account before
getting a debit card from the bank. The major difference between debit card and
credit card is that in case of payment through debit card, amount gets deducted
from card's bank account immediately and there should be sufficient balance in
bank account for the transaction to get completed. Whereas in case of credit
card there is no such compulsion.
Debit cards free customer to carry cash, cheques and even merchants accepts
debit card more readily. Having restriction on amount being in bank account
also helps customer to keep a check on his/her spending.

Smart Card
Smart card is again similar to credit card and debit card in appearance but it has a
small microprocessor chip embedded in it. It has the capacity to store customer
work related/personal information. Smart card is also used to store money which is
reduced as per usage. The microprocessor chip is loaded with the relevant
information and periodically recharged. In addition to these pieces of information,
systems have been developed to store cash onto the chip. The money on the card
is saved in an encrypted form and is protected by a password to ensure the security
of the smart card solution. In order to pay via smart card it is necessary to introduce
the card into a hardware terminal. The device requires a special key from the
issuing bank to start a money transfer in either direction.

Smart cards are broadly classified into two groups:

Contact: This type of smart card must be inserted into a special card reader to
be read and updated. A contact smart card contains a microprocessor chip that
makes contact with electrical connectors to transfer the data.
Contact-less: This type of smart card can be read from a short distance using
radio frequency. A contact-less smart card also contains a microprocessor chip
and an antenna that allows data to be transmitted to a special card reader
without any physical contact. This type of smart card is useful for people who
are moving in vehicles or on foot. They are used extensively in European
countries for collecting payment for highway tolls, train fares, parking, bus fares,
and admission fees to movies, theaters, plays, and so forth. Mondex and Visa
Cash cards are examples of smart cards.

E-Money
E-Money transactions refers to situation where payment is done over the
network and amount gets transferred from one financial body to another
financial body without any involvement of a middleman. E-money transactions
are faster, convenient and saves a lot of time.
Online payments done via credit card, debit card or smart card are examples of
e-money transactions. Another popular example is e-cash. In case of e-cash,
both customer and merchant both have to sign up with the bank or company
issuing e-cash.
 E-cash
Similar to regular cash, e-cash enables transactions between customers without the
need for banks or other third parties. When used, e-cash is transferred directly and
immediately to the participating merchants and vending machines. Electronic cash
is a secure and convenient alternative to bills and coins. This payment system
complements credit, debit, and charge cards and adds additional convenience and
control to everyday customer cash transactions. E-cash usually operates on a
smart card, which includes an embedded microprocessor chip. The microprocessor
chip stores cash value and the security features that make electronic transactions
secure. Mondex, a subsidiary of MasterCard (Mondex Canada Association) is a
good example of e-cash.
E-cash is transferred directly from the customer's desktop to the merchant's
site. Therefore, e-cash transactions usually require no remote authorization or
personal identification number (PIN) codes at the point of sale.

How a typical e-cash system works: A customer or merchant signs up with one of
the participating banks or financial institutions. The customer receives specific
software to install on his or her computer. The software allows the customer to
download “electronic coins” to his or her desktop. The software manages the
electronic coins. The initial purchase of coins is charged against the customer's
bank account or against a credit card. When buying goods or services from a web
site that accepts e-cash, the customer simply clicks the “Pay with e-cash” button.
The merchant's software generates a payment request, describing the item(s)
purchased, price, and the time and date. The customer can then accept or reject
this request. When the customer accepts the payment request, the software
residing on the customer's desktop subtracts the payment amount from the balance
and creates a payment that is sent to the bank or the financial institution of the
merchant, and then is deposited to the merchant's account. The attractive feature of
the entire process is its turnaround time which is a few seconds. The merchant is
notified and in turn ships the goods.

E-checks (E-Cheques or Electronic cheques)

An e-check is an electronic version of a paper check. E-check is the result of
cooperation among several banks, government entities, technology companies,
and e-commerce organizations. An e-check uses the same legal and business
protocols associated with traditional paper checks. It is a new payment
instrument that combines high-security, speed, convenience, and processing
efficiencies for online transactions. It shares the speed and processing
efficiencies of all-electronic payments. An e-check can be used by large and
small organizations, even where other electronic payment solutions are too risky
or not appropriate. The key advantages of e-checks are as follows:
 Secure and quick settlement of financial obligations
 Fast check processing
 Very low transaction cost

E-Wallets or E-purse (Electronic wallets)

E-wallets allow higher speed and efficiency for online shoppers. Electronic wallets
being very useful for frequent online shoppers are commercially available for
pocket, palm-sized, handheld, and desktop PCs. They offer a secure, convenient,
and portable tool for online shopping. They store personal and financial information
such as credit cards, passwords, PINs, and much more.
To facilitate the credit-card order process, many companies are
introducing
electronic wallet services. E-wallets allow you to keep track of your billing and
shipping information so that it can be entered with one click at participating
merchants' sites. E-wallets can also store e-checks, e-cash and your credit-card
information for multiple cards.
A popular example of an e-wallet on the market is Microsoft Wallet . To obtain
Microsoft Wallet, one needs to set up a Microsoft Passport. After establishing a
Passport, a Microsoft e-wallet can be established. Then, e-wallets can be used
for micro-payments. They also eliminate reentering personal information on the
forms, resulting in higher speed and efficiency for online shoppers. Microsoft
Passport consists of several services including the following: A single sign-in,
wallet and kids passport services. A single sign-in service allows the customer
to use a single name and password at a growing number of participating e-
commerce sites. The shopper can use to make fast online purchases with a
wallet service. Kids' passport service helps to protect and control children's
online privacy.

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank
account to another bank account. Accounts can be in same bank or different
bank. Fund transfer can be done using ATM (Automated Teller Machine) or
using computer.
Now a day, internet based EFT is getting popularity. In this case, customer uses
website provided by the bank. Customer logins to the bank's website and
registers another bank account. He/she then places a request to transfer certain
amount to that account. Customer's bank transfers amount to other account if it
is in same bank. Otherwise transfer request is forwarded to ACH (Automated
Clearing House) to transfer amount to other account and amount is deducted
from customer's account. Once amount is transferred to other account,
customer is notified of the fund transfer by the bank.