Overview

Security, trust, and e-commerce

  • e-commerce (by definition) means transfer of value which can be
    • resources
    • information
    • payments
    • entertainment
  • all of these types of value are desirable and therefore subject to theft
  • perhaps, none more than payments (which drives commerce)
  • it is all about money

Payment system stakeholders' priorities

  • consumers
    • low-risk, low-cost, refutable, convenience, reliability
  • merchants
    • low-risk, low-cost, irrefutable, secure, reliable
  • financial intermediaries
    • secure, low-risk, maximizing profit
  • government regulators
    • security, trust, protecting participants and enforcing reporting

Types of payment system

  • cash
    • most common form of payment in terms of number of transactions (changing quickly)
    • instantly convertible into other forms of value without intermediation
  • cheque transfer
    • second most common payment form in the United States in terms of number of transactions; costly and slowly diminishing in most part of the world
  • credit card
    • credit card associations
    • issuing banks
    • processing centers
  • stored value
    • funds deposited into account, from which funds are paid out or withdrawn as needed, e.g., debit cards, gift certificates, Octopus
    • peer-to-peer payment systems (e.g. payme.com)
  • accumulating balance
    • accounts that accumulate expenditures and to which consumers make periodic payments
    • e.g., utility, phone, standing accounts of trusted businesses
    • often either with a large deposit, or prepaid

Payment Systems

B2C payment systems

  • credit cards
  • financial cybermediaries
    • on internet-based company that makes it easy for one person to pay another person or organization over the internet
    • e.g., Alipay, PayPal, WeChat Pay, Octopus, Obopay
  • electronic checks
  • electronic bill presentment and payment
  • smart cards
  • mobile payment

E-commerce payment systems

  • credit cards
    • limitations of online credit card payment
      • security, merchant risk
      • cost
      • social equity
  • debit cards
  • digital wallets
    • emulates functionality of wallet by authenticating consumer, storing and transferring value, and securing payment process from consumer to merchant
    • early efforts to popularize failed
  • digital cash
    • value storage and exchange using tokens
    • most early examples have disappeared
    • protocols and practices too complex
  • digital checking
    • extends functionality of existing checking accounts for use online
  • online stored value systems
    • based on value stored in a consumer’s bank, checking, or credit card account
    • PayPal, Alipay, WeChat Pay
    • smart cards
      • plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updated
        • debit cards are an implementation
      • contact -> use card reader
      • contactless
        • e.g., EZPass, Octopus card (Hong Kong)
        • Radio Frequency ID (RFID)
        • Near Field Communications (NFC)

B2B payment systems

  • for business customers
    • make large purchases
    • will not pay with credit card or financial cybermediary
    • use financial Electronic Data Interchange (EDI) (but on its way out)
    • pay for many purchases at once (perhaps the end of the month)
    • likely that cloud-based payment gateway (or other Internet-based technology) will eventually take over completely
    • Faster Payment System (FPS) (if local in Hong Kong)

The future

  • they are attempts to export existing payment systems that work in traditional commerce to e-commerce
  • sometimes problems with existing payment systems are magnified when moved to the online world (e.g. credit card theft)
  • what is needed is a payment/financial system designed for the online world
  • these are defined as cybercurrencies or digital currency

Additional Reading