Digital Payment systems

Summary

This lecture explores the critical aspects of digital payment systems in e-business. It explains the fundamentals of payment systems, covering the transfer of value between payers and beneficiaries. The lecture highlights different payment methods, including cash equivalents, electronic cheques, credit cards, and digital wallets, while discussing the security features such as authenticity, non-repudiation, integrity, and confidentiality. It also emphasizes the technological, economic, and social aspects of electronic transactions, including issues like anonymity, financial risks, and the regulatory framework governing e-payments. The session concludes with a detailed look at secure protocols and real-world examples.

Takeaways

• 💼 A payment system is a mechanism that enables the transfer of value between a payer and a beneficiary, facilitating the exchange of goods and services in the economy.
• 📜 The components of a payment system include payment instruments like cash, cheques, and electronic instruments, along with rules, regulations, procedures, and institutions that facilitate the payment mechanism.
• 🔐 For electronic payments, important criteria include technological aspects such as authenticity, non-repudiation, integrity, confidentiality, and economic factors like cost and value for mobility.
• 🏦 Banks and other financial institutions play a crucial role in facilitating payment mechanisms and are often backed by a legal system that establishes the transfer of funds among participants.
• 💳 Payment cards, including credit, debit, and charge cards, offer worldwide acceptance and built-in security mechanisms, but they also come with fees for merchants.
• 🛒 The payment card transaction process involves authentication, where the merchant checks the card's validity and available funds, followed by settlement, which may involve direct payment by the card issuer or through an intermediary.
• 🔗 TLS protocol is used to secure data transmission over the internet during card transactions, but it does not guarantee that the payment information will not be misused by the merchant server.
• 🛡️ Secure Electronic Transaction (SET) protocol was developed to provide a high level of security for electronic payments, but its complexity and cost led to it being rarely used in practice.
• 🤝 Trusted third-party services like payment gateways and peer-to-peer payment methods have become popular for settling online transactions, offering convenience and security.
• 💵 Digital cash, as a digital equivalent of physical cash, involves computer files containing random numbers digitally stamped by banks, ensuring authenticity and preventing double spending.
• 👛 Electronic wallets simplify the shopping process by storing credit card numbers, electronic cash, and owner identification, offering the choice between server-side or client-side storage.

Q & A

What is a payment system?

A payment system is a mechanism that facilitates the transfer of value between a payer and a beneficiary, allowing the payer to discharge their payment obligations to the beneficiary. It enables the two-way flow of payment in exchange for goods and services in the economy.

What are the key components of a payment system?

The key components of a payment system include the payment instrument (such as cash or electronic methods), rules and regulations, institutions (like banks), and a legal system to facilitate the transfer of funds among participants.

What are some technological aspects to consider in electronic payment systems?

In electronic payment systems, it is important to maintain security features such as authenticity, non-repudiation, integrity, and confidentiality. These aspects ensure that transactions are secure and accurate.

What is the importance of mobility in payment systems?

Mobility in payment systems means that once value is transferred, it should be usable by the recipient. For example, in a cash equivalent system, when money changes hands, the new owner should be able to spend it freely.

What are the advantages and disadvantages of using payment cards?

Advantages of payment cards include worldwide acceptance and built-in security mechanisms. Disadvantages include transaction fees charged by payment card service companies, which may be a concern for merchants.

How are payments processed when using payment cards?

When using payment cards, the merchant first authenticates the card, checks with the issuer to ensure sufficient funds, places a hold on the required amount, and then settles the transaction, which can be done through open-loop or closed-loop systems.

What are open-loop and closed-loop payment systems?

In closed-loop systems, the card issuer directly pays the merchant without using an intermediary (e.g., American Express). In open-loop systems, multiple parties are involved, including the card issuer, processing center, and banks (e.g., Visa, MasterCard).

What is the role of the TLS protocol in electronic transactions?

The TLS (Transport Layer Security) protocol supports mutual authentication between the client and server, ensuring data security over the internet during transactions. However, while it provides encryption, it doesn't guarantee that the payment information won't be misused by third-party intermediaries.

What is the secure electronic transaction (SET) protocol?

The SET protocol was developed by companies like Visa, MasterCard, and IBM to enhance security in electronic transactions. However, due to its high processing time and expense, it is no longer widely used in practice.

What are digital cash and electronic cheques?

Digital cash consists of computer files containing random numbers stamped by the bank and encrypted to ensure security. Electronic cheques are digital versions of paper cheques, allowing customers to make payments online, often using encryption to protect transaction information.

What are the different types of electronic wallets?

Electronic wallets store credit card information, digital cash, and user details. They can be server-side wallets (storing customer data on a merchant's server) or client-side wallets (storing data on the consumer's device). These wallets streamline the online payment process by storing information for repeated use.