MIS 3090 IT for Financial Services Digital Cash September 4, 2015

2/18 Issues Involving Digital Cash  Secure e-transactions are vital to the success of electronic commerce  Electronic money is a store of monetary value, held in digital form, which is readily available for exchange in transactions  It is a new form of currency that acts as a generalized medium of exchange – Gold – paper notes – plastic – digital cash  It is an electronic replacement for physical cash (a file)  It is easily stored, transferred, and difficult to forge

September 4, /18  Stored electronically, used to make online electronic payments – Digital cash accounts are similar to traditional bank accounts – Digital cash used with other payment means (digital wallets) – Digital cash allows those with no credit cards to shop online – Merchants accepting digital-cash payments avoid credit-card transaction fees – Gift cash, often sold as points, can be redeemed at leading shopping sites… potentially a way to prevent kids from spending their allowances on things their parents would prefer they avoid (Rocketcash – bought by NetZero) Digital Currency

September 4, /18  Electronic cash is token money in the form of bits, except unlike token money it can be copied  Bank issues character strings containing: – denomination – serial number – bank ID + encryption of the above  First person to return string to bank gets the money E-Cash Specifics

September 4, /18 Withdrawal: Spending: Personal Transfer: ALICE BUYS DIGITAL COINS FROM A BANK ALICE SEND UNSIGNED BLINDED COINS TO THE BANK BANK SIGNS COINS, SENDS THEM BACK. ALICE UNBLINDS THEM ALICE PAYS BOB BOB VERIFIES COINS NOT SPENT ALICE TRANSFERS COINS TO CINDY CINDY VERIFIES COINS NOT SPENT BOB DEPOSITS CINDY GETS COINS BACK WALLET SOFTWARE E-Cash Overview

September 4, /18  Smart card processors hold more information than credit card magnetic strips – Store credit-card numbers, contact information, etc. – Contact smart cards  Placed in smart-card reader for information transfer – Contactless smart cards  Antenna enables information transfer, faster than contact cards – Disposable and re-loadable cards  Security – Password protection – Encryption Smart Cards

September 4, /18 Smart Cards in Practice

September 4, /18  Merchants pay fee for each credit-card transaction  Micropayments – Payments that generally do not exceed $1, allows companies offering nominally priced products to profit  To offer micropayments, some companies form strategic partnerships with utility companies – eCharge and Peppercoin enables companies to offer this option to customers  eCharge uses ANI (Automatic Number Identification) to verify the identity of the customer and the purchases they make Micropayments

September 4, /18 Takes the place of a credit card: eCharge Net, eCharge Phone Merchant examples: Classmates.com, HomeworkHelp.com, Jennifer Lover Hewitt fan club

September 4, /18 Market size: $2.8 B in online sub $5 transactions (2003) – growing to $6.7 B by 2009 At POS: in 2003, consumers spent $1.32 T in transactions of $5 or less Opportunities: iTunes, WSJ, cell phone games, ringtones, coffee & fastfood outlets Source: Focused primarily at merchants

September 4, /18  Outside US, many opt for prepaid cards instead of cash or credit cards – Wireless-payment cards enable transactions with POS devices – Convenience and grocery stores can add monetary value to some pre-paid accounts  Example: CashX ( (gone out of business) – AmeriNet ( allows checking account number as form of payment Alternative Payment Options

September 4, /18

September 4, /18

September 4, /18  SET is a standard that allows secure credit card transactions on the net  Jointly developed by Visa and Mastercard; supported by GTE, Microsoft, Netscape, Verisign, IBM…  Using digital signatures, SET enables merchants to verify that buyers are who they claim to be  It protects buyers by providing a mechanism for their credit card number to be transferred directly to the credit card issuer for verification  It allows billing without the merchant being able to see the number Secure Electronic Transactions

September 4, /18

September 4, /18

September 4, /18

September 4, /18 For Next Class…  Read – Read the Capital One case – Write out answers to case questions and be ready to discuss – Will start on Check 21 topic if there is time