1. E-PAYMENT METHODS 1

2. FACT OR FICTION ??? VISA processed 15,200 credit card transactions per minute. The first ATM machine was developed in 1939?. Luther George Simjiian patented,a not so workable version of today’s ATM. 2

3. FACT OR FICTION ??? The first Universal Credit Card for use in restaurants was issued in 1930? In 1950, Frank McNamara, the founder of Diners’ Club, is credited with having invented the first universal credit card for use in restaurants in 1950. 3

4. Credit Card Payment Processing Concepts, Fee’s and Security 4

5. © ALM AYMIS UNIT, SEUSL5 Most popular payment method & Especially for B2C e- commerce 1st generation: No protection, only provide credit card number for processing 2nd generation: SSL for protecting the transfer of credit card information 3rd generation: SET for secure credit card authorization 4th generation: Portable smart cards?: A smart card, chip card, or integrated circuit card (ICC) is any pocket-sized card with embedded integrated circuits. Smart cards can provide identification, authentication, data storage and application processing. Smart cards may provide strong security authentication for single sign-on (SSO) within large organizations. ELECTRONIC CREDIT CARDS

6. © ALM AYMIS UNIT, SEUSL6 Credit Card Payment Processing Concepts, Fee’s and Security

7. © ALM AYMIS UNIT, SEUSL7 What Credit Card Numbers Mean

8. © ALM AYMIS UNIT, SEUSL8 Here are what some of the numbers stand for: The first digit in your credit-card number signifies the system : ◦3 - travel/entertainment cards (such as American Express and Diners Club) ◦4 - Visa ◦5 - MasterCard ◦6 - Discover Card

9. © ALM AYMIS UNIT, SEUSL9 The structure of the card number varies by system. For example, American Express card numbers start with 37; Carte Blanche and Diners Club with 38. ◦American Express - Digits three and four are type and currency, digits five through 11 are the account number, digits 12 through 14 are the card number within the account and digit 15 is a check digit. ◦Visa - Digits two through six are the bank number, digits seven through 12 or seven through 15 are the account number and digit 13 or 16 is a check digit. ◦MasterCard - Digits two and three, two through four, two through five or two through six are the bank number (depending on whether digit two is a 1, 2, 3 or other). The digits after the bank number up through digit 15 are the account number, and digit 16 is a check digit.

10. © ALM AYMIS UNIT, SEUSL10 Smart Cards The "smart" credit card is an innovative application that involves all aspects of cryptography (secret codes), not just the authentication. A smart card has a microprocessor built into the card itself. Cryptography is essential to the functioning of these cards in several ways: The user must corroborate his identity to the card each time a transaction is made, in much the same way that a PIN is used with an ATM. The card and the card reader execute a sequence of encrypted sign/countersign-like exchanges to verify that each is dealing with a legitimate counterpart. Once this has been established, the transaction itself is carried out in encrypted form to prevent anyone, including the cardholder or the merchant whose card reader is involved, from "eavesdropping" on the exchange and later impersonating either party to defraud the system.

11. Payment Processing: Defined On-Line Payment Processing: Coordinating the flow of secured transactions among a complex network of processors and financial institutions 11

12. Payment Processing: Components 12 Cardholder Issuing Bank Cardholder / Customer Processor Credit Card Associations Settlement Acquiring Bank Payment Gateway Merchant Bank Merchant

13. Payment Processing: Phases 13 AUTHORIZATIONandSETTLEMENT

14. Payment Processing: Phases 14  Verifies that the card is active AUTHORIZATION AUTHORIZATION  Verifies Cardholder has credit  Cardholder’s Open-To-Buy is reduced  Collect Cardholder name – record keeping

15. Payment Processing: Phases SETTLEMENT (Batch Deposit) SETTLEMENT (Batch Deposit) 15  Capture authorizations in batch  Cardholder account is charged  $$ deposited to Merchant Bank Acct

16. Putting it all together: Authorization 16 Cardholder / Customer Payment Gateway Processor Cardholder Issuing Bank Processor Payment Gateway Merchant

17. Putting it all together: Settlement October, 2004e-Commerce 10117 Cardholder / Customer Payment Gateway Cardholder Issuing Bank Processor Acquiring Bank Merchant Bank Merchant

18. Transaction Processing: Design Considerations October, 2004e-Commerce 10118 BankProcessor Payment Gateway (Verisign) 2 <Authorize> 2 Card Issuing Bank 2 333 “Checkout” Shopper Shopper Shopper1 Financial System Merchant Bank (Deposit) 6 6 5 5 5 5 4 44 “Process Order”

19. Payment Processing: Fee October, 2004e-Commerce 10119 Bank Processing Fee Structure

20. Payment Processing: Fees Application Fee Application Fee October, 2004e-Commerce 10120 Discount Rate Discount Rate Transaction Fees Transaction Fees Monthly Fees Monthly Fees Credit Card Associations Acquiring Bank

21. Payment Processing: Security 21 Fraud and Security

22. Payment Processing : Security Visa CISP ◦Cardholder Information Security Program  http://usa.visa.com (Search: CISP) http://usa.visa.com 22  Verified by Visa Program MasterCard Site Data Protection Service

23. Payment Processing: Fraud Card Present vs. Card Not Present Card Present vs. Card Not Present 23 Authorization vs. Address Verification (AVS) Authorization vs. Address Verification (AVS) Card Verification Value (CVV) Card Verification Value (CVV) Fraud Protection Programs Fraud Protection Programs

24. Payment Processing: Summary 24 Coordinating the flow of secured transactions among a complex network of processors and financial institutions