2. 1 E-commerce Systems Electronic Payment Systems

3. 2 E-payment systems To transfer money over the Internet Methods of traditional payment –Check, credit card, or cash Methods of electronic payment –Electronic cash, software wallets, smart cards, and credit/debit cards –Scrip is digital cash minted by third-party organizations

4. 3 Requirements for e-payments Atomicity –Money is not lost or created during a transfer Good atomicity –Money and good are exchanged atomically Non-repudiation –No party can deny its role in the transaction –Digital signatures

5. 2/16/004 Desirable Properties of Digital Money Universally accepted Transferable electronically Divisible Non-forgeable, non-stealable Private (no one except parties know the amount) Anonymous (no one can identify the payer) Work off-line (no on-line verification needed) No known system satisfies all.

6. 5 Types of E-payments E-cash Credit card

7. 6 Electronic Cash Primary advantage is with purchase of items less than $10 –Credit card transaction fees make small purchases unprofitable –Micropayments oPayments for items costing less than $1

8. 7 E-cash Concept Merchant Consumer Bank 1 2 3 4 5 1. Consumer buys e-cash from Bank 2. Bank sends e-cash bits to consumer (after charging that amount plus fee) 3. Consumer sends e-cash to merchant 4. Merchant checks with Bank that e-cash is valid (check for forgery or fraud) 5. Bank verifies that e-cash is valid 6. Parties complete transaction: e.g., merchant present e-cash to issuing back for deposit once goods or services are delivered

9. 8 Electronic Cash Issues E-cash must allow spending only once Must be anonymous, just like regular currency –Safeguards must be in place to prevent counterfeiting –Must be independent and freely transferable regardless of nationality or storage mechanism Divisibility and Convenience Complex transaction (checking with Bank) –Atomicity problem

10. 9 Advantages and Disadvantages of Electronic Cash Advantages –More efficient, eventually meaning lower prices –Lower transaction costs –Anybody can use it, unlike credit cards, and does not require special authorization Disadvantages –Tax trail non-existent, like regular cash –Money laundering –Susceptible to forgery

11. Characteristics of payment system

12. SECURE ELECTRONIC TRANSACTION (SET)

13. Requirements That SET Must Accomplish Provide confidentiality of ordering and payment information. Ensure the integrity of all transmitted data Provide authentication that a cardholder is a legitimate user of a credit card account. Provide authentication that a merchant can accept credit card transactions through its relationship with a financial institution.

14. Key Features of SET Confidentiality of information. Integrity of Data. Cardholder account authentication. Merchant authentication.

15. Confidentiality of Information A credit card holder’s personal and payment information is secured as it travels across the network. An interesting feature of SET is that the merchant /seller never sees the credit card number; this is only provided to the issuing bank. Conventional encryption using DES is used to provide confidentiality.

16. Integrity of Data Payment information sent from cardholders to merchants include order information, personal information and payment instructions. SET guarantees that these message contents are not altered in transit. RSA digital signatures, using SHA-1 hash codecs, provide message integrity.

17. Cardholder Account Authentication SET enables merchants to verify that a cardholder is legitimate user of a valid card account number. SET uses X.509v3 digital certificates with RSA signatures for this purpose.

18. Merchant Authentication SET enables cardholders to verify that a merchant has a relationship with a financial institution allowing it to accept payment cards. SET uses X.509v3 digital certificates with RSA signatures for this purpose.

19. Typical SET Purchase Trans. Payment GatewayMerchantCardHolder PInitReq PInitRes PReq PRes AuthReq AuthRes CapReq CapRes

20. How SET Transactions Work Figure 6.5, Page 320

21. An important innovation introduced in SET is the dual signature. The purpose of the dual signature is the same as the standard electronic signature: to guarantee the authentication and integrity of data. It links two messages that are intended for two different recipients. In this case, the customer wants to send the order information (OI) to the merchant and the payment information (PI) to the bank. The merchant does not need to know the customer's credit card number, and the bank does not need to know the details of the customer's order. The link is needed so that the customer can prove that the payment is intended for this order. The message digest (MD) of the OI and the PI are independently calculated by the customer. The dual signature is the encrypted MD (with the customer's secret key) of the concatenated MD's of PI and OI. The dual signature is sent to both the merchant and the bank. The protocol arranges for the merchant to see the MD of the OI without seeing the PI itself, and the bank sees the MD of the PI but not the OI itself. The dual signature can be verified using the MD of the OI or PI. It doesn't require the OI or PI itself. Its MD does not reveal the content of the OI or PI, and thus privacy is preserved.

22. 7-21 Dual Signature customer creates dual messages – order information (OI) for merchant – payment information (PI) for bank neither party needs details of other but must know they are linked use a dual signature for this – signed concatenated hashes of OI & PI DS = E(PR c, [ H(H(PI) || H(OI))])

23. 7-22 SET Purchase Request SET purchase request exchange consists of four messages 1. Initiate Request - get certificates 2. Initiate Response - signed response 3. Purchase Request - of OI & PI 4. Purchase Response - ack order

24. 7-23 Purchase Request – Customer

25. 7-24 Purchase Request – Merchant 1.verifies cardholder certificates using CA sigs 2.verifies dual signature using customer's public signature key to ensure order has not been tampered with in transit & that it was signed using cardholder's private signature key 3.processes order and forwards the payment information to the payment gateway for authorization (described later) 4.sends a purchase response to cardholder

26. 7-25 SET Purchase Request SET purchase request exchange consists of four messages 1. Initiate Request - get certificates 2. Initiate Response - signed response 3. Purchase Request - of OI & PI 4. Purchase Response - ack order

27. 7-26 Purchase Request – Merchant

28. 7-27 Payment Authorization 1. Purchase-related information - PI + Dual Signature + OIMD + Digital Envelop 2. Authorization-related information - Authorization block (Transaction ID, PR m ) - Digital Envelop, E(PU G (Ks)) 3. Certificates Cardholder ’ s CA, Merchant ’ s CA, and Merchant ’ s Key-Exchange CA

29. 7-28 Payment Gateway Authorization 1.verifies all certificates 2.decrypts digital envelope of authorization block to obtain symmetric key & then decrypts authorization block 3.verifies merchant's signature on authorization block 4.decrypts digital envelope of payment block to obtain symmetric key & then decrypts payment block 5.verifies dual signature on payment block 6.verifies that transaction ID received from merchant matches that in PI received (indirectly) from customer 7.requests & receives an authorization from issuer 8.sends authorization response back to merchant

30. 7-29 Payment Capture merchant sends payment gateway a payment capture request gateway checks request then causes funds to be transferred to merchants account notifies merchant using capture response

31. 30 EDI: Electronic Data Interchange What is EDI? –Exchange of electronic data between companies using precisely defined transactions –Set of hardware, software, and standards that accommodate the EDI process

32. 31 Figure 11.2 Benefits of EDI Electronic Data Interchange

33. 32 Electronic Data Interchange Figure 11.3 Suppliers, manufacturers, and retailers cooperate in some of the most successful applications of EDI.

34. 33 Electronic Data Exchange How does EDI work? (Figure 11.4) –Supplier’s proposal sent electronically to purchasing organization. –Electronic contract approved over network. –Supplier manufactures and packages goods, attaching shipping data recorded on a bar code. –Quantities shipped and prices entered in system and flowed to invoicing program; invoices transmitted to purchasing organization

35. 34 Electronic Data Exchange –Manufacturer ships order. –Shipment notice EDI transaction sent (not shown) –Purchasing organization receives packages, scans bar code, and compares data to invoices actual items received. –Payment approval transferred electronically. –Bank transfers funds from purchaser to supplier’s account using electronic fund transfer (EFT).

36. 35 Electronic Data Interchange Figure 11.4

37. 36 Electronic Data Interchange EDI Standards –EDI requires companies to agree on standards Compatible hardware and software Agreed upon electronic form format –Established EDI standards Automotive Industry Action Group (AIAG) X.12 de facto umbrella standard in U.S. and Canada EDI for Administration, Commerce, and Trade (EDIFACT) umbrella of standards in Europe

38. 37 Electronic Data Interchange How to Subscribe to EDI –Larger companies purchase hardware and software –Medium and small companies seek third-party service Value-added networking (VAN) Managed network services available for a fee

39. 38 Electronic Data Interchange EDI on the Web –Advantages of Web EDI Lower cost More familiar software Worldwide connectivity –Disadvantages of Web EDI Low speed Poor security

40. 39 Electronic Data Interchange The Importance of EDI –Need for timely, reliable data exchange in response to rapidly changing markets –Emergence of standards and guidelines –Spread of information into many organizational units –Greater reliability of information technology –Globalization of organizations

41. 40 What are Micropayments? Very small payments made over the Web. Transactions too small for credit cards. Can be as little as a fraction of a cent. Alternative to subscription and advertising. Can go in either direction.

42. Micropayments - by Ricardo Szmit41 Cybercash

43. Micropayments - by Ricardo Szmit42 Digicash

44. Micropayments - by Ricardo Szmit43 Millicent

45. Strategies of Marketing

46. 45 Web Marketing Strategies Four Ps of marketing –Product Physical item or service that company is selling –Price Amount customer pays for product –Promotion Any means of spreading the word about product –Place Need to have products or services available in different locations

47. 46 Product-Based Marketing Strategies When creating a marketing strategy –Managers must consider both the nature of their products and the nature of their potential customers Most office supply stores on the Web –Believe customers organize their needs into product categories

48. 47 Customer-Based Marketing Strategies Good first step in building a customer-based marketing strategy –Identify groups of customers who share common characteristics Customer-based marketing approaches –More common on B2B sites than on B2C sites B2B sellers –More aware of the need to customize product and service offerings to match their customers’ needs

49. 48 Communicating with Different Market Segments Identifying groups of potential customers –The first step in selling to those customers Media selection –Can be critical for an online firm Challenge for online businesses –Convince customers to trust them

50. 49 Trust and Media Choice The Web –An intermediate step between mass media and personal contact Cost of mass media advertising –Can be spread over its audience Companies can use the Web –To capture some of the benefits of personal contact, yet avoid some of the costs inherent in that approach

51. 50 Trust in Three Information Dissemination Models

52. 51 Market Segmentation Targeting specific portions of the market with advertising messages Segments –Usually defined in terms of demographic characteristics Micromarketing –Targeting very small market segments

53. 52 Market Segmentation (Continued) Geographic segmentation –Creating different combinations of marketing efforts for each geographical group of customers Demographic segmentation –Uses age, gender, family size, income, education, religion, or ethnicity to group customers

54. 53 Market Segmentation (Continued) Psychographic segmentation –Groups customers by variables such as social class, personality, or their approach to life

55. 54 Television Advertising Messages Tailored to Program Audience

56. 55 Behavior-Based Categories Simplifiers –Users who like convenience Surfers –Use the Web to find info and explore new ideas Bargainers –In search of a good deal Connectors –Use the Web to stay in touch with other people Routiners –Return to the same sites over and over again

57. 56 Site Sponsorships Give advertisers a chance to promote products, services, or brands in a more subtle way Helps build brand images and develop reputation rather than generate immediate sales

58. 57 E-Mail Marketing Sending one e-mail message to a customer –Can cost less than one cent if the company already has the customer’s e-mail address Conversion rate –The percentage of recipients who respond to an ad or promotion Opt-in e-mail –Practice of sending e-mail messages to people who request information on a particular topic

59. 58 Technology-Enabled Customer Relationship Management Clickstream –Information that a Web site can gather about its visitors Technology-enabled relationship management –Firm obtains detailed information about a customer’s behavior, buying patterns, etc. and uses it to set prices and negotiate terms

60. 59 Creating and Maintaining Brands on the Web Key elements of a brand –Differentiation Company must clearly distinguish its product from all others –Relevance Degree to which product offers utility to a potential customer –Perceived value Key element in creating a brand that has value

61. 60 Elements of a Brand

62. 61 Affiliate Marketing Strategies Affiliate marketing –One firm’s Web site includes descriptions, reviews, ratings, or other information about a product that is linked to another firm’s site Affiliate site –Obtains the benefit of the selling site’s brand in exchange for the referral Cause marketing –Affiliate marketing program that benefits a charitable organization

63. 62 Viral Marketing Strategies Relies on existing customers –To tell other people about products or services they have enjoyed using

64. 63 Search Engine Positioning and Domain Names Search engine –Web site that helps people find things on the Web –Spider, crawler, or robot Program that automatically searches the Web Index or database –Storage element of a search engine Search utility –Uses terms provided to find Web pages that match

65. 64 Paid Search Engine Inclusion and Placement Paid placement –Option of purchasing a top listing on results pages for a particular set of search terms –Rates vary Search engine placement brokers –Companies that aggregate inclusion and placement rights on multiple search engines

66. 65 Web Site Naming Issues Domain names –Companies often buy more than one –Reason for additional domain names To ensure that potential site visitors who misspell the URL will still be redirected to intended site Example: Yahoo! owns the name Yahow.com