1. Electronic Commerce Eighth Edition Chapter 11 Payment Systems For Electronic Commerce

2. Electronic Commerce, Eighth Edition2 2 Learning Objectives In this chapter, you will learn about: The basic functions of online payment systems The use of payment cards in electronic commerce The history and future of electronic cash How electronic wallets work The use of stored-value cards in electronic commerce Internet technologies and the banking industry

3. Electronic Commerce, Eighth Edition3 Online Payment Basics E-commerce –Exchange money for goods or services –Important function: handling Internet payments –B2B payment transactions Electronic funds transfers (EFTs) B2C payment transactions –Evolving and competing for dominance –Customer convenience, saves companies money Bill mailed by mail costs $1.00 to $1.50 Internet billing cost: 50 cents

4. Electronic Commerce, Eighth Edition4 Online Payment Basics (cont’d.) Four basic means to purchase items in B2C (traditional and electronic) –Cash, checks, credit cards, debit cards 90% of all United States consumer payments Electronic transfer: small but growing Most popular: automated payments Credit cards –Worldwide: 90% of online payments –United States: 97% of online payments

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6. 6 Online Payment Basics (cont’d.) Scrip –Digital cash minted by a company Cannot be exchanged for cash Exchanged for goods or services by company issuing scrip –Like a gift certificate: good at more than one store –Current scrip offerings (eScrip) Focus: not-for-profit fundraising market Merchant should offer customers payment options –Safe, convenient, widely accepted –Companies sell payment processing package service

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8. 8 Payment Cards General term describing all types of plastic cards consumers (businesses) use to make purchases –Categories: credit cards, debit cards, charge cards Credit card (Visa, MasterCard) –Spending limit based on user’s credit history Charge purchases against credit line –Options for user billing cycle payments Pay off entire credit card balance; pay minimum amount Card issuers charge unpaid balance interest –Accepted worldwide, 30-day dispute period

9. Electronic Commerce, Eighth Edition9 Payment Cards (cont’d.) Credit card (cont’d.) –Card not present transactions Cardholder not present during transaction Requires extra security Debit card –Removes sales amount from cardholder’s bank account –Transfers sales amount to seller’s bank account –Issued by cardholder’s bank Carries major credit card issuer name

10. Electronic Commerce, Eighth Edition10 Payment Cards (cont’d.) Charge card (American Express) –No spending limit –Entire balance due at end of billing period –No line of credit or interest charges –Examples: department store, oil company cards “Payment card” –Refers to credit cards, debit cards, and charge cards

11. Electronic Commerce, Eighth Edition11 Payment Cards (cont’d.) Single-use cards –Cards with disposable numbers Addresses concern of giving online vendors payment card numbers –Not used much anymore Problem: required consumers to behave differently

12. Electronic Commerce, Eighth Edition12 Advantages and Disadvantages of Payment Cards Advantage for merchants –Fraud protection (built-in security) Charge paid through issuer of payment card Advantage for U.S. consumers –Liability of fraudulent card use: $50 Card issuer frequently waives $50 charge if card stolen Good for merchants and consumers –Worldwide acceptance Currency conversion handled by card issuer

13. Electronic Commerce, Eighth Edition13 Advantages and Disadvantages of Payment Cards (cont’d.) Disadvantage for merchants –Per-transaction fees, monthly processing fees Cost of doing business –Goods and services prices are slightly higher As opposed to environment free of payments cards –For payment: Merchant must first set up merchant account Disadvantage for consumers –Annual fee

14. Payment Acceptance and Processing Internet payment card process easier than physical store process EMV standard –Single standard handling payment card transactions –Visa, MasterCard, MasterCard International United States online stores, mail order stores –Must ship merchandise within 30 days of charging payment Violation penalties are significant Most do not charge payment card accounts until merchandise shipped Electronic Commerce, Eighth Edition14

15. Payment Acceptance and Processing (cont’d.) General steps in payment card transactions –Merchant receives payment card information –Merchant authenticates payment –Merchant ensures funds are available and puts hold on credit line or funds to cover charge –Settlement occurs (few days after purchase); funds travel between banks and are placed into merchant’s account Electronic Commerce, Eighth Edition15

16. Electronic Commerce, Eighth Edition16 Payment Acceptance and Processing (cont’d.) Open and closed loop systems –Closed loop systems Card issuer pays merchant directly Does not use intermediary American Express, Discover Card –Open loop systems (three or more parties) Third party (intermediary bank) processes transaction Visa, MasterCard: not issued directly to consumers Credit card associations: operated by association member banks Customer issuing banks: member banks

17. Electronic Commerce, Eighth Edition17 Payment Acceptance and Processing (cont’d.) Merchant accounts (acquiring bank) –Bank doing business with sellers (Internet, non- Internet) wanting to accept payment cards –Merchant account Required for online merchant to process payment cards –Acceptance by bank of merchant account Merchant must provide business information Risk of business type assessed –Bank collects credit card receipts on merchant’s behalf Credits value in merchant’s account

18. Electronic Commerce, Eighth Edition18 Payment Acceptance and Processing (cont’d.) Merchant accounts (cont’d.) –Chargeback Cardholder successfully contests charge Merchant bank must retrieve money from merchant account Merchant may have to cover chargeback potential –Problem facing online businesses Level of online transaction fraud Fewer than 5 percent of credit card transactions completed online; accounts for 60 percent of total credit card dollar amount fraud

19. Electronic Commerce, Eighth Edition19 Payment Acceptance and Processing (cont’d.) Processing payment cards online –Payment processing service providers Companies offering payment card processing –Example: InternetSecure Supports Visa and MasterCard payments for Canadian and U.S. accounts Provides risk management and fraud detection Handles online merchants transactions Uses existing bank-approved payment card processing infrastructure, secure links, and firewalls

20. Payment Acceptance and Processing (cont’d.) Processing payment cards online (cont’d.) –First Data Provides merchant payment card processing services with ICVERIFY and WebAuthorize programs ICVERIFY: for small retailers using Microsoft Windows electronic cash registers, point-of-sale terminal systems WebAuthorize: for large enterprise-class merchant sites –ICVERIFY, WebAuthorize connect directly to: Network of banks: Automated Clearing House (ACH) Credit card authorization companies Connect to ACH through highly secure, private leased telephone lines Electronic Commerce, Eighth Edition20

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22. Electronic Commerce, Eighth Edition22 Payment Acceptance and Processing (cont’d.) Processing payment cards online (cont’d.) –Merchant Warehouse’s PayFlow Link system Online payment system developed by CyberCash Now operated by VeriSign –InfoSpace’s Authorize.Net Online, realtime payment card processing service Merchants link to system by inserting small HTML code block into transaction page Order encrypted, transferred to Authorize.Net server Server relays transaction to bank network Customers not aware of third-party supplier (usually)

23. Electronic Commerce, Eighth Edition23 Electronic Cash Electronic cash (e-cash, digital cash) –Describes any value storage and exchange system created by private (nongovernmental) entity Does not use paper documents or coins Can serve as substitute for government-issued physical currency Readily exchanged for physical cash on demand Problem –No standard among all electronic cash issuers –Not universally accepted

24. Electronic Commerce, Eighth Edition24 Electronic Cash (cont’d.) Small purchases not profitable for merchants –Bank fees greater than profits Factors in favor of electronic cash –Potentially significant market for electronic cash Market for Internet small purchases (below $10) –Most of world’s population does not have credit cards Electronic cash: solution to paying for online purchases Idea of electronic cash refuses to die –Despite failures

25. Electronic Commerce, Eighth Edition25 Micropayments and Small Payments Micropayments –Internet payments for items Costing few cents to a dollar Micropayments barriers –Not implemented very well on the Web yet –Human psychology People prefer to buy small value items in fixed price chunks Example: mobile phone has fixed monthly payment plans

26. Electronic Commerce, Eighth Edition26 Micropayments and Small Payments (cont’d.) Small payments –All payments of less than $10 Companies that have developed micropayment systems –Millicent, DigiCash, Yaga, BitPass All have failed –No company has gained broad acceptance of its system despite industry observers seeing such a need –No company devoted solely to offering micropayment services

27. Privacy and Security of Electronic Cash Electronic payment methods concerns –Privacy and security, independence, portability, convenience –Privacy and security: most important to consumers Transactions vulnerable Electronic currency: copied, reused, forged Unique security problems of electronic cash –Possible to spend only once Not counterfeit; used in two different transactions –Anonymous use Prevents sellers from collecting information Electronic Commerce, Eighth Edition27

28. Privacy and Security of Electronic Cash (cont’d.) Electronic cash companies –eCharge, InternetCash, Valista Advantages of electronic cash –Independent Unrelated to any network or storage device Ideally pass transparently across international borders; converted automatically to recipient country’s currency –Portable Freely transferable between any two parties Credit and debit cards: not portable or transferable Important characteristic of cash: convenience Electronic Commerce, Eighth Edition28

29. Electronic Commerce, Eighth Edition29 Holding Electronic Cash: Online and Offline Cash Online cash storage –Consumer has no personal possession of electronic cash Trusted third party (online bank) involved in all transfers, holds consumers’ cash accounts Online system payment –Merchants contact consumer’s bank Helps prevent fraud (confirm valid cash) Resembles process of checking with consumer’s bank to ensure valid credit card and matching name

30. Holding Electronic Cash: Online and Offline Cash (cont’d.) Offline cash storage –Virtual equivalent of money kept in wallet –Customer holds it No third party involved in transaction –Protection against fraud concern Hardware or software safeguards needed –Double-spending Spending electronic cash twice Too late to prevent fraudulent act by time same electronic currency clears bank for second time Prevent double-spending: use encryption techniques Electronic Commerce, Eighth Edition30

31. Electronic Commerce, Eighth Edition31 Advantages and Disadvantages of Electronic Cash Traditional brick-and-mortar billing methods –Costly Generate invoices, stuff envelopes, buy and affix postage to envelopes, send invoices to customers –Accounts payable department Keeps track of incoming payments, posts accounts in database, ensures current customer data Online stores have the same payment collection inefficiencies –Online customers use credit cards to pay for purchases

32. Electronic Commerce, Eighth Edition32 Advantages and Disadvantages of Electronic Cash (cont’d.) Online auction customers use conventional payment methods –Checks, money orders Electronic cash system –Less popular than other payment methods –Provides unique advantages and disadvantages Advantages of electronic cash transactions –More efficient (less costly) Efficiency fosters more business (lower prices) –Occurs on existing infrastructure (Internet)

33. Advantages and Disadvantages of Electronic Cash (cont’d.) Advantages of electronic cash transactions (cont’d.) –Internet spans globe Distance transaction travels does not affect cost –Does not require one party to obtain authorization Disadvantages of electronic cash transactions –No audit trail –Money laundering Technique criminals use to convert money illegally obtained into spendable cash Purchase goods, services with ill-gotten electronic cash Goods sold for physical cash on open market Electronic Commerce, Eighth Edition33

34. Electronic Commerce, Eighth Edition34 Advantages and Disadvantages of Electronic Cash (cont’d.) Disadvantages of electronic cash transactions (cont’d.) –Susceptible to forgery –Other potentially damaging digital economic factors Expansion of money supply when banks loan electronic cash on consumer and merchant traditional bank accounts Electronic cash has not yet become a global success –Will require wide acceptance and solution to problem of multiple electronic cash standards

35. Electronic Commerce, Eighth Edition35 How Electronic Cash Works Consumer opens account with electronic cash issuer –Presents proof of identity Consumer withdraws electronic cash using issuer’s Web site –Presents proof of identity Digital certificate issued by certification authority Combination of credit card number and verifiable bank account

36. Electronic Commerce, Eighth Edition36 How Electronic Cash Works (cont’d.) After consumer identity is verified: –Electronic cash amount is issued Amount deducted from consumer’s account Issuer may charge small processing fee Consumer stores electronic cash –In electronic wallet –On his or her computer –On stored-value card Consumer can authorize issuer to make third-party payments –From electronic cash account

37. Electronic Commerce, Eighth Edition37 Providing Security for Electronic Cash Significant electronic cash problem –Potential for double-spending Main deterrent –Threat of detection and prosecution Keys to creating tamperproof electronic cash that can be traced back to origins –Cryptographic algorithms –Two-part lock Provides anonymous security Signals someone is attempting to double-spend cash

38. Electronic Commerce, Eighth Edition38 Providing Security for Electronic Cash (cont’d.) When second transaction occurs –Complicated process reveals: Attempted second use Identity of original electronic cash holder Electronic cash used correctly –Maintains user’s anonymity Double-lock procedure –Protects anonymity of electronic cash users –Simultaneously provides built-in safeguards to prevent double-spending

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40. Electronic Commerce, Eighth Edition40 Providing Security for Electronic Cash (cont’d.) Double-spending –Neither detected nor prevented with truly anonymous electronic cash Anonymous electronic cash –Cannot be traced back to person who spent it Tracing electronic cash –Attach serial number to each electronic cash transaction Cash positively associated with particular consumer Does not solve double-spending problem

41. Electronic Commerce, Eighth Edition41 Providing Security for Electronic Cash (cont’d.) Single issuing bank can detect when two deposits of same electronic cash are about to occur –Impossible to ascertain fault (consumer or merchant) Electronic cash contains serial numbers –No longer anonymous One reason to acquire electronic cash –Raises privacy issues The use of serial numbers to track consumers’ spending habits

42. Electronic Commerce, Eighth Edition42 Providing Security for Electronic Cash (cont’d.) Creating truly anonymous electronic cash –Bank issues electronic cash with embedded serial numbers Bank digitally signs electronic cash while removing association of cash with particular customer

43. Electronic Commerce, Eighth Edition43 Electronic Cash Systems Electronic cash –More successful in Europe and Japan Consumers prefer to use cash (does not work well for online transactions) Electronic cash fills important need –Not successful in United States Consumers have payment cards and checking accounts KDD Communications (KCOM) –Internet subsidiary: Japan’s largest phone company –Offers electronic cash through NetCoin Center

44. Electronic Commerce, Eighth Edition44 Electronic Cash Systems (cont’d.) Reasons for failure of United States electronic cash systems –Electronic cash systems implementation Required to download and install complicated client- side software that ran in conjunction with browser –Number of competing technologies No standards developed Array of proprietary electronic cash alternatives –No interoperable software That runs transparently on variety of hardware configurations and different software systems

45. Electronic Commerce, Eighth Edition45 Electronic Cash Systems (cont’d.) CheckFree –Largest online bill processor (in the world) –Payment processing services since 1981 to: Large corporations, individual Internet users – 2007 Fiserv bought CheckFree ($4.4 billion) Offers online bill processing under CheckFree brand

46. Electronic Commerce, Eighth Edition46 Electronic Cash Systems (cont’d.) Clickshare –Electronic cash system for magazines and newspaper publishers –Uses technology called micropayment-only system –An ISP supporting Clickshare automatically registers users –When users click links leading to Clickshare sites They can make purchases without registering again Clickshare keeps track of transactions and bills user’s ISP

47. Electronic Commerce, Eighth Edition47 Electronic Cash Systems (cont’d.) Clickshare (cont’d.) –Tracks user on the Internet Significant value to advertisers, marketers Defeats anonymity –Micropayment capability By-product of core functionality of tracking identified users Tracks users with standard HTTP Web protocol Does not require cookies or software wallets

48. Electronic Commerce, Eighth Edition48 Electronic Cash Systems (cont’d.) PayPal –Payment processing services to businesses, individuals –Earns profit from float Money deposited, not used immediately –Charges transaction fee Businesses using service to collect payments –Peer-to-peer (P2P) payment system Free payment clearing service for individuals Payments from one type of entity to another of the same type

49. Electronic Commerce, Eighth Edition49 Electronic Cash Systems (cont’d.) PayPal (cont’d.) –Eliminates writing and mailing checks or payment cards –Send money instantly and securely to anyone with an e-mail address –Convenient for auction bidders to pay for purchases –Convenient for auction sellers Eliminates risks posed by other online payment types –Transactions clear instantly –Redemption PayPal check Direct deposit to checking accounts

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51. Electronic Commerce, Eighth Edition51 Electronic Cash Systems (cont’d.) PayPal (cont’d.) –Merchants and consumers first register for PayPal account No minimum amount account balance Add money by authorizing checking accounts transfer, using credit card Merchants need PayPal accounts to accept PayPal payments

52. Electronic Commerce, Eighth Edition52 Electronic Cash Systems (cont’d.) PayPal (cont’d.) –Competition from Billpoint Joint venture between eBay, Wells Fargo PayPal maintained first-mover advantage –Remained most widely used eBay payment processing system eBay purchased PayPal –Other peer-to-peer payment business companies First Data Corporation offered electronic money orders through BidPay site (closed in 2007) Citibank’s c2it payments service (closed in 2003)

53. Electronic Commerce, Eighth Edition53 Electronic Wallets Concerns of consumers when shopping online –Entering detailed shipping and payment information for each online purchase –Filling out forms Solution –Electronic commerce sites allows customer to store name, address, credit card information on the site –Problem Consumers must enter information at each site

54. Electronic Commerce, Eighth Edition54 Electronic Wallets (cont’d.) Electronic wallet (e-wallet) –Holds credit card numbers, electronic cash, owner identification, owner contact information –Provides information at electronic commerce site checkout counter –Benefit: consumer enters information once More efficient shopping Server-side electronic wallet –Stores customer’s information on remote server of merchant or wallet publisher –No download time or installation on user’s computer

55. Electronic Commerce, Eighth Edition55 Electronic Wallets (cont’d.) Server-side electronic wallet (cont’d.) –Main weakness Security breach can reveal thousands of users’ personal information (credit card numbers) Servers must employ strong security measures to minimize possibility of unauthorized disclosure Client-side electronic wallet –Stores information on consumer’s computer –Disadvantages Must download wallet software onto every computer Not portable

56. Electronic Commerce, Eighth Edition56 Electronic Wallets (cont’d.) Client-side electronic wallet (cont’d.) –Advantage Sensitive information stored on user’s computer –Sensitive information safer on client machine Attackers must launch many attacks on user computers (more difficult to identify) Prevents easily identifiable wallet vendor’s servers from attack

57. Electronic Commerce, Eighth Edition57 Electronic Wallets (cont’d.) Characteristics of useful wallets –Wallet accessibility Populate data fields in any merchant’s forms for any site consumer visits –Electronic wallet manufacturer and merchants from many sites must coordinate efforts Wallet recognizes consumer information going into each field of given merchant’s forms

58. Electronic Commerce, Eighth Edition58 Electronic Wallets (cont’d.) Electronic wallets –Store shipping and billing information Consumer’s first and last names, street address, city, state, country, postal code –Hold credit card names, numbers Offers consumer choice of credit cards at online checkout –Hold electronic cash from various providers

59. Electronic Commerce, Eighth Edition59 Electronic Wallets (cont’d.) Electronic wallet used by business companies –Example: MasterCard –Most abandoned efforts Current major browsers include feature to remember names, addresses, other commonly requested information Browsers provides one-click Web form field completion –Two e-wallet arena survivors Microsoft Windows Live ID Yahoo! Wallet

60. Electronic Commerce, Eighth Edition60 Microsoft Windows Live ID Formerly called Passport, Microsoft.NET Passport Single sign-in service –Includes server-side electronic wallet Operated by Microsoft All personal data entered into Windows Live ID wallet –Encrypted and password protected

61. Electronic Commerce, Eighth Edition61 Microsoft Windows Live ID (cont’d.) Four integrated services –Single sign-in service (SSI) Allows user to sign in at participating Web site using username and password –Wallet service Provides electronic wallet functions (secure storage, form completion of credit card, address information) –Kids service Helps parents protect, control children’s online privacy –Public profiles Allows consumers to create public page of information about themselves

62. Electronic Commerce, Eighth Edition62 Yahoo! Wallet Server-side electronic wallet offered by Yahoo! Completes order forms automatically –Identifying information, credit card payment information Stores information –Several major credit, charge cards, Visa and MasterCard debit cards Accepted by: –Thousands of Yahoo! Store merchants, Yahoo! Travel –Yahoo! Services Premium e-mail storage, Web hosting fees

63. Electronic Commerce, Eighth Edition63 Yahoo! Wallet (cont’d.) Yahoo! Advantage –Number of services and shops accommodate own wallet Large number of merchants accept wallet Privacy concern –Company issuing wallet has access to great deal of information about individual using wallet

64. Electronic Commerce, Eighth Edition64 Stored-Value Cards Microchip smart card or magnetic strip plastic card –Records currency balance Microchip versus magnetic strip –Microchip stores more information –Tiny microchip computer processor Performs calculations and storage operations on card –Different microchip card reader needed Examples: prepaid phone, copy, subway, bus cards “Stored-value card” and “smart card” used interchangeably

65. Electronic Commerce, Eighth Edition65 Magnetic Strip Cards Holds rechargeable value Passive magnetic strip cards cannot: –Send or receive information –Increment or decrement cash value stored Processing done on device into which card inserted Magnetic strip cards and smart cards store electronic cash –Smart card better suited for Internet payment transactions Has processing capability

66. Electronic Commerce, Eighth Edition66 Smart Cards Stored-value card –Plastic card with embedded microchip Credit, debit, charge cards store limited information on magnetic strip Store information –About 100 times more than magnetic strip plastic card Hold private user data –Financial facts, encryption keys, account information, credit card numbers, health insurance information, medical records

67. Electronic Commerce, Eighth Edition67 Smart Cards (cont’d.) Safer than conventional credit cards –Information encrypted on smart card Popular in Europe, parts of Asia –Public telephone calls, cable television programs –Hong Kong Retail counters, restaurant cash registers have smart card readers Octopus is the public transportation smart card: can be reloaded at transportation locations, 7-Eleven stores

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69. Electronic Commerce, Eighth Edition69 Smart Cards (cont’d.) Beginning to appear in United States –San Francisco TransLink integrated ticketing system for public transportation –Smart Visa card (2000) –Target Visa smart card (2002) Smart Card Alliance –Advances smart card benefits –Promotes widespread acceptance of multiple- application smart card technology –Promotes compatibility among smart cards, card reader devices, applications

70. Electronic Commerce, Eighth Edition70 Internet Technologies and the Banking Industry Paper checks –Largest dollar volume of payments –Processed through world’s banking system Other major payment forms –Involve banks one way or another Banking industry Internet technologies –Providing new tools –Creating new threats

71. Check Processing Physical check processing (banks, clearinghouses) –Person wrote check; retailer deposited check in bank account –Retailer’s bank sent paper check to clearinghouse Clearinghouse managed fund transfer (consumer’s bank to retailer’s account) –Paper check transported to consumer’s bank –Send cancelled check to consumer Many banks stopped sending cancelled checks to consumer –Provide PDF images of processed checks Electronic Commerce, Eighth Edition71

72. Electronic Commerce, Eighth Edition72 Check Processing (cont’d.) Disadvantage of paper checks –Cost of transporting tons of paper checks –Float Delay between the time person writes check and the time check clears person’s bank Bank’s customer obtains free use of funds for few days Bank loses use of funds for same time period Can become significantly longer than a few days

73. Electronic Commerce, Eighth Edition73 Check Processing (cont’d.) Technologies helping banks reduce float –2004 U.S. law: Check Clearing for the 21st Century Act (Check 21) Banks eliminate movement of physical checks entirely Check 21-compliant world –Retailer scans customer's check –Scanned image transmitted instantly Through clearing system –Posts almost immediately to both accounts Eliminates transaction float

74. Phishing Attacks Phishing expedition –Technique for committing fraud against online businesses customers –Launched against all online business types –Particular concern to financial institutions Customers expect high degree of personal information security Basic structure –Attacker sends e-mail message Large number of recipients Account at targeted Web site Electronic Commerce, Eighth Edition74

75. Phishing Attacks (cont’d.) Basic structure (cont’d.) –E-mail message tells recipient account is compromised Recipient must log on to account to correct problem –E-mail message includes link Appears to be Web site login page Actually disguised perpetrator’s Web site –Recipient enters login name, password Perpetrator captures Uses to access recipient’s account Access personal information, make purchases, withdraw funds Electronic Commerce, Eighth Edition75

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77. Electronic Commerce, Eighth Edition77 Phishing Attacks (cont’d.) Spear phishing –Phishing expedition that is carefully designed to target particular person or organization –Requires considerable research –Increases chance of e-mail being opened –Example: 2008 government stimulus checks Phishing e-mails appeared within one week of passage

78. Electronic Commerce, Eighth Edition78 Phishing Attacks (cont’d.) E-mail link disguises and tricks –Example of Web server that ignores all characters preceding “@”: https://www.paypal.com@218.36.41.188/fl/login.html –Example of disguised link: https://www.paypal.com@218.36.41.188/fl/login.html –Example of invisible phony site displayed due to JavaScript code: http://leasurelandscapes.com/snow/webscr.dll

79. Electronic Commerce, Eighth Edition79 Phishing Attacks (cont’d.) E-mail link disguises and tricks (cont’d.) –Pop-up windows Look exactly like browser address bar –Including Web site graphics of financial institutions Looks more convincing

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81. Electronic Commerce, Eighth Edition81 Organized Crime, Identity Theft, and Phishing Attacks Organized crime (racketeering) –Unlawful activities conducted by highly organized, disciplined association for profit –Differentiated from less organized terrorist groups –Internet providing new criminal activity opportunities Generates spam, phishing, identity theft –Identity theft Criminal act where perpetrator gathers victim’s personal information Uses information to obtain credit Perpetrator runs up account charges and disappears

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83. Electronic Commerce, Eighth Edition83 Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) Large criminal organizations –Efficient perpetrators of identity theft Exploit large amounts of personal information quickly and efficiently –Sell or trade information that is not of immediate use Other worldwide organized crime entities –Zombie farm Large number of computers implanted with zombie programs –Pharming attack Hacker sells right to use zombie farm to organized crime association

84. Electronic Commerce, Eighth Edition84 Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) Two elements in phishing –Collectors: collect information –Cashers: use information –Require different skills Crime organizations facilitate transactions between collectors and cashers –Increases phishing activity efficiency, volume Each year –More than a million people fall victim –Financial losses exceed $500 million

85. Electronic Commerce, Eighth Edition85 Phishing Attack Countermeasures Change protocol –Improve e-mail recipients’ ability to identify message source –Reduce phishing attack threat Educate Web site users Contract with consulting firms specializing in anti- phishing work Monitor online chat rooms used by criminals

86. Summary Online stores payment forms –Credit, debit, charge cards (payment cards) Ubiquitous, convenient, easy to use –Electronic cash advantages and potential uses Making micropayments, stored online or offline –Convenience of electronic wallets –Stored-value cards Smart cards, magnetic strip cards Banks process most monetary transactions –Use Internet technologies to process checks Concerns: phishing expeditions, identity theft Electronic Commerce, Eighth Edition86