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Overview of Electronic Payments

The availability of appropriate e-payment method is a crucial element of e-business.

Basic Assessment for the e-business owner/ management. Which methods of e-payment will the business be ready forcredit card, e-

check, e-cash?

Will traditional payment methods i.e cash, paper checks be accepted?Or will a combination of both traditional and e-payment method beaccepted?Requirements for e-payments

Atomicity

Money is not lost or created during a transferGood atomicityMoney and good are exchanged atomically Non-repudiationNo party can deny its role in the transactionDigital signatures.

Two storage methodsOn-lineIndividual does not have possession personally of electronic cashTrusted third

party, e.g. online bank, holds customers cash accountsOff-lineCustomer holds cash on smart card or software walletFraud and doublespending require tamper-proof encryption

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Information$Products/servicesonlineoffline

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Types of E-payments

E-cashElectronic walletsSmart cardCredit card

Electronic Cash

Primary advantage is with purchase of items less than $10Credit card transaction fees make small purchases unprofitableMicropaymentsoPayments for items costing less than $1

E-cash Concept

MerchantConsumer Bank

1. Consumer buys e-cash from Bank2. Bank sends e-cash bits to consumer (after charging that amount plus fee)3. Consumer sends e-cash to merchant4. Merchant checks with Bank that e-cashes valid (check for forgery or fraud)5. Bank verifies that e-cash is valid6. Parties complete transaction: e.g., merchant present e-cash to issuing back fordepositonce goods or services are deliveredConsumer still has (invalid) e-cash

Advantages and Disadvantages of Electronic CashAdvantagesMore efficient, eventually meaning lower pricesLower transaction costsAnybody can use it, unlike credit cards, and does not requirespecial authorization

DisadvantagesTax trail non-existent, like regular cash

Money laundering

Susceptible to forgery

Electronic Cash SecurityComplex cryptographic algorithms prevent doublespendingAnonymity is preserved unless double spending is attemptedSerial numbers can allow tracing to prevent moneylaundering

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Does not prevent double spending, since the merchant or consumer could be atfault

Electronic Cash IssuesE-cash must allow spending only onceMust be anonymous, just like regularcurrency

Safeguards must be in place to prevent counterfeitingMust be independentand freely transferable regardless of nationality or storage mechanismDivisibility and ConvenienceComplex transaction (checking with Bank)Atomicity problem