computer subject related

Topics: Credit card, Payment systems, Money Pages: 38 (4177 words) Published: November 29, 2013
Electronic payment systems
overview of basic concepts
credit-card based systems (MOTO, SSL, SET)
electronic cash systems (DigiCash)
micropayment schemes (PayWord, probabilistic schemes)

Overview of basic concepts
brief history of money
traditional forms of payment
– cash
– payment through bank
– payment cards

Overview of basic concepts

electronic payment systems
– security requirements
– basic classification

© Levente Buttyán



A brief history of money
– most primitive form of payment
– still used in primitive economies or under exceptional conditions – problem: “double coincidence of wants”
• you want to change food for a bicycle
• you need to find someone who is hungry AND has a spare bicycle

commodity money
– physical commodities which have recognized value
Overview of basic concepts

e.g., salt, gold, corn, …

– desirable properties
• portability
• divisibility

gold and silver coins became the most commonly used

© Levente Buttyán


A brief history of money (cont’d)
commodity standard

– ~ 19th century
– use of tokens (e.g., paper notes) which are backed by deposits of gold and silver held by the note issuer
– more comfortable and more SECURE !

fiat money

Overview of basic concepts

– tokens have value by virtue of the fact that a government declares it to be so AND this assertion is widely accepted
– this works only if
• the economy is stable
• the government is trusted

electronic money

– ~ end of 20th century
– paper tokens and metal coins are replaced by electronic
representations of money
– made possible by progress in computing and networking technology

© Levente Buttyán



most commonly used form of payment today
– ~80% of all transactions
– average transaction value is low

advantages of cash

– easy to transport and transfer
– no transaction costs (no third party is involved directly) – no audit trail is left behind (that’s why criminals like it)

disadvantages of cash
Overview of basic concepts

– in fact, cash is not free

• banknotes and coins need to be printed and minted
• old bank notes and coins need to be replaced
• this cost is ultimately borne by the tax payers

– needs extra physical security when

• transported in large quantities (e.g., from the mint to banks) • stored in large quantities (e.g., in banks)

– vaults must be built and heavy insurances must be paid
– risk of forgery


© Levente Buttyán

Payment through banks
if both parties have accounts in a bank, then it is unnecessary for one party to withdraw cash in order to make a payment to the other party who will just deposit it again in the bank

by check


Overview of basic concepts



© Levente Buttyán




Payment by check

– no need for bank at the time of payment


– returned items

Overview of basic concepts

• if funds are not available on the payer’s bank account, then the check is returned to the payee’s bank
• if the payee has already been credited, then the bank loses money • otherwise the payee suffers
• problem: no verification of solvency of the payer at the time of payment

– processing paper checks is very expensive and time consuming • checks must be physically transferred between banks
• authenticity of each individual check must be verified

still popular in some countries

– e.g., in the US, ~80% of non-cash payment transactions are check payments with an average value of ~1000$

© Levente Buttyán


Giro payment
– the transaction cannot be initiated unless the payer has enough funds available
– can be fully electronic (using the existing banking networks)

– the bank must be present at the time of payment

Overview of basic concepts

quite popular in Hungary

© Levente Buttyán



Payments cards – brief history
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