Chapter 8: Electronic Payment Systems and Security potx

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Chapter 8
Electronic Payment Systems
and Security
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Learning Objectives
❚
Describe typical electronic payment systems for EC
❚
Identify the security requirements for safe electronic
payments
❚
Describe the typical security schemes used to meet
the security requirements
❚
Identify the players and procedures of the
electronic credit card system on the Internet
❚
Discuss the relationship between SSL and SET
protocols

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❚
Discuss the relationship between electronic fund
transfer and debit card
❚

Describe the characteristics of a stored value
card
❚
Classify and describe the types of IC cards used
for payments
❚
Discuss the characteristics of electronic check
systems
Learning Objectives (cont.)

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SSL Vs. SET: Who Will Win?
❚
A part of SSL (Secure Socket Layer) is available on customers’ browsers
❙
it is basically an encryption mechanism for order taking,
queries and other applications
❙
it does not protect against all security hazards
❙
it is mature, simple, and widely use
❚
SET ( Secure Electronic Transaction) is a very comprehensive security protocol
❙
it provides for privacy, authenticity, integrity, and, or
repudiation
❙
it is used very infrequently due to its complexity and the
need for a special card reader by the user

❙
it may be abandoned if it is not simplified/improved

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Payments, Protocols and Related Issues
❚
SET Protocol is for Credit Card Payments
❚
Electronic Cash and Micropayments
❚
Electronic Fund Transfer on the Internet
❚
Stored Value Cards and Electronic Cash
❚
Electronic Check Systems

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❚
Security requirements
Payments, Protocols and Related Issues (cont.)
❙
Authentication: A way to verify the buyer’s identity
before payments are made
❙
Integrity: Ensuring that information will not be
accidentally or maliciously altered or destroyed,
usually during transmission
❙

Encryption: A process of making messages
indecipherable except by those who have an
authorized decryption key
❙
Non-repudiation: Merchants need protection
against the customer’s unjustifiable denial of placed
orders, and customers need protection against the
merchants’ unjustifiable denial of past payment

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Security Schemes
❚
Secret Key Cryptography (symmetric)
Scrambled
Message
Original
Message
Sender
Internet
Scrambled
Message
Key
sender
(= Key
receiver
)
Encryption
Original
Message

Receiver
Key
receiver
Decryption

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❚
Public Key Cryptography
Sender
Original
Message
Scrambled
Message
Scrambled
Message
Public Key
receiver
Original
Message
Receiver
Private Key
receiver
Internet
Security Schemes (cont.)
Message
Sender
Original
Message
Scrambled

Message
Scrambled
Message
Private Key
sender
Original
Message
Receiver
Public Key
sender
Internet
Digital
Signature

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❚
Digital Signature
A digital signature is
attached by a sender
to a message
encrypted in the
receiver’s public key
The receiver is the only
one that can read the
message and at the same
time he is assured that
the message was indeed
sent by the sender
Sender encrypts

a message with
her private key
Any receiver with
senders public key
can read it
Security Schemes (cont.)
❙
Analogous to handwritten signature

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❚
Certificate
Name : “Richard”
key-Exchange Key :
Signature Key :
Serial # : 29483756
Other Data : 10236283025273
Expires : 6/18/96
Signed : CA’s Signature
Security Schemes (cont.)
❙
Identifying the holder of a public key (Key-
Exchange)
❙
Issued by a trusted certificate authority (CA)

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❚

Certificate Authority - e.g. VeriSign
RCA
BCA
GCA
CCA MCA
PCA
RCA : Root Certificate Authority
BCA : Brand Certificate Authority
GCA : Geo-political Certificate Authority
CCA : Cardholder Certificate Authority
MCA : Merchant Certificate Authority
PCA : Payment Gateway
Certificate Authority
Hierarchy of Certificate Authorities
Certificate authority needs to be verified by a government or well trusted entity ( e.g., post office)
Security Schemes (cont.)
❙
Public or private, comes in levels (hierarchy)
❙
A trusted third party services
❙
Issuer of digital certificates
❙
Verifying that a public key indeed belongs to a certain individual

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Electronic Credit Card System
on the Internet
❚

The Players
❙
Cardholder
❙
Merchant (seller)
❙
Issuer (your bank)
❙
Acquirer (merchant’s financial institution,
acquires the sales slips)
❙
Brand (VISA, Master Card)

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❚
The process of using credit cards offline
A cardholder requests the issuance of a
card brand (like Visa and MasterCard)
to an issuer bank in which the
cardholder may have an account.
Electronic Credit Card System
on the Internet (cont.)
The authorization of card issuance
by the issuer bank, or its designated
brand company, may require
customer’s physical visit to an office.
A plastic card is physically delivered
to the customer’s address by mail.
The card can be in effect as the

cardholder calls the bank for
initiation and signs on the back of
the card.
The cardholder shows the card to a
merchant to pay a requested
amount. Then the merchant asks
for approval from the brand
company.
Upon the approval, the merchant
requests payment to the merchant’s
acquirer bank, and pays fee for the
service. This process is called a
“capturing process”
The acquirer bank requests the
issuer bank to pay for the credit
amount.
Cardholder Merchant
credit
card
Card Brand Company
Payment authorization,
payment data
Issuer Bank
Cardholder
Account
Acquirer Bank
Merchant
Account
account debit data
payment data

Credit Card Procedure (offline and online)
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payment data
amount transfer
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Secure Electronic Transaction (SET)
Protocol
1. The message is hashed to a prefixed length of message digest.
2. The message digest is encrypted with the sender’s private
signature key, and a digital signature is created.
3. The composition of message, digital signature, and Sender’s
certificate is encrypted with the symmetric key which is generated
at sender’s computer for every transaction. The result is an
encrypted message. SET protocol uses the DES algorithm
instead of RSA for encryption because DES can be executed
much faster than RSA.
4. The Symmetric key itself is encrypted with the receiver’s public
key which was sent to the sender in advance. The result is a
digital envelope.
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Sender’s Computer
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Sender’s Computer
Sender’s Private
Signature Key
Sender’s
Certificate
+
+

Message
+
Digital Signature

Receiver’s
Certificate
Encrypt
Symmetric
Key
Encrypted
Message

Receiver’s
Key-Exchange Key
Encrypt
Digital
Envelope

Message
Message Digest

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5. The encrypted message and digital envelope are transmitted to
receiver’s computer via the Internet.
6. The digital envelope is decrypted with receiver’s private exchange
key.
7. Using the restored symmetric key, the encrypted message can be
restored to the message, digital signature, and sender’s certificate.
8. To confirm the integrity, the digital signature is decrypted by sender’s

public key, obtaining the message digest.
9. The delivered message is hashed to generate message digest.
10. The message digests obtained by steps 8 and 9 respectively, are
compared by the receiver to confirm whether there was any change
during the transmission. This step confirms the integrity.
❚
Receiver’s Computer
Secure Electronic Transaction (SET)
Protocol (cont.)
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Receiver’s Computer
Decrypt
Symmetric
Key
Encrypted
Message

Sender’s
Certificate
+
+
Message
compare

Digital
Envelope
Receiver’s Private
Key-Exchange Key


Decrypt
Message Digest
Digital Signature
Sender’s Public
Signature Key

Decrypt
Message Digest

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Entities of SET Protocol in Cyber Shopping
IC Card
Reader
Customer x
Customer y
With Digital Wallets
Certificate
Authority
Electronic Shopping Mall
Merchant A Merchant B
Credit Card
Brand
Protocol
X.25
Payment Gateway
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SET Vs. SSL
Secure Electronic Transaction (SET)
Secure Socket Layer (SSL)
Complex Simple
SET is tailored to the credit card
payment to the merchants.
SSL is a protocol for general-
purpose secure message
exchanges (encryption).
SET protocol hides the customer’s
credit card information from
merchants, and also hides the
order information to banks, to
protect privacy. This scheme is
called dual signature.
SSL protocol may use a
certificate, but there is no
payment gateway. So, the
merchants need to receive both
the ordering information and
credit card information, because
the capturing process should be
initiated by the merchants.

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Electronic Fund Transfer (EFT)
on the Internet
An Architecture of Electronic Fund Transfer on the Internet

Internet
Payer
Cyber Bank
Bank
Cyber Bank
Payee
Automated
Clearinghouse
VAN
Bank
VAN
Payment
Gateway
Payment
Gateway

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Debit Cards
❚
A delivery vehicle of cash in an electronic form
❚
Mondex, VisaCash applied this approach
❚
Either anonymous or onymous
❚
CyberCash has commercialized a debit card named CyberCoin as a medium of micropayments on the Internet

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Financial EDI
❚
It is an EDI used for financial transactions
❙
EDI is a standardized way of exchanging messages
between businesses
❙
EFT can be implemented using a Financial EDI system
❚
Safe Financial EDI needs to adopt a security scheme used for the SSL protocol
❚
Extranet encrypts the packets exchanged between senders and receivers using the public key cryptography

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Electronic Cash and Micropayments
❚
Smart Cards
❙
The concept of e-cash is used in the non-Internet
environment
❙
Plastic cards with magnetic stripes (old technology)
❙
Includes IC chips with programmable functions on
them which makes cards “smart”
❙
One e-cash card for one application
❙
Recharge the card only at designated locations,

such as bank office or a kiosk. Future: recharge at
your PC
❙
e.g. Mondex & VisaCash

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Mondex Makes Shopping Easy
❚
Shopping with Mondex
❚
Adding money to the card
❚
Payments in a new era of electronic
shopping
❚
Paying on the Internet