MIS 3090MIS 3090IT for Financial ServicesIT for Financial Services

Digital Cash

April 20, 2023

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Issues Involving Digital Issues Involving Digital CashCash

Secure e-transactions are vital to the success of electronic commerce

Electronic money is a store of monetary value, held in digital form, which is readily available for exchange in transactions

It is a new form of currency that acts as a generalized medium of exchange

– Gold – paper notes – plastic – digital cash It is an electronic replacement for physical cash (a file) It is easily stored, transferred, and difficult to forge

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Stored electronically, used to make online electronic payments

– Digital cash accounts are similar to traditional bank accounts– Digital cash used with other payment means (digital wallets) – Digital cash allows those with no credit cards to shop online– Merchants accepting digital-cash payments avoid credit-card

transaction fees– Gift cash, often sold as points, can be redeemed at leading

shopping sites… potentially a way to prevent kids from spending their allowances on things their parents would prefer they avoid (Rocketcash – bought by NetZero)

Digital CurrencyDigital Currency

4/18April 20, 2023

Electronic cash is token money in the form of bits, except unlike token money it can be copied

Bank issues character strings containing:– denomination– serial number– bank ID + encryption of the above

First person to return string to bank gets the money

E-Cash SpecificsE-Cash Specifics

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Withdrawal:

Spending:

PersonalTransfer:

ALICE BUYS DIGITALCOINS FROM A BANK

ALICE SEND UNSIGNEDBLINDED COINS TO THE BANK

BANK SIGNS COINS, SENDS THEM BACK. ALICE UNBLINDS THEM

ALICE PAYS BOBBOB VERIFIES COINSNOT SPENT

ALICE TRANSFERS COINS TO CINDYCINDY VERIFIES COINSNOT SPENT

BOB DEPOSITS

CINDY GETS COINS BACK

WALLETSOFTWARE

E-Cash OverviewE-Cash Overview

6/18April 20, 2023

Smart card processors hold more information than credit card magnetic strips

– Store credit-card numbers, contact information, etc.– Contact smart cards

Placed in smart-card reader for information transfer– Contactless smart cards

Antenna enables information transfer, faster than contact cards– Disposable and re-loadable cards

Security– Password protection– Encryption

Smart CardsSmart Cards

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Smart Cards in PracticeSmart Cards in Practice

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Merchants pay fee for each credit-card transaction Micropayments

– Payments that generally do not exceed $1, allows companies offering nominally priced products to profit

To offer micropayments, some companies form strategic partnerships with utility companies

– eCharge and Peppercoin enables companies to offer this option to customers eCharge uses ANI (Automatic Number Identification) to verify

the identity of the customer and the purchases they make

MicropaymentsMicropayments

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Takes the place of a credit card:eCharge Net, eCharge Phone

Merchant examples: Classmates.com, HomeworkHelp.com, Jennifer Lover Hewitt fan club

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Market size: $2.8 B in online sub $5 transactions (2003) – growing to $6.7 B by 2009At POS: in 2003, consumers spent $1.32 T in transactions of $5 or less

Opportunities: iTunes, WSJ, cell phone games, ringtones, coffee & fastfood outlets

Source: http://www.peppercoin.com/marketvision/pov.shtml

Focused primarily at merchants

11/18April 20, 2023

Outside US, many opt for prepaid cards instead of cash or credit cards

– Wireless-payment cards enable transactions with POS devices

– Convenience and grocery stores can add monetary value to some pre-paid accounts Example: CashX (www.cashx.com) (gone out of business)

– AmeriNet (www.debit-it.com): allows checking account number as form of payment

Alternative Payment Alternative Payment OptionsOptions

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SET is a standard that allows secure credit card transactions on the net

Jointly developed by Visa and Mastercard; supported by GTE, Microsoft, Netscape, Verisign, IBM…

Using digital signatures, SET enables merchants to verify that buyers are who they claim to be

It protects buyers by providing a mechanism for their credit card number to be transferred directly to the credit card issuer for verification

It allows billing without the merchant being able to see the number

Secure Electronic Secure Electronic TransactionsTransactions

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http://www.byte.com/art/9706/img/067csd2.htm

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For Next Class… For Next Class… Read

– Read the Capital One case– Write out answers to case questions and be ready to discuss– Will start on Check 21 topic if there is time