Electronic Payment

Electronic Payment

Marc Pasquet (GREYC Laboratory (ENSICAEN – Université Caen Basse Normandie - CNRS), France), Sylvain Vernois (GREYC Laboratory (ENSICAEN – Université Caen Basse Normandie - CNRS), France) and Wilfried Aubry (GREYC Laboratory (ENSICAEN – Université Caen Basse Normandie - CNRS), France)
DOI: 10.4018/978-1-60566-026-4.ch212
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Abstract

Money has two main forms nowadays: the fiduciary money (coins, banknotes…) and the scriptural one (electronic or virtual). To pay goods, both are used. The electronic money, one specific form of the scripting money, is more and more used everywhere in the world. Electronic payment has many particularities: specific infrastructure, equipment, and software, new forms of regulations, technical agreements, normalizations, fraud limitations… The objective of this chapter is to present a general overview of electronic payment. The background section presents its historical evolution. In the main thrust, the chapter focuses first on the general architecture of electronic payment. Second, different authorization mechanisms for the processing of the banking transaction and for fraud prevention are detailed. Future trends stress the different research topics that should be investigated, especially concerning the SEPA program (Single Euro Payments Area), which will harmonize bank payment systems in Europe through 2012.
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Introduction

Money has two main forms nowadays: the fiduciary money (coins, banknotes…) and the scriptural one (electronic or virtual). To pay goods, both are used. The electronic money, one specific form of the scripting money, is more and more used everywhere in the world. Electronic payment has many particularities: specific infrastructure, equipment, and software, new forms of regulations, technical agreements, normalizations, fraud limitations…

The objective of this chapter is to present a general overview of electronic payment. The background section presents its historical evolution. In the main thrust, the chapter focuses first on the general architecture of electronic payment. Second, different authorization mechanisms for the processing of the banking transaction and for fraud prevention are detailed. Future trends stress the different research topics that should be investigated, especially concerning the SEPA program (Single Euro Payments Area), which will harmonize bank payment systems in Europe through 2012.

Figure 1.

Exchange of goods

Figure 2.

Transaction using social money

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Background

Exchanging goods is the basis of commerce. From the origin with barter (Menger, 1892) to the introduction of a valuable commodity to give the goods a value, men managed to build a trustful organization, creating the money, and later the banks and laws, to protect this new financial structure.

Paper money has been developed since the 17th century as an object without any real value but with a financial value given by trust in the emitter: the bank (see Figure 3).

Figure 3.

Transaction using paper money

Nowadays, money is often dematerialized in the payment process (Schafer, Konstan, J.A., Riedl, 2001). This can particularly happen (see Figure 4):

Figure 4.

Transaction by electronic payment

  • when the purchase is done: an electronic payment occurs between the customer and the merchant ;

  • when banks want to clear the positions they have between each other.

E-payment allows exchanging scriptural money electronically, by the use of an “identifier” that can be associated not only with a bank user or a fidelity account, but also with an electronic purse (off-line or online) or an anonymous account.

The most common media is a plastic card that includes different technologies (magnetic stripe, microprocessor chip, contactless…) allowing different services and security levels. Other objects and technologies can be used, such as customer’s fingerprint, thanks to biometrics.

E-payment can be divided into two families:

  • Face-to-face payment, where the customer and the merchant are physically in the same place ;

  • Distant payment, where the two participants do not meet each other (mail orders, phone orders, and now electronic commerce via Internet) (see Figure 5).

Figure 5.

Distant payment

Key Terms in this Chapter

Electronic Commerce: Transactions that are conducted over an electronic network where the buyer and merchant are not at the same physical location.

Automated Teller Machine (ATM): A computerized self-service device permitting the cardholder to withdraw cash from their account and access other banking services.

Card Scheme(s): Card schemes set the business rules that govern the issue of the payment cards that carry their logo. (Examples: Visa, MasterCard, American Express, Diners Club.)

Europay MasterCard and Visa (EMV): The internationally agreed standards for chip payment cards. EMV standards are maintained by EMVCo.y

Counterfeit Card: A device or instrument that has been printed, embossed, or encoded so as to purport to be a legitimate card, but which is not genuine.

Card Issuer: A bank issuing payment or credit cards to its customers.

Authorization: The process whereby a merchant requests permission for the card to be used for a particular transaction amount.

Acquirer: A financial institution having a business relationship with merchants, retailers, and other service provides to process their plastic card transactions.

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