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Electronic Payment Systems 20-763 Lecture 3 Virtual Money

Electronic Payment Systems 20-763 Lecture 3 Virtual Money. Virtual Money. Value store (where is the value held?) Checking account (disk file at the bank) Debit card (value is in the bank, not on the card) Prepaid phone card without magnetic stripe (value is at the phone company)

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Electronic Payment Systems 20-763 Lecture 3 Virtual Money

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  1. Electronic Payment Systems20-763Lecture 3Virtual Money

  2. Virtual Money • Value store (where is the value held?) • Checking account (disk file at the bank) • Debit card (value is in the bank, not on the card) • Prepaid phone card without magnetic stripe (value is at the phone company) • Phone card with magnetic stripe (value is on the card) • Value representation (how is the value represented?) • Check (arbitrary units of currency) • Note, coin (fixed amount of currency) • Phone card (minutes)

  3. Electronic v. Virtual Money • Electronic money: money measured in fiducial (currency) units stored in an electronic device accessible to the user • Money in electronic form stored on a portable support device, like a card) • Example: stored-value card • Virtual money: value store remote from the physical support • Typically, a pointer to a bank account • Example: debit card

  4. Jeton • Token: a representation of money or services (“scrip”) not issued by a central bank • Examples: • Traveler’s check • Cashier’s check • Money order • Gift certificate • Jeton: an electronic token • Example: • Contents of a magnetic stripe phone card • Millicent scrip (micropayment)

  5. Flow of Virtual Money SELLER BUYER (PURSE HOLDER) 3. PAY 4. ACQUIRE CREDITS 1. LOAD PURSE ACQUIRING OPERATOR CHARGING OPERATOR 5. DEPOSIT CREDITS 2. VERIFY BUYER’S ACCOUNT BUYER’S BANK (ISSUER) SELLER’S BANK (ACQUIRER) 6. TRANSFER FUNDS

  6. Payment Methods: “Direct” SELLER BUYER 2. SELLER REQUESTS PAYMENT THROUGH GATEWAY INTERNET 1. BUYER TRANSMITS PAYMENT COORDINATES TO SELLER 4. TRANSACTION AUTHORIZED 3. GATEWAY SEEKS AUTHORIZATION PAYMENT GATEWAY AUTHORIZATION SERVER 9. BUYER’S BANK NOTIFIES BUYER 8. SELLER’S BANK NOTIFIES SELLER 5. TRANSACTION ENTERS PAYMENT NETWORK SELLER’S BANK (ACQUIRER) BUYER’S BANK (ISSUER) SECURE FINANCIAL NETWORK 6. BUYER’S BANK PAYS SELLER’S BANK 7. SELLER’S BANK RECEIVES PAYMENT

  7. PAYOR PAYEE PAYEEBANK PAYORBANK Deposit and Clear(also used for paper checks) ENDORSE WRITE 1. SEND CHECK 2. DEPOSIT CHECK 5. AVAILABLE FUNDS 6. SEND STATEMENT 3. PRESENT 4. SETTLE CREDIT DEBIT SOURCE: FSTC

  8. PAYOR PAYEE PAYEEBANK PAYORBANK Cash and Transfer ENDORSE WRITE 1. SEND CHECK 2. PRESENT 6. SEND STMT 5. AVAILABLE FUNDS 3. NOTIFY 4. EFT CREDIT DEBIT SOURCE: FSTC

  9. PAYOR PAYEE PAYEEBANK PAYORBANK Lockbox WRITE 1. SEND CHECK 5. UPDATE ACCOUNTS RECEIVABLE 6. SEND STMT 2. PRESENT 3. SETTLE CREDIT DEBIT SOURCE: FSTC

  10. Credit Transfer (Giro) • Payment transfer order • Very popular in Europe • Order to a bank to transfer funds fromcustomer to a specific account (possibly in a different bank) • Giro does not go to the payee; goes to a bank • Giro not initiated unless funds are available • No return items (except unknown accounts)

  11. PAYOR PAYEE PAYEEBANK PAYORBANK Funds Transfer (Giro) WRITE 1. SEND ORDER 3. UPDATE ACCOUNTS RECEIVABLE 4. SEND STMT 2. EFT CREDIT DEBIT SOURCE: FSTC

  12. Bill of Lading (B/L) lade (variant of load, survives in the form laden) “to put or place as a load, especially for shipment.” • Old solution to the goods atomicity problem • Buyer sends seller a “sight draft” (order by buyer to buyer’s bank to pay seller) • Seller delivers goods to a shipper • Seller sends a B/L + sight draft to the buyer’s bank • Shipper delivers goods to a dock in buyer’s country • Buyer’s bank pays the sight draft, gives B/L to buyer • Buyer hands shipper the B/L, claims the goods

  13. Bill of Lading (B/L) Transaction 1. BUYER SENDS SIGHT DRAFT TO SELLER BUYER SELLER 2. SELLER DELIVERS GOODS AND SIGHT DRAFT TO SHIPPER 8. BUYER PRESENTS B/L, CLAIMS GOODS 6. SELLER’S BANK CREDITS SELLER’S ACCOUNT, NOTIFIES SELLER 7. BUYER’S BANK DEBITS BUYER’S ACCOUNT, GIVES B/L TO BUYER 4. SHIPPER SHIPS SHIPPER’S DOCK SHIPPER 3. SHIPPER CREATES B/L, SENDS IT WITH DRAFT TO BUYER’S BANK BUYER’S BANK SELLER’S BANK 5. BUYER’S BANK PAYS DRAFT TO SELLER’S BANK SHIPPER IS AN ESCROW AGENT. IF B/L IS NOT PRESENTED, GOODS WILL NOT BE DELIVERED IF SELLER NEVER SHIPS GOODS, SHIPPER WILL NOT GENERATE B/L AND BUYER’S BANK WILL NOT PAY

  14. Q A &

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