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ITM 350 Study Guide - Midterm Guide: Secure Electronic Transaction, Digital Currency, Electronic Data Interchange

Information Technology Management
Course Code
ITM 350
Franklyn Prescod
Study Guide

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Value added networks (VANs) Privately owned networks that are rented to users, along with a package
of related services, to operate their EDI systems by providing an environment within which they can
work, and by connecting them to their customers and suppliers.
Issues to consider in choosing:
o Cost per transaction and to set up
o Repudiability and Authentication
o Acceptance (Familiarity/Ubiquity) and Convenience
o Integrity of Transaction
o Security (for customer and vendor)/Risk of Loss
o Confidentiality/Privacy/Anonymity
o Standards/regulations (infrastructure) underlying system
Traditional Payment Systems ("Bricks and Mortar")
o Unit of commerce
o Interoperable, atomic
o Store of value
o Durable (subject to inflation)
o Can be copied
o Medium of exchange
o anonymity vs. traceability
o Acceptable, convenient?,
o Risk of loss, repudation and security issues
o Low set up costs, but relatively high cost per transaction
o Well standardized and regulated
Credit/Charge Cards
o Merchant swipes card
o Terminal contacts Processor
o Transaction routed to Card Issuer
o Card issuer generates response
o Terminal receives approval/denial
o Customer walks away with goods
o Credit Card is the most widespread electronic payment method
o Credit Card purchases over telephone or internet have a $ 50 liability limit
o Fast and easy for merchant and customer; familiar
o Infrastructure all in place, and has been augmented by SET, SSL etc to provide
extra security for e-business use
Debit Cards
o Part of Banking System
o Well regulated and standardized (esp. debit cards in Canada)
o Not confidential
o Security issues: identity theft, forgery (for cheques)
o Cheque processing per transaction relatively expensive, debit cards relatively low
cost, but more expensive to set up
o Accepted, convenient
o Hard to repudiate

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E-Business Payment Systems
Credit Cards/SET
SET (Secure Electronic Transaction) A method of securing credit card transactions using
encryption and authentication technology
Initiative between banks , financial institutions,VISA/MC/AMEX and technology partners
Requires issue of new, SET-enabled credit card
Four entities: cardholder, merchant, payment gateway, certificate authority
PKI: digital certificates / digital signatures used to authenticate partners / validate
Provides confidentiality via encryption, integrity and authentication of both parties via
digital signatures
Also now a SET -2
Digital cheques
o Just like a cheque, without paper
o It’s an off-line digital promise to pay, digitally signed
o Financial Services Technology Consortium (FSTC) have spent over three years
and $10 million developing a system to enable e-checking
o Not clear that the eCheck initiative described in text is progressing, although
paper cheques are disappearing
o Leverages an established payment and processing model (EFTS)
o Reduces costs of paper handling
o approximately 300 million checks are written each year by the US Federal
Government alone
o Saves time - no clearing period required
o Provide a secure, off-line payment method for the internet (but privacy is a
o Electronic Checkbook Software brings up E-check on screen
o User fills in fields with amounts, etc.
o User inserts SmartCard in reader
o Software authenticates user and digitally signs cheque
o E-checkbook automatically assigns a cheque #
o Signed E-check is sent to Payee via Secure Email (S/Mime) or other transport
o Payee’s Software decrypts cheque and displays it
o Payee uses Smartcard to authenticate and digitally endorse cheque
o Cheque is forwarded to Payee’s bank for clearing
o Bank equipped with E-check gateway authenticates cheque and processes it as a
paper cheque.
Smart Cards e.g. Mondex
o Resembles a credit card
o Contains an embedded integrated circuit (IC)
o Storage capacity of embedded memory with the processing power of 8-bit, 16-bit
or even 32-bit microprocessors
o Active when connected with reader

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o Do not require access to remote
o database at time of transaction
o Like a credit card, but with embedded chip instead of magnetic stripe
o Smart card Types:
Memory Cards - Only contains memory chip allows retrieval of data
Processor Cards - Contains memory chip + microprocessor and Can
read/write data, process data, encrypt/decrypt data
o Smart Card Applications:
Access to ATMs
Stores Digital Cash
Digitally sign E-cheques/Payment notes
Digitally sign SET credit cards
o Could be used for everything that could identify or give a persons information
o OneSMARTTM Mastercard and Mondex
Same benefits as traditional Mastercard
Accepted at 32 million merchants worldwide
Global cash access 24hrs/day
200 million OneSmart Cards issued by 2004
Marketed towards corporate customer
Electronic purse
Monetary value stored on chip
Person-to-person transactions
Multicurrency capabilities
Digital Cash e.g. Digicash
o Electronic Representation of Cash
o Should be anonymous and reusable (same digital cash id can be sent from
recipient to another computer)
o Stored in
o Electronic Wallet (in users’ PC)
o Electronic Wallet (in Server)
o SmartCard
o E-cash is pre-purchased with traditional payment method
o E-cash processor handles authentication, non-repudiation and merchant payment
o Why digital cash? Credit card is expensive (2%-4% discount)
o Credit card is not viable for micropayments
o transaction fee of $0.25 vs. $0.01 for e-cash
o Digital cash allows instantaneous payment
o credit card fraud a concern for content providers
o Anonymity / privacy for buyer
o Theft / counterfeiting resistant
o Reduced transportation costs - US $ 60 b / yr
o Digital Cash has been around since 1994 but never caught on
o CyberCash Cybercoin: discontinued
o Digicash: Filed for Bankrupcy Protection
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