Pealkiri: Elektrooniline raha, olevik ja tulevik.
Autors: Dmitri Tšurjumov, Mark Selezenev, Igor Budnitski, Leonid Grigorjevski, Jakov Kanyuchka.
Kursuse nimetus: IT sotsiaalsed, professionaalsed ja eetilised aspektid
Õppejõud: Kaido Kikkas
Esitamise tähtaeg: 15.05.2017
Electronic payment systems
Unique opportunities that the internet provides have sharply changed our way of living. Fast search of any information on the internet, communications via the internet or meeting new people via the internet does not surprise anybody anymore. But one of the most marvellous achievements of the internet age/internet of things is that we can buy and sell goods and services via it. This is something that is accomplished by electronic payment systems and virtual money that comes with them.
Virtual currency did not appear long ago but majority of the users of the internet do trust them. Virtual currency is easy to use not only for real persons but also legal entities like companies and corporations. This kind of payment method is accepted by different freelancers, companies, commercial entities and also governmental institutions.
So what is so interesting and alluring about Electronic payment systems?
One of the main advantages of the electronic payment methods is its super fast speed. All of the process can take no longer than a minute if not few seconds.
Electronic payments are not burdened with the same inconveniences that come with regular payments: long lines, lunch breaks, rude service agents.
To use these kinds of payment methods, you technically need 1 thing: access to the internet. You can perform them via a phone, computer, notebook and many other electronic devices. These kinds of devices are used by the majority of the world population.
You can use them at any place at any given moment.
You can increase your virtual currency account or withdraw money from it by different means. Most often terminals are used for this along with bank account transfers. Considering how wide spread virtual currency is nowadays, some banks already keep virtual currency bank accounts from which you can withdraw or add balance via the standard banking systems.
This currency is definitely more widely used in larger cities because there are more opportunities to use them there.
Besides buying goods, virtual money can be used to pay for services, especially services that are provided by different social networks. These kinds of payments are often used by video game players, mobile phone owners to pay for the services or the internet.
Electronic payment systems will undergo a full change in the near future because of increased competition that comes from new virtual currencies appearing. If anybody is planning to open an internet store then there is simply no way around this. You have to have an inbuilt electronic payment system that will suit your customer’s needs. Otherwise you will loose on possible orders and will have a loss in income/revenue.
The inventions of the telegraph in 1837 lead us to a financial revolution that has changed the world greatly. By the start of the 20th century 80% of all international banking payments were done via the telephone.
In 1924, the United States invented and developed a system of mutual settlements, taking into account the financial obligations of counterparties, the so-called "clearing". The principles of this system are still used. Thus, it was the beginning of the so called “non-cash payments”.
However, by the end of the 20th century, more and more places began to gain e-commerce. But because of this there happened a large inconvenience – you have issued a purchase through the Internet, but to pay for it you still needed to go to the bank? Very Uncomfortable!
The first attempt to simplify the payments for the Internet purchases was made in California in 1994. A DigiCash service, that was invented by David Lee Chom, didn’t live for long. It was around 10 years before online shops started to become more popular.
The service went bankrupt, apparently it was ahead of its time, because of that in 1998 the PayPal system was created, with the help of which it was possible to send money online. By this time, the need for electronic payments was much higher than four years ago. The creators of this EPS were concerned about the safety of their service so seriously that it not only lived happily to this day, but continues to flourish to this day.
PayPal was created in 1998 by former lawyer and financier Peter Thiel and programmer Max Levchin. The project that Tiela and Levchin created immediately interested investors: for example, Nokia Ventures immediately invested $ 3 million in to the project, and Deutsche Bank - $ 1.5 million. The reason for this interest in the project was that the virtual market at that moment was acute and needed a financial operator that would perform the functions of an online bank, and there were no similar structures on the Internet yet.
PayPal started operations in November 1999 and immediately attracted even more investors, including banks that invested $ 23 million in PayPal. The rapid growth of the Internet caused a large influx of users. In a short time, the number of PayPal customers exceeded 1.5 million, and its turnover reached $ 2 million per day!
Paypal payment system essentially differs from other electronic payment services that it deals with real money, and not with "title signs". Paypal offers a financial instrument through which a credit card or bank account is linked to a user's account in Paypal, so that at any time it is possible to directly replenish your balance in the system or withdraw money from it.
Paypal revolutionized the world of mobile technology, making real-world instant payments with a mobile phone (Paypal Mobile Payments). Users who subscribe to this service make payments via SMS without even going to the Paypal site. To do this, send a text of the type "Send $ 20 to [user ID]" to the specified number, type a confirmation code, and the payment will be sent immediately. However, this feature can only be available to US residents at the moment.
Along with the undisputable advantages, PayPal also has drawbacks as it must be said, which are usually linked to conscientious/diligent work of the security service of the system. One of the related inconveniences relates directly to us with you: Estonian citizens still look at many of its delights from the side and unable to use them, since MasterCard users can not use its services in full (and Visa is only represented as a temporary virtual account in SEB and nowhere else). Therefore, we can only pay through the system! If we are planning to sell something using PayPal than we can’t withdraw the money straight away and the withdrawals themselves need to be done in large sums to still retain a profit.
The system is generally known for a series of scandals involving the blocking of funds on customers' accounts or simply freezing accounts in case of suspicions activity or any suspicion from system administrators that the account does not belong to the user. Angry customers even created sites www.paypalsucks.com and www.paypalwarning.com. They host the so-called "Wall of Shame" (Wall Of Shame), which collects "horror stories", told by those who suffered from PayPal. In defence of Paypal, we can say that no EPS, except it, can boast such a large user audience, and the larger the customer base, the greater the absolute number of dissatisfied customers, and in percentage terms such statistics can’t be really measured because nobody really has the statistics for each company percentage wise. In addition, the burden of leadership in the industry is difficult for any company, because every mistake and miscalculation becomes public knowledge and is dealt with increased attention.
In the PayPal system, there is a possibility of automatic exchange of currencies, i.e. If the sender's account is opened in a different currency than the beneficiary's account then the payment will be converted into the desired currency. For the currency conversion transaction, the system charges a commission of 2.5%. If the exchange rate in the system does not suit you, you can choose a different centre that is converting your banks monkey from which the payment is made.
The main security measure in Paypal is a refusal to serve anonymous clients: they are subject to limits that make the work with the system almost impossible. Verification of the credit card is designed to confirm the identity of the owner of the used card. The security service rate seems to be based on the lack of anonymity and the possibility of attracting state security services in the event of a hacking of the accounts, as well as a rigid restriction of access to work by a system to prevent suspicious user types which applies to many countries in the world. Apparently, these measures are very effective: The losses of the auction eBay because of fraud is only 0.2% from the total amount of transactions (Paypal is the base payment system for eBay).
In addition to the PayPal payment system, we should also speak about MasterCard Worldwide or MasterCard Incorporated. MasterCard Worldwide or MasterCard Incorporated is an international payment system, a transnational financial corporation that unites 22,000 financial institutions in 210 countries. The main headquarters of the company is in New York, Westchester County, USA. The global operating headquarters is located in O'Falloneen, a suburb of St. Louis, Missouri, USA.
Throughout the world, the main business is the processing of payments between acquiring banks, servicing outlets, issuing banks or credit cooperatives that use the "MasterCard" debit and credit cards for payments. Since 2006, MasterCard Worldwide has become a public company, prior to its first public offering, it was an organization jointly managed by more than 25,000 financial institutions that produce branded cards.
MasterCard, originally known as Interbank / Master Charge, was created by several Californian banks as a competitor to Bank of America cards issued by Bank of America, which later became the issuer of Visa credit cards from the Visa payment system. From 1966 to 1979 MasterCard was called "Interbank" and "Master Charge".
The initial banks that formed MasterCard were United California Bank (later First Interstate BancSystem, united in Wells Fargo Bank), Wells Fargo, Crocker National Bank (later merged with Wells Fargo) and Bank of California (later merged with Union Bank of California) . Robert Livell, Senior Vice President of Farmer's & Merchants Bank of Long Beach, along with his son Martin Lewell, created a graphic image based on two overlapping circles called Master Charge, superimposed in the centre of the logo. All this became part of the work of the Independent Association of Bankers.
MasterCard International Incorporated and the participants of the payment system MasterCard International are actively involved in the development and implementation of microprocessor card technologies and standards, and in the promotion of cards as a secure payment tool in the e-commerce market. To this end, the payment system participates in several international consortia and forums working on the introduction of standards for multifunction microprocessor cards.
Operations in the MasterCard payment system are carried out through the Banknet telecommunications network connecting all issuers of these cards and processing centers to a unified financial network. The operating center is located in St. Louis, Missouri. Banknet uses the ISO 8583 protocol.
The MasterCard network differs significantly from VISA, in which the network has a star topology, all of whose endpoints converge in one of several data centres, where all transactions are centrally processed. The MasterCard network is peer-to-peer, in which transactions are transferred directly to other endpoints that are "cells" of the network. This gives the network more stability, since a single failure can not affect the disconnection of a large number of endpoints.
MasterCard, like PayPal, also has negative sides and has been a part of several lawsuits. For example:
MasterCard, along with Visa, has been sued in a class action by ATM operators that claims the credit card networks' rules effectively fix ATM access fees. The suit claims that this is a restraint on trade in violation of federal law. The lawsuit was filed by the National ATM Council and independent operators of automated teller machines. More specifically, it is alleged that MasterCard's and Visa's network rules prohibit ATM operators from offering lower prices for transactions over PIN-debit networks that are not affiliated with Visa or MasterCard. The suit says that this price fixing artificially raises the price that consumers pay using ATMs, limits the revenue that ATM-operators earn, and violates the Sherman Act's prohibition against unreasonable restraints of trade. Johnathan Rubin, an attorney for the plaintiffs said, "Visa and MasterCard are the ringleaders, organizers, and enforcers of a conspiracy among U.S. banks to fix the price of ATM access fees in order to keep the competition at bay."
Visa Inc. - American transnational company that provides payment services. It is the basis of the association with the same name. Since September 20, 2013 the price of its shares is part and is involved in the calculation of the Dow Jones index.
VISA International Service Association (acronym) is an international payment system. Currently, the association includes two companies (previously there were four): Visa Inc. (USA, Foster City), which owns all rights to the trademark and technologies used, and Visa Europe Services Inc. (Great Britain, London), which is managed by European banks and operates with the use of Visa Inc. licenses.
The annual trade turnover on Visa cards is 4.8 trillion US dollars. Visa cards are accepted for payment in trade outlets of more than 200 countries of the world. The organization plays a central role in the development of innovative payment products and technologies, which are used by 21,000 financial institutions - members of the payment system and holders of their cards. At the beginning of the third millennium, VISA accounted for about 57% of credit/debit cards in the world, MasterCard's main competitor was about 26%, the third American Express system was slightly over 13%. To date, there are more than 2.011 billion cards in the world, In 20 million different institutions around the world.
In the 1980s and 1990s, Visa offered its customers first elite cards, created the first global ATM system, developed new smart cards and prepaid cards.
Visa initiated the creation of u-commerce, or universal (universal) commerce - the opportunity to do business anywhere in the world, at any time and in any way.
Universal trade means:
Transactions, traditionally made in trading and service companies.
Payments by phone, by mail or by fax.
Making purchases on the Internet using a personal computer, mobile phone, hand-held radio or set-top box, so-called electronic and mobile commerce (e-commerce, m-commerce).
Payments using a mobile phone or a laptop computer that send payment information via signals to the terminal, and receive a response signal. Visa has already conducted a number of successful test transactions using this method of communication.
Payments in self-service terminals, such as petrol stations, vending machines and ATMs.
VisaNet - Visa payment processing network. As of April 2012, 24,000 transactions on Visa cards (130 million transactions a day) are made via VisaNet per second around the world.
Prior to October 3, 2007, Visa included 4 different registered entities around the world, employing about 6,000 people. Visa cards are widely used for payments on the Internet. Some restrictions are only available for Visa Electron, which are currently not accepted by most merchants.
To increase the security of payments on the Internet, the Visa system introduced an additional security measure, called Verified by Visa, or VbV. The essence of the system is that when paying for goods or services on the Internet, you need to enter an additional verification code that the cardholder receives from the card issuing bank. However, this does not solve the problem of payment security. The problem is that the client can not prohibit transactions which are not secured by “Verified By Visa”. And even if the customer pays only in those online stores where Verified by Visa is used, he can easily have his data stolen (card number, owner name, expiration date, cvv2 code), sufficient for legal payments on behalf of the client.(Enough information to use the customers card without him knowing).
Access to the card number, owner's name, validity date and cvv2 code is available to every administrator of the online store where the customer has paid. Thus, the necessary data for the theft of money can be stolen in any online store where the customer made a payment, and the customer's money itself can be stolen through online shops that are not protected by Verified by Visa. The very process of challenging such transactions can be long (up to 90 days) and not always successful.
The VISA payment system allows you to pay for Visa Classic cards using public card data (card number, cardholder name, card expiration date, security code cvv2), even if the client has protection in the form of sms payment confirmation (for example, 3DSecure technology). Such an approach to payment on the Internet is unsafe because the public data of the card can be intercepted by any site administrator who has physical access to his source code while entering this data on the site where payment is made. Thus, in fact, after any payment via the VISA payment system on the Internet, the card becomes compromised, as all the necessary data for the legal payment on your behalf can become known to third parties.
The VISA payment system does not allow the client to block unprotected payments, for which it is sufficient to enter public data of the card. Thus, using the VISA payment system, it is impossible to allow only secure payments that require, in addition to entering the public data of the card, also various types of protection (for example, confirmation of payment by sms), even if these services are connected to the client, because these security methods Work exclusively on those sites that support these types of protection.
At the moment, the only reliable way to protect money on the account with which the card is connected, after paying for it on the Internet through the VISA payment system, is a temporary blocking of the card after making any payment on the Internet. This solution is inconvenient to use, and most clients are not informed about this problem either. Thus, at the moment, the VISA payment system does not provide the required level of payment protection for Visa Classic cards when paying through the Internet and transfers significant risks to the customer. Public data on Visa Classic cards can be collected at various payment sites, and potentially they can be obtained by cyber criminals who will be able to conduct legitimate transactions for the acquisition of virtual services (hosting, consulting, etc.) with affiliated structures. To dispute the data of the transaction in the payment system will be impossible or extremely difficult.
There are security problems when paying by VISA card at registered outlets (regular stores). In most cases, you do not need to enter a PIN code or carry out any authorization for payment. Thus, if the card is lost, the owner of the card can lose money if the offender makes a purchase in the store, using a stolen or lost card when paying at the cashier.
In September 2007, Visa launched the Visa payWave program aimed at creating contactless technologies that allow cardholders to only bring a card to the terminal and they do not need to attach or insert a card into the ATM/terminal. The analogue of such a system is MasterCard's PayPass service using RFID technology.
Each country has its own preferred payment methods. Of course, credit cards and PayPal are popular in many parts of the world. But do you know which method of online payment the Germans prefer? And what is more often used in the Netherlands - credit cards or direct debit?
The analysis of the most used payment methods was conducted by the Expert Market company, a trading platform that allows companies to find the best suppliers. The study used data provided by payment company Adyen. As it turned out worldwide, payments using Visa / MasterCard credit and debit cards prevail. These are the most popular online payment methods.
The payment systems described above are official and fully controlled by the state. To use the systems above work and remain at the same unidentified/anonymous is almost impossible. It is for this reason that we would like to tell you about the crypto currency.
The crypto currency system was launched in 1990 and was originally conceived as an easy way to conduct online purchases between network users.
In general, the understanding of the crypto currency is electronic money. Crypto-currencies are divided into two main classes: electronic money tied to ordinary money and electronic money, the issue/mining of which is carried out through electronic calculations on the Internet.
It does not make much sense to talk for long about electronic money which is tied to real money. We have discussed this before and it is a rather well known system. This is a type of crypto currency that at the current time is used by almost all banks without exception.
But along with the crypto currency equal to the usual money, there is also a second kind that does not depend on the money produced in this or that country.
One of such currencies are bitcoins. Bitcoin is an electronic currency that has no analogues among physical money. Currency of a new generation with a promising future. Already, this currency is in demand in certain circles of people, however, not all countries welcome its use. It seems to me one of the reasons for this reluctance to see bitcoins in circulation is the complete anonymity of transactions and the possibility to carry out speculative actions without taking into account the banking system of this or that country. (This means that it is impossible to determine the sender and the buyer.)
However, from the point of view of the consumer, crypto currency is very, very convenient means for accomplishing any kind of transactions. It does not require the use physical money, so the currency is unified for all countries, regardless of where the seller and the buyer are at the moment. Payments made in the crypto currency do not require any conversions, since the currency for everybody is the same. Transactions occur very quickly and definitively due to the fact that there are no intermediaries. Moreover, this currency is in electronic form, which means that there is no need to use physical money. Thus, working with such money becomes not only convenient, but also environmentally friendly. Also one of the features of bitcoins is complete anonymity when making and receiving transactions (inputs, outputs). This option is likely to not suit countries with prosperous corruption, and the state will not be enriched due to excessive taxes from transactions.
If we talk about the use of currency, it is not much different from real money. It can be used as a means of exchange for the purchase of various kinds of goods and services, and for the accumulation of funds and the creation of valuable assets.
In my opinion, the crypto currency can be compared with the language understandable to everyone without exception, without the need to use the services of translators. To perform transactions, no third party is required to transfer one unit to another. The transaction is made at no additional cost, the transfer of funds is made as quickly as possible. The services of miners (people who check transactions) are negligible and are not perceptible when making transactions.
Unfortunately not all states welcome the use of crypto currency. For example, countries such as China and Russia. On one hand, it is clear that countries want to protect their monetary unit and see a transparent system of transactions for them. But on the other hand, it seems to me, in this way, Russia and China are hampering their economic development in the field of information technology and communications, forcing people to use standard methods of payment and look for loopholes in the system to save their capital without paying additional funds to third parties.
On the other hand, in recent years the development of information technology has received a strong leap and we all began to use the analog of bitcoins. When we receive a salary in euros, we do not receive any physical money, all the amounts we earn are immediately transferred to a bank account electronically. When we come to the store, we pay by electronic cards without using any physical money. We use and have been using electronic money without exception for quite a long time. Many have appreciated this innovation with dignity and use it wherever possible. The only problem for an ordinary consumer in the current banking system is that banks and the government have full control over the transactions made by banks and the state. This is not a situation which is always desirable or convenient for most customers.
On the other hand, Bitcoin's crypto currency has its drawbacks. All transactions of this currency are recorded in blocks, the blocks are in turn written to the block, the blockbanks (the database of payments made) is stored on users' computers and synchronized among themselves to exclude fraud associated with the substitution of information. This database is permanent and every new transaction adds a new record to it, which means that the database is growing ... Already, this database is quite large, but what will happen in 10 years? In my opinion, the system of data storage and its synchronization will have to be reviewed and looked at for another way out. In this form it can not be stored for long.( It now stores all the information about transactions made with cryptovaytes.) And even if a mechanism is created to allow painless storage of data without additional user investments, it is unlikely that such a crypto currency, such as Bitcoin , will absorb all the banks and money known to us in the form in which we know them. It seems to me that this is due to the fact that there will still be a need to make big deals using third parties(Guarantors?) who will be able to protect people from errors if necessary.
Also for me it remains unclear to what standard the crypto currency is attached and how it is supported. Every year there is a tendency for the growth of the crypto currency (bitcoin) in the market at a sufficiently high ratio ... The coefficient exceeding the growth of shares of companies such as microsoft ... The currency is becoming more expensive, it cost is estimated by its quantity and demand, but it has no connection to anything. Undoubtedly, the use of this type of currency in the present is very convenient. Already with its help it is possible to make payment for certain types of services, purchase goods and even make flights to near-space orbits. However, is it worth investing in such a novelty? To make savings in this type of currency? In an age of rapidly developing information technology you want to answer - yes! But doubt is a trait inherent in a person and it tells you to wait and not make quick decisions. I think it's worth waiting a little, not to find yourself in a "monetary bubble", which tends to burst sooner or later.
I fully admit that this type of currency will be able to function alongside the usual banking system. The banks and states themselves will try to artificially limit their growth and activity at least until they have full control over the transactions that are being made. It is likely that the principle of operation and the type of currency will change as to what form we now know it, but eventually the whole world will pass to a single monetary unit. How much do we need to wait for this? I think no one can say for sure, but sooner or later it will happen. Also, as a unit of measure: volume, voltage, force for all countries, one also waits for a calculated, monetary unit, whether bitokoyn, Ethereum, Monero, Factom or even just "credit" ...
All the currently known types of crypto currencies use bitkoin as a standard for their system, but the bitkoin is not supported by anything. It seems to me that once bitkoin gets linked to any known standard: gold, platinum, another rare element - its demand in the market will grow significantly and usage will become ubiquitous.
In conclusion, it should be said that personally I am not against the introduction and expansion of this type of currency. I'm even ready to use it in some cases, but it's too early to talk about the accumulation of capital in this kind of monetary currency.