Page 355 - Introduction to Electronic Commerce and Social Commerce

342 11 Electronic Commerce Payment Systems and Order Fulfillment

• Government and healthcare—cards issued by govern-
numbers that could potentially be used by fraudsters. ments for citizen identification and online services and
It is also a database of card numbers used to avoid cards issued by private health insurance companies
further fraud from repeat offenders. The merchants • Device manufactures—mobile phones, tablets, naviga-
can match each customer’s card against this database tion devices, and other connected devices including
to find customers and cards with known problems. secure element without SIM application
• Postal address validation service. Checks to see if • Other—cards issued by operators of transport, toll, car
the shipping address received with an order is a valid park, pay TV, and other services, as well as cards provid-
postal address. Just under 70% use this technique. ing physical and logical access.

A little over 9.2 billion smart cards were shipped in 2015, a
While automated procedures are key to fraud detection, 12% increase over the previous year. In 2016, the number is
the CyberSource survey indicated that close to one out of expected to only grow about 6% to 9.8 billion units. The
every four card transactions is flagged as potentially fraudu- majority of smart cards are currently found in telephones (5.4
lent, requiring manual review. The average length of a man- billion out of the 9.2 billion) cards used for payments (which
ual review is about 5 min. This adds up to a lot of time and is 2.6 billion). The growth that has been experienced is being
labor expense. In fact half of the money spent combating driven primarily by the migration of payment cards from
card transaction fraud goes to these costs. The future key to swipe to (EVM) chips, the rise in mobile devices (excluding
reducing these costs is clearly better automated procedures. SIM cards), and increasing e-government services.

SECTION 11.2 REVIEW QUESTIONS Types of Smart Cards

1. Describe the three types of payment cards. There are two distinct types of smart cards. The first type is
2. Describe credit card readers. a contact card, which is activated when it is inserted into a
3. List the major participants in processing cards online. smart card reader. The second type of card is a contactless
4. Describe the key processes in card settlement and autho- (proximity) card, meaning that the card only has to be
rization. within a certain proximity of a smart card reader to process
5. What options does a merchant have in setting up an a transaction. On the front or back of the contact smart cards
e-payment system? there is a small gold (or silver) plate about one-half inch in
6. What costs does an online merchant incur if it accepts a diameter that contains a chip. When the card is inserted into
fraudulent card transaction? the card reader, the plate makes electronic contact and data
7. What steps are often taken by online merchants to combat are transferred to and from the chip. A contactless card has
fraudulent orders? an embedded antenna that facilitates data transfer to another
antenna (e.g., attached to another device). Contactless cards
are especially useful where data must be processed (e.g.,
11.3 SMART CARDS paying toll road fees, bus or train fares) or when contact
may be difficult. Most proximity cards work at short range
A smart card is a plastic payment card that contains data in (just a few inches). For some applications, such as payments
an embedded microchip. The embedded chip can be a micro- at highway tollbooths, longer range proximity cards are
processor combined with a memory chip or just a memory available.
chip with nonprogrammable logic. Information on a micro- In 2015, over 50% of the smart cards shipped to the USA
processor card can be added, deleted, or otherwise and Europe were contactless. For Asia Pacific, the figure was
manipulated; a memory-chip card is usually a “read-only” close to 75%.
card, similar to a magnetic stripe card. The card’s programs With both types of cards, smart card readers are crucial to
and data must be downloaded from, and activated by, some the operation of the system. Technically speaking, a smart
other device (such as an ATM). Smart cards are used for a card reader is actually a read/write device. The primary pur-
wide variety of purposes including: pose of the smart card reader is to act as a mediator between
the card and the host system that stores application data and
• Telecom—SIM cards processes transactions. Just as there are two basic types of
• Financial—cards issued by banks, retailers, and service cards, there are two types of smart card readers—contact and
providers for payment services (debit, credit, prepaid), proximity—that match the particular type of card. Smart card
loyalty, and social cards with payment apps readers can be transparent, requiring a host device to operate,