The State of the Art in Electronic Payment Systems

T he exchange of goods conducted face-to-face between two parties dates back to before the beginning of recorded history. Eventually, as trade became more complicated and inconvenient, humans invented abstract representations of value. As time passed, representations of value became more and more abstract, progressing from barter through bank notes, payment orders, checks, credit cards, and now electronic payment systems. Traditional means of payment suffer from various well-known security problems: Money can be counterfeited , signatures forged, and checks bounced. Electronic means of payment retain the same drawbacks and some additional risks: Unlike paper, digital " documents " can be copied perfectly and arbitrarily often; digital signatures can be produced by anybody who knows the secret cryptographic key; a buyer's name can be associated with every payment, eliminating the anonymity of cash. Thus without new security measures, widespread electronic commerce is not viable. On the other hand, properly designed electronic payment systems can actually provide better security than traditional means of payments, in addition to flexibility of use. This article provides an overview of electronic payment systems , focusing on issues related to security. Pointers to more information on several payment systems described can be found at Commerce always involves a payer and a payee— who exchange money for goods or services—and at least one financial institution—which links " bits " to " money. " In most existing payment systems, the latter role is divided into two parts: an issuer (used by the payer) and an acquirer (used by the payee). Electronic payment is implemented by a flow of money from the payer via the issuer and acquirer to the payee. Figure 1 shows some typical flows of money in the case of prepaid, cash-like payment systems. In these systems, a certain amount of money is taken away from the payer (for example, by debiting the payer's bank account) before purchases are made. This amount of money can be used for payments later. Smart card-based electronic purses, electronic cash, and bank checks (such as certified checks) fall into this category. Figure 2 shows some typical flows of money in the case of bank-card-based systems, which include pay-now systems and pay-later systems. In pay-now payment systems, the payer's account is debited at the time of payment. Automated-teller-machine (ATM) cards fall into this category. In pay-later (credit) payment systems, the payee's bank account is credited the amount of sale before the payer's …