As internet use develops, both businesses and consumers are utilizing this opportunity to achieve their goals. Some of these goals include expanding into greater markets for businesses and shopping online for consumers. These online transactions now encompass much more than the traditional online banking. They represent the billions of merchants and consumers whom take part in online transactions twenty-four hours a day.
With this, credit cards and online transactions are quickly becoming an important legal issue. The different areas include: types of payment methods and their components, legislation, and online security such as encryption software. All parties must understand this complex scenario to successfully navigate and participate in any online transactions. With consumers, businesses, and governments transacting business on the internet more than ever, various electronic payment methods have arose. The most widely used payment method is credit cards, which account for eighty percent to ninety percent of internet payments. Debit cards are also another major medium of payment.
Variations such as electronic money or e-money and stored value cards have added features beyond the normal credit card and debit card. The goal of these variations of electronic payments has been to make purchasing simpler by allowing the transfer of cash value to a card. Unlike the debit card that deducts money from an account, the card itself represents the account. For example, retailers are replacing the traditional gift certificates for these stored value cards because they allow more purchasing options.
They can be used either online or offline. Some stored value cards can be recharged with cash while others are disposable. An example of a popular value card is the American Express Gift card which can be used to make any purchases at vendors which accept American Express. Some of the newer internet-based payment systems have e-wallets where value is transmitted through computers.
E-wallets allow the holder to make small purchases both online and offline such as a meal. The payment is deducted from the cardholder's online account immediately. E-wallets are typically set up in conjunction with a credit card or a debit card. When they contain an embedded computer chip, they are known as smart cards. One percent of the smart cards issued were in the U. S.
, while eighty-five percent issued were in the E. U. The two major electronic payment systems between businesses are wire transfers and letters of credit. The main benefits of these electronic payments systems are efficiency and cost savings. "Estimates are that processing payments electronically saves $1 per transaction over processing paper checks" (Hiller 244). Consumers are also taking advantage of online banking and bill payments as this has seen increases in use.
The credit card processing system is "based on trust and is designed to protect everyone involved:" merchant, issuing bank, and cardholder. AA Access Credit Card Company outlines the five basic components in an efficient credit card processing system. First, the credit card issuing bank. Second, is the consumer. Third, the merchant services account. Fourth, the acquiring processor/ acquiring bank.
Fifth, the merchant bank. These five components apply to the different ways in which a credit card may be used as payment: swiped through a credit card terminal, keyed in with a pad, accept the customer's credit card number over the phone, or real time card processing. However, the difference between the types of payments is the various levels of security." 83% of Internet users said their main concern about online shopping is payment security 6)." The explosion of e-commerce and the option to purchase goods and services over the internet has increased the convenience of shopping. Companies like Paypal, Pay systems, and Digi buy are all third party providers that handle credit card transactions and set up security measures to protect the consumer's information. Still, what has not changed, is the public's uneasiness of entering their credit card information online. The concern of privacy and cyder crime has created large barriers for internet businesses to sell online.
Thousands of credit card files are stolen by crackers that use the information to obtain cash, purchase goods, or blackmail companies for various reasons. The media constantly warns consumers to be careful and not trust personal information on the internet if the site does not guarantee secured information. Most websites show their security measures in the form of a small lock symbol in the bottom right hand corner of the webpage. This shows the site is secure and encrypted by the host's servers. Recently the New York Times reported an anonymous intruder from Russia was blackmailing CD Universe for $100, 000 because he claimed to have obtained 300, 000 customer credit numbers from the company. CD Universe's refusal to pay the ransom caused the cracker to retaliate by releasing some of the credit card files on the internet.
He also claimed that he had used some of the credit card numbers to obtain money for himself. Internet companies provide a variety of payment methods. The two most common methods include payment through the website or calling credit card information over the phone. Amazon.
com and Dell give their consumers these options and the trend for them has been that consumers will order and customize their products online, but provide their credit card information over the phone. The question we ask is; with increasing rates cyder crime, how are internet companies going to shift consumers into trusting the security and privacy of their credit card payments online? E-commerce companies must ensure and update systems continuously to protect credit card files. Companies are managing their confidential files by data encryption and the assistance of third-party providers. "Encryption of data is the only way to ensure that sensitive information, such as credit card details, is secure when transmitted across the public internet. Determined hackers will often be able to intercept data, but if properly encrypted, they won't be able to decode it and use it (Harvey, website)." The two main forms of encryption available are symmetric and asymmetric.
The difference is that symmetric uses the same key to decrypt the encrypted information and asymmetric uses a different key to decrypt. Asymmetric encryption is also the encryption used to create digital signatures, which are used to authenticate the user. In the recent example with Dell and Amazon, the companies use a system known as Socket Science. Socket Science uses Secure Socket Layer technology to encrypt consumer information such as name, address and credit card numbers.
Microsoft Internet Explorer 2. 1 and Netscape Navigator 2. 0 support SSL. SSL sites are notated by an unbroken lock or key icon. "SSL can now use a 128-bit key so it's very secure and reliable (Harvey, website)." Major credit cards are also getting involved to protect their customers account information and reduce their exposure to credit card fraud. Companies such as MasterCard, American Express, and Visa have created a program known as Secured Electronic Transactions (SET).
SET uses digital certificates to merchants and credit card issuers with a way to authenticate credit card information provided by the user online. SET require consumers to provide what type of credit card they are using and personal information. An on-screen wallet is portrayed that stays on the consumer's PC. Once purchase is made, order information is sent to the merchant and credit card information is encrypted then sent to the credit card company. This software is still in the pilot stages but Visa spokesperson, Greg Jones, expects that the technology will take at least another few years before merchants and financial institutions using SET will reach a critical mass.
The government agency in charge of monitoring and protecting consumer's rights on the internet is the Federal Trade Commission (FTC). While many of the issues the FTC deals with in regulating internet fraud include false advertising and misrepresentations, they are also able to prosecute those who abuse credit card purchases. A who uses stolen credit cards to engage in transactions over the internet may be liable to criminal charges under federal statutes from the FTC or individuals as well as civil damages by the credit card companies and individuals. Companies such as Verisign authenticate websites validity and having a Verisign logo on a website may ensure consumers that the site is secure to perform legitimate credit card transactions. The internet makes transactions faster and easier than ever before. Since the introduction of e-commerce, online companies have found new ways of letting consumers pay for their items.
The old way would be too buy the product and submit credit card information online. Now, payment systems have become more advance, allowing vendors to withdraw money directly from the buyers' bank account. Companies have gone to great extents ensuring that online transactions are safe, convenient, and reliable. Perhaps the most well known electronic payment system is Paypal. They are an "industry leader in fraud prevention and risk management" and "has one of the lowest loss rates in the online retail industry." Paypal boasts well over sixty-four million member accounts worldwide making them a leader in credit card processing.
The problem with these kinds of systems is that they are prone to hackers and cyder-thieves who may be able to break into accounts and misuse the money. In the physical world, there are provisions which protect consumers form being victims of transaction fraud. Under the Uniform Commercial Code (UCC), articles 3 and 4 govern payment systems and other forms of negotiable instruments. Credit card protection is provided by The Fair Credit Billing Act (FCB A) and debit card protection is provided by The Electronic Fund Transfer Act (EFTA).
These two pieces of federal legislation address the issue of lost or stolen credit cards and the process used to resolve errors on credit card and bank account statements. These acts limit the loss of a cardholder to $50 for unauthorized credit card usage given that they reported the loss immediately. Consumers receive additional protection from their financial institutions and they often do not hold cardholders liable for any unauthorized transactions. However, stored value cards do not receive any protection at the federal level.
Under EFTA, which defines transactions as "transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account." What this means is that any transaction not performed on paper is subject to regulations under EFTA. This also includes paying for goods with a credit card in a brink and mortar store, since the credit card is authorized by an electronic terminal. Credit card fraud performed over the internet can carry the same penalties as those performed otherwise including, but not limited to, 10 Years Imprisonment and / or a $10, 000 Fine under U. S. C. Title 18, Section 3056, Subsection (b).
This specifically authorizes the United States Secret Service to detect and arrest any person who violates federal criminal laws relating to credit card fraud and related activity in connection with computers and / or access. Although online credit card and account theft is not uncommon, the rate of theft is declining. Tougher encryptions imposed by online companies and harsh penalties imposed by the government seems to be deterring online criminals from engaging in online fraud. According to. com, online fraud rates have dropped from 3. 0% in 2000, to 2.
4% as of last year. What is interesting about this statistic is that the dollar amount of online fraud has increased from $823 mil in 2000 to $1. 45 bill as of last year. This is due to the increase consumer usage of e-commerce which has grown while the rate of online fraud has been stable accordingly. With increase technologies, it has become easier for crime to occur over the internet, but it has also made it easier to catch those who break the law using the internet.
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