Frauds in Online Payment Systems

Nowadays, everything is online. Online shopping, online money transfers and online banking help in saving a lot of time and making our lives easier. These facilities are provided by software development companies in  India by developing online payment system software. However, these same technologies also make life easier for cyber criminals by offering them short and quick ways to steal users’ money. 

Using stolen payment data is an effective and popular way of making a quick profit. Hacking a bank is more time-consuming and expensive and the risk of being caught is higher. By contrast, many individuals use computers with different vulnerabilities, which can be compromised easily. By stealing a comparatively lesser amount from each hacked online banking account, a cyber criminal has a good chance of going undetected. 

Frauds are classified as follows:

• Online frauds
• Offline frauds

Online frauds occur when fraudster owns legitimate company to get sensitive personal information and illegally conduct transactions in the existing accounts. Phishing and spoofing are types of online frauds. Online frauds occur when fraudster steals sensitive information of customers such as bank account number, credit card number or other identification and uses it to open new account or performs transaction in the customer/company's name. There are many types of e-frauds in online payment systems and they can occur in following ways:

Account Hacking:

1. Hacking includes gaining illegal entry into a person computer system during online payment. Fraudster use compromised customer credentials to hack the origination system and misuse it in the legal account holder's name.

Identity Theft:

1. Identity theft refers to crime in which fraudster illegally gets and uses another individual's personal information in such a way that involves fraud to gain something of value during online transaction.

Phishing:

1. Phishing is a well-known technique for obtaining confidential sensitive personal information from any customer by posing as a trusted authoring. It is an attack by fraudster to "fish‟ for your baking details through emails having attachment files or hyperlinks to different websites. This e-mail creates a fake image to be sent from legitimate organization to cheat people in order to disclose sensitive information.
2. On clicking any attachment or the hyperlink residing in e-mail ,the computer system get infected with malware. Now when next online transaction takes place, the malware will activate and steal private and personal financial information which includes credit card numbers, PIN number which is used by fraudster to steal money from the account.

Spoofing:

1. This attack is about creating a fake or duplicate website for criminal use. The fraudsters  are having fake companies name, logos, graphics and even code. This often takes form of  trade sites where in people would innocently providing personal information to criminals or purchase of a fake product that actually does not exist.

Check frauds:

1. Check frauds are a major threat to financial security. Electronic check frauds can be easily taken place; the fraudster uses printer, desktop phishing software and scanner. The most common forms of check fraud include altering check, forging endorsement, counterfeiting checks and creating remote checks.

Nigerian advance free fraud:

1. This e-fraud is the most popular and lucrative fraud. Fraudsters often arrive with bulk mailing or family member email of asking the recipients to enter into business and getting money transferred with huge commission in return. 
2. Once the contact is established the fraudsters request money in advance which need opening of an account in the bank or paying some fee which leads to troubles and expenses.

Lottery frauds:

1. One will receive scam emails informing of winning a substantial amount of money in a lottery draw. When the receiver reply's, the sender then asks for bank account details and other personal information so they can transfer the money. These emails are fake and may ask to pay a handling fee that will lead to loss of money and your personal information which may be used in other fraud.

Conclusion:

E-frauds are taking place in online payment systems. So it is becoming a danger for software development companies in India as online payment systems are developed by these companies. There should be encryption algorithms implemented to reduce these e-frauds.

References

Books

[1] E-Commerce Payment Solutions Implementation and Integration Using IBM Websphere Payment Manager, IBM Redbooks, Vervante

[2] http://www.mastercard.com/us/company/en/newsroom/McWilton_Future_of_Electronic_Payments_whitepaper.pdf

[3] http://thismatter.com/money/banking/payment-systems.htm

[4] http://www.wired.com/2010/02/ff_futureofmoney

[5] https://en.wikipedia.org/wiki/Apple_Pay

[6] http://zeendo.com/info/googles-mobile-payment-system-past-present-and-future

[7] http://sixrevisions.com/tools/online-payment-systemsBooks

URL

[1] E-Commerce Payment Solutions Implementation and Integration Using IBM Websphere Payment Manager, IBM Redbooks, Vervante

[2]http://www.mastercard.com/us/company/en/newsroom/McWilton_Future_of_Electronic_Payments_whitepaper.pdf

[3] http://thismatter.com/money/banking/payment-systems.htm

[4] http://www.wired.com/2010/02/ff_futureofmoney

[5]https://en.wikipedia.org/wiki/Apple_Pay

[6] http://zeendo.com/info/googles-mobile-payment-system-past-present-and-future

[7] http://sixrevisions.com/tools/online-payment-systems

[8]http://www.ifourtechnolab.com/

Emerging payment challenges

As the Business-to-Consumer (B2C) commerce model progresses, further complex requirements will be made on the payments software of the future. The following sections,suggested by software development companies, outline real-life payments scenarios that will require electronic payments solutions in any payment system of the future.

Manufacturers’ coupons

When customers purchase products from Internet or ecommerce development company , at that time they can use manufacture coupons to discount the amount. The coupons often have expiration date.

For supporting these feature the payment system require to be have knowledge of the item details of shopping cart so that the coupon can be authorized and redeemed for payment.

Deferred credit 

Retails sector provide buy-now, pay –later offers same way online store also provide same concept over Internet.  Customer provide details of credit card and direct payment would need to be collected by commerce store and a method of indicating to the payment system that the purchase is a deferred credit purchase  Decisions on where the order would lie dormant would need to made. The e-commerce system not holds the information. Therefore the merchant would require some form of authorization check on the consumer’s payment details before the goods were released to the customer.

Multiple payments installments 

Many time customers want purchase product on EMI base. In online store they provide such facility only on debit card. The challenge is how to provide multiple payments installments and how the payment does keeps system track of the regular payments and notify the merchant/consumer of any failures.

Future payments

Following are few other payment options suggested by eCommerce solution provider companies.

E-Money

In credit/ debit card payment transaction, issuing bank charges the merchants a significant fee for each transaction, therefore cards are not good way to sell items for little money. Because of this transaction charge numerous businesses comes in market with special services e-money.

PayPal is successful business that allows people to send money to other people or to merchants without a merchant account with a bank.

Bitcoins and Crypto currencies

Another type of installment getting media consideration as of late is through the utilization of bitcoins or different crypto currencies. A percentage of the primary points of interest progressed for bitcoin are that:

The supply is entirely constrained and not controlled by the government.

Bitcoins are often divided into smaller payments, permitting micro-payments, and

The expense of exchanges are greatly low.

Wireless payments

Payments which are done through wireless device are known as wireless payments.  For example when you want to take dinner in restaurant but you have no money with you at that time. You do, however mobile phones have with you so you can transfer money from mobile using NFC or via your own bank account.

Today two Apple provides this concept through apple pay and Google via Google wallet.

Apple Pay

Apple Pay could be a mobile payment service that lets sure Apple mobile devices build payments at retail and on-line checkout. It digitizes and replaces the credit or debit magnetic tape card group action at MasterCard terminals. The service lets Apple devices wirelessly communicate with purpose of sale systems employing a close to field communication (NFC) antenna, a "dedicated chip that stores encrypted payment information" (known because the Secure Element), and Apple's Passbook and Touch ID.

The administration keeps customer installment information non-open from the distributer, and makes a "dynamic security code [...] produced for each exchange". Apple would not track use, which may keep between the customers, the sellers, furthermore the banks.

Google mobile payment system

This Google Mobile installment framework is in light of the NFC (Near Field Communication), the innovation that permits exchanging data remotely starting with one gadget then onto the next. Furthermore, yes, it bodes well for an organization like Google to make its invasion into this field. The acquiring routine of individuals is completely cherished data for the promoting organizations. These organizations can use the data gathered by Google to market their items and administrations.

Google wallet mobile payments

Google Wallet is a cell phone application that transforms your telephone into a virtual MasterCard/card-less paying gadget Google Wallet will have this image at the clerk:

To pay, you just tap the Google Wallet application on your telephone, punch in a 4-digit PIN code to open it, and touch the telephone to the terminal. This will send a safe installment by means of Near Field Communication (NFC). A Google Prepaid Card is really a virtual card in which you include fiscal trusts from any of your current charge cards.

The New Ways to Pay

 eCommerce solution provider companies suggest following new ways to make payment online.

Twitpay

Using Twtipay, user can transfer money to friend’s paypal account.

Zong

Zong allows customers to provide payment through their phone number instead of credit card details. And the charges reflect on their monthly bill.

Square

Square is ¾ inch cube, which can convert your iPhone into credit card reader.

GetGiving

This mobile application uses for charities to accept small amount donation from public without taking any credit card transaction fee.

Hub Culture

Hub Culture provides users to virtual currency, so they can avoid fees of swapping dollars for rupees.

Electronic payments and their value

If Electronic Payments not exist then

• E-commerce doesn’t exist. It would become very difficult to process online payments for eCommerce solution providers. 
• You can’t purchase product or services online.
• You can’t reserve hotel room or air tickets.
• You can’t perform banking transactions.

Impact of Electronic payment

• A low cost for businesses for software development company.
• A higher exchange of goods and services.
• Transaction can perform easily without geographic boundaries.
• Easy way to manage transactions.
• Unlike cheques, electronic payments don’t ‘bounce’ – as payments will not be effected unless the funds are available in the first place , validation made by payment system development company.

Terminology for Online Payment Systems

• ACH payments
  ACH stands for Automated Clearing House. It provides customers to make payment from their bank accounts by using electronic credit and debit transfers. ACH payments commonly uses for monthly- and subscription-based transactions like online loan repayment, bill payment system developed by software development company. It is used for B2B, B2C and P2P payments.  ACH payments do not provide real time authorization of funds like credit card.

• Merchant Account
  
  A merchant account is a bank account through that customer can receive payments through credit or debit cards. It comes under an agreement between an acceptor and a merchant’s bank for settlement of credit / debit card transactions. In many process it act as merchant account as well as payment gateway.

• Payment Gateway
  
  A payment gateway provides secure way to pass credit/ debit card details to perform transaction between merchants and customer and also between merchant and the payment processor. It comes in middle level between merchant and bank.
• Payment Processor
  
  It is a company which allows merchant to perform credit/debit card transactions. It provides protection from fraud to the customer and merchant.
• PCI compliance
  When payment gateway or merchant starts their working environment, at that time they meet the Payment Card Industry Data Security Standard (PCI DSS). PCI DSS is a information security standard for organizations that handle branded credit cards from the major card schemes including American Express, Discover, Visa, and MasterCard.

Payment history

Money Over Time

Credit cards 

It’s not only one way to pay bill with coins and paper currency. To overcome this problem, credit card was introduced more than 60 years ago.  Customers can pay money to merchant via using credit card for products and services. Merchant can take an imprint of customer card and compare sign on receipt with the one on back of card. After validation of card details and verification of customer’s sign, money transfer from customer’s bank account to merchant account. eCommerce solution provider companies can integrate credit cards with ecommerce or any websites easily.

Today companies, hotels, e-Commerce, shops, etc. accept credit card for transfer amount between merchant and customer bank account.

Internet payment 

After Internet became popular, banks and eCommerce solution provider companies realized that money made on the web.  Banks allow customer to perform transaction 24 hours using Internet. Using Internet payment, it is very easy to validate and verify customer details which are stored in web servers. Internet also validates credit/ debit card details, so in the shop customers provide credit card number and expiration date instead of presenting physical card.

Introduction of online payment system

In this era of technology, it is not just to provide informational content by using text and low resolution graphics to attract customers. Customers expect more from a Web site than information on store opening times or pictures of staff and family. Today a visitor to a website will not buy mobile without comparison with same products on other websites and stores; same way customer will not book travel ticket without comparison. eCommerce solution provider companies should consider wide range of factors while designing and developing eCommerce and other websites.
For these services customer can do payment or transaction through credit card, internet payment, wallets, E-money, Bit Coins etc. E-commerce websites have to provide good payment options to customer.

Today it is a challenge to provide fast and secure way to do payments from customer’s account to merchant account.