E-commerce

business. technology. society.

Sixth Edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2010 Pearson Education, Inc.

 Chapter 5
Online Security and Payment
Systems

Copyright © 2009
2010 Pearson
Pearson Education,
Education, Inc.
Inc. Slide 5-2
 Cyberwar Becomes a Reality
Class Discussion

„ What is a DDoS attack? 
„ What are botnets? Why are they used in DDoS 
attacks?
„ What percentage of computers belong to 
botnets? What percentage of spam is sent by 
botnets?
„ Can anything be done to stop DDoS attacks?

Copyright © 2010 Pearson Education, Inc. Slide 5-3

The E-commerce Security Environment
„ Overall size and losses of cybercrime unclear
™ Reporting issues

„ 2008 CSI survey: 49% respondent firms 
detected security breach in last year
™ Of those that shared numbers, average loss $288,000

„ Underground economy marketplace
™ Stolen information stored on underground economy 
servers

Copyright © 2010 Pearson Education, Inc. Slide 5-4

Types of Attacks
Against
Computer
Systems
(Cybercrime)

Figure 5.1, Page 267
Source: Based on data from Computer 
Security Institute, 2009.
Copyright © 2010 Pearson Education, Inc. Slide 5-5
 What Is Good E-commerce Security?

„ To achieve highest degree of security
™ New technologies

™ Organizational policies and procedures

™ Industry standards and government laws

„ Other factors
™ Time value of money

™ Cost of security vs. potential loss

™ Security often breaks at weakest link
Copyright © 2010 Pearson Education, Inc. Slide 5-6
The E-commerce Security Environment

Figure 5.2, Page 270
Copyright © 2010 Pearson Education, Inc. Slide 5-7
Table 5.2, Page 271
Copyright © 2010 Pearson Education, Inc. Slide 5-8
 The Tension Between Security and
Other Values
„ Security vs. ease of use
™ The more security measures added, the more 
difficult a site is to use, and the slower it becomes

„ Security vs. desire of individuals to act 
anonymously
™ Use of technology by criminals to plan crimes or 
threaten nation‐state

Copyright © 2010 Pearson Education, Inc. Slide 5-9

 Security Threats in the E-commerce
Environment

„ Three key points of vulnerability:

1. Client
2. Server
3. Communications pipeline

Copyright © 2010 Pearson Education, Inc. Slide 5-10

A Typical
E-commerce
Transaction

SOURCE: Boncella, 2000.
Figure 5.3, Page 273
Copyright © 2010 Pearson Education, Inc. Slide 5-11
 Vulnerable Points in an
E-commerce Environment

SOURCE: Boncella, 2000.
Figure 5.4, Page 274
Copyright © 2010 Pearson Education, Inc. Slide 5-12
 Most Common Security Threats in the
E-commerce Environment

„ Malicious code
™ Viruses
™ Worms
™ Trojan horses
™ Bots, botnets

„ Unwanted programs 
™ Browser parasites
™ Adware
™ Spyware

Copyright © 2010 Pearson Education, Inc. Slide 5-13

 Most Common Security Threats

„ Phishing
™ Deceptive online attempt to obtain confidential information
™ Social engineering, e‐mail scams, spoofing legitimate Web sites
™ Use information to commit fraudulent acts (access checking 
accounts), steal identity

„ Hacking and cybervandalism
™ Hackers vs. crackers
™ Cybervandalism: intentionally disrupting, defacing, destroying Web 
site
™ Types of hackers: white hats, black hats, grey hats

Copyright © 2010 Pearson Education, Inc. Slide 5-14

 Most Common Security Threats
„ Credit card fraud/theft
™ Fear of stolen credit card information deters online purchases
™ Hackers target merchant servers; use data to establish credit under 
false identity
™ Online companies at higher risk than offline
„ Spoofing: misrepresenting self by using fake e‐mail address 
„ Pharming: spoofing a Web site
™ Redirecting a Web link to a new, fake Web site
„ Spam/junk Web sites
„ Splogs
Copyright © 2010 Pearson Education, Inc. Slide 5-15
 Most Common Security Threats
„ Denial of service (DoS) attack
™ Hackers flood site with useless traffic to overwhelm network
„ Distributed denial of service (DDoS) attack
™ Hackers use multiple computers to attack target network
„ Sniffing
™ Eavesdropping program that monitors information traveling over a 
network

„ Insider jobs
™ Single largest financial threat

„ Poorly designed server and client software
Copyright © 2010 Pearson Education, Inc. Slide 5-16
 Technology Solutions

„ Protecting Internet communications 
(encryption)
„ Securing channels of communication 
(SSL, S‐HTTP, VPNs)
„ Protecting networks (firewalls)

„ Protecting servers and clients 

Copyright © 2010 Pearson Education, Inc. Slide 5-17

Tools
Available to
Achieve Site
Security

Figure 5.7, Page 287
Copyright © 2010 Pearson Education, Inc. Slide 5-18
 Encryption
„ Encryption
™ Transforms data into cipher text readable only by 
sender and receiver
™ Secures stored information and information 
transmission
™ Provides 4 of 6 key dimensions of e‐commerce 
security: 
1. Message integrity
2. Nonrepudiation
3. Authentication
4. Confidentiality

Copyright © 2010 Pearson Education, Inc. Slide 5-19

 Symmetric Key Encryption
„ Sender and receiver use same digital key to 
encrypt and decrypt message
„ Requires different set of keys for each transaction
„ Strength of encryption 
™ Length of binary key used to encrypt data

„ Advanced Encryption Standard (AES)
™ Most widely used symmetric key encryption

™ Uses 128‐, 192‐, and 256‐bit encryption keys

„ Other standards use keys with up to 2,048 bits
Copyright © 2010 Pearson Education, Inc. Slide 5-20
 Public Key Encryption
„ Uses two mathematically related digital keys 
1. Public key (widely disseminated) 
2. Private key (kept secret by owner)
„ Both keys used to encrypt and decrypt message
„ Once key used to encrypt message, same key 
cannot be used to decrypt message
„ Sender uses recipient’s public key to encrypt 
message; recipient uses his/her private key to 
decrypt it

Copyright © 2010 Pearson Education, Inc. Slide 5-21

 Public Key Cryptography—A Simple Case

Figure 5.8, Page 290
Copyright © 2010 Pearson Education, Inc. Slide 5-22
 Public Key Encryption Using Digital
Signatures and Hash Digests
„ Hash function:
™ Mathematical algorithm that produces fixed‐length number called 
message or hash digest
„ Hash digest of message sent to recipient along with 
message to verify integrity
„ Hash digest and message encrypted with recipient’s 
public key
„ Entire cipher text then encrypted with recipient’s 
private key—creating digital signature—for 
authenticity, nonrepudiation 
Copyright © 2010 Pearson Education, Inc. Slide 5-23
 Public Key Cryptography with Digital Signatures

Figure 5.9, Page 291
Copyright © 2010 Pearson Education, Inc. Slide 5-24
 Digital Envelopes
„ Addresses weaknesses of:
™ Public key encryption
„ Computationally slow, decreased transmission speed, increased 
processing time
™ Symmetric key encryption
„ Insecure transmission lines

„ Uses symmetric key encryption to encrypt document 
„ Uses public key encryption to encrypt and send 
symmetric key

Copyright © 2010 Pearson Education, Inc. Slide 5-25

 Creating a Digital Envelope

Figure 5.10, Page 293
Copyright © 2010 Pearson Education, Inc. Slide 5-26
 Digital Certificates and
Public Key Infrastructure (PKI)
„ Digital certificate includes:
™ Name of subject/company
™ Subject’s public key
™ Digital certificate serial number
™ Expiration date, issuance date
™ Digital signature of certification authority (trusted third 
party institution) that issues certificate

„ Public Key Infrastructure (PKI): 
™ CAs and digital certificate procedures that are accepted by 
all parties

Copyright © 2010 Pearson Education, Inc. Slide 5-27

 Digital Certificates and Certification Authorities

Figure 5.11, Page 294
Copyright © 2010 Pearson Education, Inc. Slide 5-28
 Limits to Encryption Solutions

„ Doesn’t protect storage of private key
™ PKI not effective against insiders, employees
™ Protection of private keys by individuals may be 
haphazard
„ No guarantee that verifying computer of 
merchant is secure
„ CAs are unregulated, self‐selecting 
organizations

Copyright © 2010 Pearson Education, Inc. Slide 5-29

 Insight on Society
In Pursuit of E-mail Security
Class Discussion

„ What are some of the current risks and problems with 
using e‐mail?
„ What are some of the technology solutions that have 
been developed?
„ Are these solutions compatible with modern law?
„ Consider the benefits of a thorough business record 
retention policy. Do you agree that these benefits are 
worth giving up some control of your e‐mail?

Copyright © 2010 Pearson Education, Inc. Slide 5-30

Securing Channels of Communication
„ Secure Sockets Layer (SSL): 
™ Establishes a secure, negotiated client‐server session 
in which URL of requested document, along with 
contents, is encrypted

„ S‐HTTP: 
™ Provides a secure message‐oriented communications 
protocol designed for use in conjunction with HTTP

„ Virtual Private Network (VPN): 
™ Allows remote users to securely access internal 
network via the Internet, using Point‐to‐Point 
Tunneling Protocol (PPTP)
Copyright © 2010 Pearson Education, Inc. Slide 5-31
 Secure Negotiated Sessions Using SSL

Figure 5.12, Page 298
Copyright © 2010 Pearson Education, Inc. Slide 5-32
 Protecting Networks
„ Firewall
™ Hardware or software that filters packets
™ Prevents some packets from entering the 
network based on security policy
™ Two main methods:
1. Packet filters
2. Application gateways

„ Proxy servers (proxies)
™ Software servers that handle all communications 
originating from or being sent to the Internet
Copyright © 2010 Pearson Education, Inc. Slide 5-33
 Firewalls and Proxy Servers

Figure 5.13, Page 301
Copyright © 2010 Pearson Education, Inc. Slide 5-34
 Protecting Servers and Clients

„ Operating system security enhancements

™Upgrades, patches

„ Anti‐virus software 

™Easiest and least expensive way to prevent 
threats to system integrity
™Requires daily updates

Copyright © 2010 Pearson Education, Inc. Slide 5-35

 Management Policies, Business
Procedures, and Public Laws
„ U.S. firms and organizations spend 12% of IT 
budget on security hardware, software, 
services ($120 billion in 2009)
„ Managing risk includes
™ Technology

™ Effective management policies

™ Public laws and active enforcement

Copyright © 2010 Pearson Education, Inc. Slide 5-36

A Security Plan: Management Policies

„ Risk assessment
„ Security policy
„ Implementation plan
™ Security organization

™ Access controls

™ Authentication procedures, including biometrics

™ Authorization policies, authorization management systems

„ Security audit
Copyright © 2010 Pearson Education, Inc. Slide 5-37
 Developing an E-commerce Security Plan

Figure 5.14, Page 303
Copyright © 2010 Pearson Education, Inc. Slide 5-38
 Insight on Technology
Securing Your Information:
Cleversafe Hippie Storage
Class Discussion

„ What is LOCKSS? What are the advantages 
and disadvantages to LOCKSS?
„ How is Cleversafe’s storage method different? 
How does it work?
„ Why is it accurate to say that Cleversafe’s 
method is “green” or “hippie storage”?

Copyright © 2010 Pearson Education, Inc. Slide 5-39

 The Role of Laws and Public Policy
„ Laws that give authorities tools for identifying, 
tracing, prosecuting cybercriminals:
™ National Information Infrastructure Protection Act of 1996
™ USA Patriot Act
™ Homeland Security Act

„ Private and private–public cooperation
™ CERT Coordination Center
™ US‐CERT

„ Government policies and controls on encryption 
software
„ OECD guidelines
Copyright © 2010 Pearson Education, Inc. Slide 5-40
 Types of Payment Systems

„ Cash
™ Most common form of payment in terms of number of 
transactions
™ Instantly convertible into other forms of value without 
intermediation
„ Checking transfer
™ Second most common payment form in the United States 
in terms of number of transactions
„ Credit card
™ Credit card associations
™ Issuing banks
™ Processing centers
Copyright © 2010 Pearson Education, Inc. Slide 5-41
 Types of Payment Systems

„ Stored Value
™ Funds deposited into account, from which funds are paid 
out or withdrawn as needed, e.g., debit cards, gift 
certificates
™ Peer‐to‐peer payment systems

„ Accumulating Balance
™ Accounts that accumulate expenditures and to which 
consumers make period payments
™ E.g., utility, phone, American Express accounts

Copyright © 2010 Pearson Education, Inc. Slide 5-42

Table 5.6, Page 312
Source: Adapted from MacKie‐Mason and White, 1996.
Copyright © 2010 Pearson Education, Inc. Slide 5-43
 E-commerce Payment Systems

„ Credit cards
™ 55% of online payments in 2009 

„ Debit cards
™ 28% of online payments in 2009

„ Limitations of online credit card payment
™ Security
™ Cost
™ Social equity

Copyright © 2010 Pearson Education, Inc. Slide 5-44

 How an Online Credit Transaction Works

Figure 5.16, Page 315
Copyright © 2010 Pearson Education, Inc. Slide 5-45
 E-commerce Payment Systems

„ Digital wallets
™ Emulates functionality of wallet by authenticating consumer, storing 
and transferring value, and securing payment process from consumer 
to merchant
™ Early efforts to popularize failed
™ Newest effort: Google Checkout

„ Digital cash
™ Value storage and exchange using tokens 
™ Most early examples have disappeared; protocols and practices too 
complex

Copyright © 2010 Pearson Education, Inc. Slide 5-46

 E-commerce Payment Systems
„ Online stored value systems
™ Based on value stored in a consumer’s bank, checking, or 
credit card account
™ PayPal, smart cards

„ Digital accumulated balance payment
™ Users accumulate a debit balance for which they are billed 
at the end of the month

„ Digital checking:
™ Extends functionality of existing checking accounts for use 
online

Copyright © 2010 Pearson Education, Inc. Slide 5-47

 Wireless Payment Systems
„ Use of mobile handsets as payment devices well‐
established in Europe, Japan, South Korea
„ Japanese mobile payment systems
™ E‐money (stored value)

™ Mobile debit cards

™ Mobile credit cards

„ Not as well established yet in the United States
™ Majority of purchases are digital content for use on cell 
phone

Copyright © 2010 Pearson Education, Inc. Slide 5-48

 Insight on Business
Mobile Payment’s Future:
Wavepayme, Textpayme
Group Discussion

„ What technologies make mobile payment 
more feasible now than in the past?
„ Describe some new experiments that are 
helping to develop mobile payment systems.
„ How has PayPal responded?
„ Why haven’t mobile payment systems grown 
faster?  What factors will spur their growth?
Copyright © 2010 Pearson Education, Inc. Slide 5-49
 Electronic Billing Presentment and
Payment (EBPP)
„ Online payment systems for monthly bills
„ 40% + of households in 2009 used some 
EBPP; expected to grow significantly
„ Two competing EBPP business models:
1. Biller‐direct (dominant model)
2. Consolidator
„ Both models are supported by EBPP 
infrastructure providers
Copyright © 2010 Pearson Education, Inc. Slide 5-50
 All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

Copyright © 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Copyright © 2010 Pearson Education, Inc. Slide 5-51