E-Money and Security Risk of E-Business

Abstract

Davies (2010) explained that gold, silver, and cattle were the oldest forms of money that people used for trade, and buying goods, and in today’s modern societies will still using money for day to day transactions in form of coins and banknotes. Today’s other means of money are used for such transactions such as debit cards transactions, credit cards transactions, and other means of money such as electronic money (also known as e-money, e-currency, digital money, or digital cash).

Miller (2009) explained that both digital signatures and public-key cryptography made e-money possible to be implemented in our society, where both banks and consumers have the Public-Key encryption,  the private key is known to the owner (Private Key to encrypt, and public key to decrypt and vice verse) and digital data can represent the money orders. In such case customers will sign the withdraws and the deposits using their private key while the banks uses the customers’ public key to verify their deposits and withdrawal process. There are two types of e-money:

  • Identified e-money – The bank can track the money as it moves from one financial institution to another, since the identified money contains information that can reveal the identity of the person who originally did the transaction.
  • Anonymous e-money – It doesn’t leave a transaction trail, once the money is withdrawn from the account, it can be used without any tracking just like any cash where blind signatures are used for e-money transaction.

Also, e-money can be offline e-money or online e-money. With offline e-money, the conducted transaction happens without the bank involvement. On the other hand, the online e-money, the customer needs to conduct the transaction via Internet connection with the bank to conduct the transaction (Miller, 2009).

Virtual banking is used by consumers via their personal computers, and phone lines to do everything except withdrawing cash through such services (e.g. review credit card, account balance, and paying bills). While it’s not possible with the virtual banking for the consumer to withdraw cash, they still can download electronic money from their account on the PC to the smart card. It’s predicted that soon, consumers will be able to load money to their smart card via slot hooked up to their PC (McGrgor, 1998).

Virtual shops via e-commerce and e-business is increased dramatically during the recent years where shopping sites allow consumers to browse on-line catalogues, and use their credit card information to order products directly from the Internet. With the security concerns about the credit card information and other personal information, encrypted cyberspace is used to allow consumer to enter the credit card information, and other personal information to eliminate the potential risk of exposing such information to the hackers (McGrgor, 1998).

The Security Risk of E-Business

Rappa (2010) explained that the Internet technologies and web access that are available to millions of users, has changed the traditional business models where the companies produce goods and services to their clients via the web interaction, and online payments process. The e-business models continue the evolve an interesting variations that can be expected to be more and more in the future and as such; more other issues such as online security and privacy becomes an important aspect within the business model. That said, there are many security risk issues involved in e-business practice, and some of these issues are:

  • Theft and distortion of information and data (e.g. personal information and credit card numbers from the database, changes to the invoices and the payment files).
  • Hacking and broadcasting of information of data and credit card number online for the whole world to see.
  • Lack of security preventive policy implemented for e-business practices, and implementing the security systems that can detect hacking, wrong activities, and collecting evidence of attempted hacking.
  • Unsafe transaction due to a lack of implementing encryption method to protect the consumers and the business.
  • Software vulnerability and security gaps that can lead to security risk, and business risks.

Credit Card Business Model

Gerson and Woolsey (2009) explained that the credit cards model allows consumers to maintain a revolving balance where the cardholders are no longer has to pay off their full bills by the end of each cycle. Such mechanism gives customers the flexibility required in managing their money despite the fact that the risk of accumulating finance charges can exist. The credit cards companies created a set of rules for processing and maintaining their standard procedures that handles all the flow of the bank card papers in order to eliminate the misuse of cards and credit cards frauds. Also, internal system and rules have been established among these credit cards companies that can handle the exchange of information, money, and negotiation procedures to settle disputes among them. While the plastic cards have been around for a long time, other alternative online payments can be implemented to help consumers and credit cards companies (e.g. PayPal, and implanted phone chips or other devices). 

Levitin (2008) explained that the credit card business model created irresponsible lending among consumers, and as a result of such behaviour, the card issuers gets the benefits of making money over credit card transactions; and interest fees. With such mechanism, the card issuers encourage reckless overspending among consumers, and enrich their assets with implementing the overspending process.

 Nikolas (2010) explained that there are huge benefits for a business or individual of having a credit card or a line of credit available as an option for purchasing and business transaction. Some of these benefits and the disadvantages are:

  • Credit cards help building a business and personal credit history, which allow any future borrowing from banks, and financial institutions. 
  • Using secured business credit cards has a collateral deposit that has to be an equal amount of the credit available on the card.
  • Identity theft, where hackers gained access to large amount of personal information since the credit information represent a single point of attack.
  • The credit card represents a quick way for merchants without verifying the identity of the individual using the credit card which can open the door to identity theft and fraud issues.
  • The credit card increased the bookkeeping work that individuals and business has to maintain to keep track of the spending and credit cards payments to avoid interests (Jeacoma, 2002).
  • For the business that are accepting credit card payments for their merchandise, there’s extra overhead added due to the processing fees of the credit card through the credit card companies (Jeacoma, 2002).
  • Most credit cards requires personal guarantee, and as such; personal information is required to report the activities on the personal or business card which makes individuals liable for identity theft and credit card frauds. Also no payments after the grace period can lead to a negative personal credit report and inability for individual to borrow money (Jeacoma, 2002).
  • Credit card protections are fluctuating from personal to business credit cards where online transaction can be hacked. Also, the fluctuating in Interest rates can create for individual and business money loss issues over the accumulation of the money borrowed (Adams, 2010).

Pros & Cons of E-Money

  • E-money can be easy to duplicate where the digital system will allow individual to duplicate the e-money, and spend both copies (Miller, 2009).
  • With online e-money the bank can easily detect if the e-money is still spendable by verifying such spending via database system maintained by the bank that track every piece of e-money and prevent the double spending before it happens (Miller, 2009). 
  • With Offline e-money systems the double spending can be detected by either creating a special smart card that contains a tamper-proof chip called the observer where such chip carries a mini database that keeps track of all pieces of e-money spent. The double spending in such case can be detected and the transaction will be prevented. Another way of detecting the double spending is by implementing cryptographic protocols that can reveal the identity of the double spender (Miller, 2009).
  • E-money has less transaction cost, since no human factor will be required to process the transaction, and it doesn’t require a personal contact with the bank (Miller, 2009).
  • It has lower required of safety than regular cash handling process (Miller, 2009).
  • It is not recommended for consumers to save the e-money for a long time or use such money for large financial transactions (Miller, 2009).
  • Electronic cash is a convenient method for consumers to do online banking (e.g. pay bills, pay credit card bills, and money transaction anywhere in the world) (Scholasticus, 2009).
  • E-money increases the financial transactions for many business, and organization with very high accuracy without any manual labour or banking staff and stimulates the world economy (Scholasticus, 2009).
  • The e-money system is not a foolproof where the online facilities can be infected by viruses, and can be involved in security breach issues (E.g. stolen smart cards); if reliable security system is not in place (Scholasticus, 2009).
  • While the cash money doesn’t cost consumers, it cost a lot for merchants whenever the consumers use cash instead of the credit card. Merchants need to safe guard the money, count the money, and move the money to a bank account via armoured cars (Sarfin, 2010). 
  • It’s easier for consumers to carry a credit cards and smart cards than carrying cash in a wallet and being a target for robbers (Sarfin, 2010). 

Conclusion

E-money refers to an exchange of money electronically via online banking or e-business. There is a risk involved with such practice, and security risk is main issue that should be considered when implementing any of the above methods. The security risk can be eliminated by implementing the right cryptography methods that can protect the online businesses and their consumers. The business model has changed over the years with the creation of the internet technology, and online stores that deals with goods and services. Secure such channels of business practices will guarantee online privacy, and also prevent the loss of valued information that can be compromised by hackers and viruses. It’s imperative for e-businesses, and online banking to implement the right tools that can maintain security, and close the gaps that can expose personal data and cause a loss of revenues.

Finally, my personal preference is using credit cards for merchandise and online shopping. The credit cards are common, and it has proven to be secure, with zero liability on consumers and also can be tracked online instantly with all the transactions that happened during the day. I also think that consumers prefer the same method of payments for the above reasons.

References

Adams, K. (2010) The Pros and Cons of Small Business Credit Cards [Online]. Available from: http://www.investopedia.com/articles/pf/09/small-business-credit-cards.asp (Accessed: 18 December 2010).

Davies, L. (2010) Electronic Money, or E-Money, and Digital Cash [Online]. Available from: http://projects.exeter.ac.uk/RDavies/arian/emoney.html (Accessed: 18 December 2010).

Gerson, E. & Woolsey, B. (2009) The history of credit cards [Online]. Available from: http://www.creditcards.com/credit-card-news/credit-cards-history-1264.php (Accessed 18 December 2010).

Gutzman, A. (2000) Security Risks in e-Business [Online]. Available from: http://www.ecommerce-guide.com/news/news/article.php/411401 (Accessed: 18 December 2010).

Jeacoma, K. (2002) Small business tips: the pros and cons of accepting credit cards [Online]. Available from: http://www.essortment.com/career/smallbusinesst_sbzq.htm (Accessed: 18 December 2010).

Levitin, A. (2008) The Credit Card Industry’s Business Model Encourages Irresponsible Lending [Online]. Available from: http://www.creditmattersblog.com/2008/12/credit-card-industrys-business-model.html (Accessed 18 December 2010).

Miller, J. (2009) E-Money mini-FAQ (release 2.0) [Online]. Available from: http://projects.exeter.ac.uk/RDavies/arian/emoneyfaq.html (Accessed: 18 December 2010).

McGrgor, S. (1998) Debit Cards, Smart Cards, E-Money and the Consumer [Online]. Available from: http://www.homefamily.net/index.php?/categories/moneymatters/debit_cards_smart_cards_emoney_and_the_consumer/ (Accessed: 18 December 2010).

Nikolas, K. (2010) Pros and Cons of a Secured business Credit Card [Online]. Available from: http://www.helium.com/items/1957063-pros-and-cons-of-secured-business-cards (Accessed: 18 December 2010).

Rappa, M. (2010) Business Models on the Web [Online]. Available from: http://digitalenterprise.org/models/models.html (Accessed: 18 December 2010).

Scholasticus, K. (2009) Pros and Cons of Electronic Cash [Online]. Available from: http://www.buzzle.com/articles/pros-and-cons-of-electronic-cash.html (Accessed: 18 December 2010).

Sarfin, R. (2010) Pros & Cons of Paper Money [Online]. Available from: http://www.ehow.com/about_7389676_pros-cons-paper-money.html (Accessed 18 December 2010).

 

 

 

 

 

 

 

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2 Comments »

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