payment schemes : Java Glossary

Introduction

There have been many schemes promoted for exchanging money. Let’s look at them and the advantages and disadvantages of each scheme.

Cash

• Privacy.
• Anonymous.
• Quick.

• Government cannot easily track transactions. They can thus be used for criminal activity.
• Relatively easy to counterfeit, though it is getting harder.
• Easy to steal.
• No inherent receipt.

Cheques

• Canceled cheque is an automatic receipt.

• Easy to forge. Signatures are not even checked.
• Money can take weeks to clear. You don’t find out right away if a cheque is NSF (Not Sufficient Funds).
• All the paper shuffling to clear cheques is expensive.

Credit Cards

• Merchant is not on the hook if the customer does not pay. The credit card company deals with collection.

• The credit card company changes an exorbitant fee to the merchant.
• The credit card company lures the customer into debt at unbelievably high interest, where the interest piles up so fast, the customer can never pay it off.
• You have to give you credit card number to the merchant. The merchant can then use it to make purchases.
• If you make purchases over the net, you must send your credit card number. It can be intercepted.
• Merchants keep lists of credit cards. Hackers break in and use the numbers to make purchases.
• The cards are easy to counterfeit. They have almost no security features. The more counterfeiting goes on, the more money the credit card company makes, since most people do not notice minor thefts. The credit card company thus has little incentive to improve security.
• Credit cards are approximately as secure as Fedexing a box of signed blank cheques to the vendor and asking him not to use them and to keep them safe.
• The transaction fees are so large, credit cards are not suitable for purchases under $20.
• The fees are bundled is retail prices. Even people who do not use credit cards get stuck paying for them.

Debit Cards

• The customer does not need a good credit rating to use one.
• The fees charged to the merchant and to the customer are small compared with credit cards.

• They cannot be used for Internet purchases. They could be with a smarter card. The problem is Internet transactions have greater risk for the credit card company, a risk not covered by the debit card fees.
• An unscrupulous merchant can fairly easily copy a card and use it to make purchases elsewhere. The card should have an uncopyable private key burned into the hardware. Further, then snooping on conversations to the server would divulge no information of any use for future purchases.
• The transaction fees are still so large, credit cards not suitable for purchases under $5.
• The cards are easy to counterfeit. The pin numbers are only 4 digits.

PayPal

• You can buy things with fairly good security over the Internet.
• In theory, if you buy something from a vendor, they cannot use you email address to rack up future unauthorised purchases, but in practice some vendors are permitted to do that.
• PayPal has a decently long secure password.
• Vendors track only your email address, not your PayPal password. Hackers don’t steal anything of value if they break into vendor computers.
• If you pay someone with PayPal and they rip you off, you can sometimes persuade PayPal to make them give you your money back.

• It takes weeks to top up your PayPal account from your bank account. They keep the money without interest in the interim.
• PayPal does not pay interest on your account. You must prepay and keep enough for the next month’s purchases in your account.
• Many stores and online sites do not accept PayPal, most notably Amazon.
• You cannot use PayPal in a brick and mortar store, unless you buy online.

DigiCash

• It did not require central servers. It used cryptography to ensure anonymity. There was no central banker collecting transaction fees.

• This system went bankrupt.

BitCoin

• I consider this scheme a con. It is not connected to any actual money system. Its coins only have value because people speculate their value will rise. It is a distributed system without a central banker collecting transaction fees.

Softcard

• Formerly known as Isis (not an acronym, the name of an Egyptian goddess) Wallet (unfortunate choice of name) or Google Wallet. Promoted by Google.
• Has not caught on.
• Requires a smart cell phone.
• Vendors in brick and mortar stores need to install compatible scanners.
• You must have credit card accounts to top up the gas in the Softcard, which acts like a debit card.
• I could discover nothing about how you might use Softcard to buy goods securely over the Internet.
• It is fairly complicated to set up.
• Limited to certain carriers, phones and credit cards.

Applet Pay

• NFC (Near Field Communication)-based. No contacts to get dirty or worn. You only have to get the phone within 10 cm (3.94 in) for the short range radio communication to take place.
• It is more secure. Apple Pay generates a code for one time use. So even if someone taps the conversation, they cannot use what they hear to make more transactions. The cashier can’t see your card number, security code, or even your name.
• It uses biometric id instead of a PIN (Personal Identification Number). This is much more secure, but much more likely to fail from filthy touch pads.
• Apple doesn’t see or store information about your transactions, so it doesn’t know where you’re shopping or how much you spend. The less useful information stored by the fewest computers, the better the security.
• Also implemented with the Apple wristwatch, which is less likely to be lost or stolen.

• Only works with Apple iPhones and watches. Until the API (Application Programming Interface) is more broadly supported, it will remain a novelty for luxury shops.
• No PIN number. You have to report your phone stolen. In the meantime a thief can go on a buying spree. Apply Pay needs an optional conditional PIN, e.g. you must use a PIN if the amount of sale is over a limit or if the PIN has not been entered in the last two hours.
• I could discover little about how you might use Apple Pay to buy goods securely over the Internet. Apparently it is possible, but the vendor has to write a custom app. Every store needs its own app. Phht!
• Very little detail has been released on how it works.

Starbucks Android

• Already established. It will process about $1.5 billion in sales in 2014.
• Simple technology. Displays a bar code. Does not need NFC in the phone or sales terminal.
• Crooks cannot steal from you without actually grabbing the phone and pressing buttons.
• Uses a gas tank you can fill up in many different ways, presumably including cash and debit cards.
• If it is stolen, the worst that happens is you lose about $25 even if you do not report the theft.
• The scheme could be renamed and extended for use in any fast-food, low-cost restaurant, sandwich shop, coffee shop or dollar-store.
• Specialised for low-cost purchases. This means security does not need to be as onerous.
• There is very low incentive for thieves to steal your phone to get the gas tank. If they steal your phone, it is because they plan to resell your phone.

• Only works at Starbuck’s stores.
• Cannot purchase goods over the Internet.
• Pays no interest on the gas tank. Thus you don’t want to keep large balances in it. This means you cannot purchase expensive items.
• Only works with Android phones, though that could fairly easily be extended by porting the software to other phone types.

Comparison

Future

Eventually we will get a smart card that lets you buy in brick and mortar stores like a debit card and also over the Internet. It will also act as an ID card and as a key. The early versions will look like USB (Universal Serial Bus) fobs. They or an attached computer will have a biometric reader so only the owner can use them. Every computer or every fob will need such a biometric reader. The service will be attached directly to your bank account, the way a debit card is now, so there is no long PayPal-like wait to top up your gas tank. It will be thought of as just an extension of the debit card to permit secure Internet purchases. Eventually a single card will take over the function of all the cards and electronic keys in your wallet, including your passport. The card will also eventually let you digitally sign and date electronic legal documents.