Web Security, Privacy & Commerce, 2nd Edition

Chapter 25. Digital Payments

Digital payment systems are a way to give somebody money without simultaneously giving them gold, coins, paper, or any other tangible item. It’s the transfer of value without the simultaneous transfer of physical objects. It’s the ability to make a payment in bits rather than atoms.

Digital payments are not a new idea; Western Union devised systems for wiring money by telegraph in the 19th century.^[209] Banks have extensively used interbank funds transfers, and consumers have had access to automatic teller machines (ATMs) since the 1960s. Charge cards have been around in some form or another for almost 90 years.

Today credit cards are the most popular way of paying for services or merchandise ordered over the Web, and they are likely to remain the most popular system for quite some time. For that reason, we’ll start this chapter with a look at the history of credit cards and see how they are processed. Then we’ll look at some of the new digital payment systems developed for the Internet and explore why most of them have failed.

Charga-Plates, Diners Club, and Credit Cards

The Oxford English Dictionary lists more than 20 definitions for the word credit. Credit is belief, faith, and trust. Credit is trustworthiness. It is reputation. It is power derived from reputation, or from a person’s character. It is an acknowledgment of payment by making an entry into an account. It is an amount of money at a person’s disposal in the books of a bank:

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