PAYPAL

CHAPTER I

INTRODUCTION

1.1.       Background

Human life can’t be separated from the need to conform to what is desired. In the process to meet their needs, of course people will make a deal in other mean is transaction. Transaction are conducted as a means of exchange of services from one person to another. Process transaction is about Buying And Selling.

Formerly Exchange Process Services is by way of mutual exchange to exchange items that are not necessary for the desired needs. as time went on, people began to think about the appropriate use of a medium of exchange. Imagine if a bunch of fresh fish on the exchange with a comb of bananas, is that fair? It’s not fair. found a solution, which is a legitimate means of exchange called money.

Money is a good solution for exchange parameters in a transaction. But, What If Someone wants to Perform a transaction with another person, but Hampered by a great distance?

With the rise of technology, it was found that the transaction system quickly without the need for face-to-face. With a system of e-commerce, someone will be facilitied by an online payment service.

There are many different online payment systems that exist today. of them, PayPal is probably the most popular system. PayPal is an account-based system that allows anyone with an email address to securely send and receive online payments using a credit card or bank account. Today there are many websites that accept PayPal as a method of online payment. PayPal uses Secure Sockets Layer protocol technology as a way to encrypt data and increase security

1.2.       Writting Objective

This Paper expected from readers are able to understanding about Paypal, function of paypal, Problem On PayPal, feature of Paypal and how paypal work.

1.3.       Problem Domain

The problem will be explain on this papers :

1.3.1   Identify E-Commerce

1.3.2   Indentify E-Payment

1.3.3   Identify about paypal

1.3.4   How To Create Account in PayPal

1.3.5   Types Account Of PayPal

1.3.6   How PayPal Work

1.3.7   Identify function of PayPal

1.3.8   Identify feature of PayPal

1.3.9   Why Should Transaction with PayPal

1.3.10    Identify Problem with paypal

1.3.11    How Implementation PayPal With Website

1.3.12    Identify System Security Who used by Paypal

1.4.       Writing Methodology

This paper return by analysing many article on internet and have help from faculty.

1.5.       Writing Framework

In order to this ISAS more focused we divide this ISAS with writing framework as follow :

Chapter I                     Introduction

               This section describes the background and purpose,  writing objective, problem domain, writing methodology and writing framework.

Chapter II                   Basic of Theory

Describes the theoretical review about Definition of E-Commerce, Definition of E-Payment, and The Relationship between E-Commerce with Paypal.  

Chapter III                  Analysis

                                    In chapter 3 we will discuss more in depth about Paypal, How Paypal Work, Problem With Paypal .

Chapter IV                  Summary                    

                                    This chapter contains the conclusions and useful suggestions from the authors after the author conducted a study.

CHAPTER II

BASIC TEORY

2.1.    E-Commerce

E-Commerce is a type of industry where buying and selling of products or services is conducted over electronic system such as the internet and other computer networks.

 On the Transaction, E-Commerce have a Many More  Implementation. An e-commerce payment system facilitates the acceptance of electronic payment for online transactions, is not different with E-Commerce.

2.2.    E-Payment

E-Payment is a subset of an e-commerce transaction to include electronic payment for buying and selling goods or services offered through the Internet. Generally think of electronic payments as referring to online transactions on the internet, there are actually many forms of electronic payments.

As technology developing, the range of devices and processes to transact electronically continues to increase while the percentage of cash and check transactions continues to decrease. Based on Survey American.Edu, In the US, for example, checks have declined from 85% of non-cash payments in 1979 to 59% in 2002, and electronic payments have grown to 41%. The Internet has the potential to become the most active trade intermediary within a decade.

 Also, Internet shopping may revolutionize retailing by allowing consumers to sit in their homes and buy an enormous variety of products and services from all over the worlds. Many businesses and consumers are still wary of conducting extensive business electronically. However, almost everyone will use the form of E-Commerce in near future.  

2.2.1   E-Payment System

Based on Wikipedia, The payment system is an operational network-governed by laws, rules and standards - that links bank accounts and provides the functionality for monetary exchange using bank deposits.The payment system is the infrastructure (consisting of institutions, instruments, rules, procedures, standards,and technical means) established to effect the transfer of monetary value between parties discharging mutual obligations. Its technical efficiency determines the efficiency with which transaction money is used in the economy, and risk associated with its use.[1]

E-Payment System Can make sure to user with E-Payment System Security. This is Scheme Protection Who Work on Online payment System.  

2.2.1.1   E-Payment System Security

E-payment System Have a many type to secure Online Payment On the Internet. This is Security Sockets Layer or may be can be called “SSL”, Transaction Layer Security protocol or maybe can be called “TLS”, Secure Electronic Transaction or may be  can be Called “SET”.

2.2.1.1.1  Secure Sockets Layer (SSL)

Secure Sockets Layer, more commonly known as SSL, is a protocol that is used to maintain client and server authentication. A site is easily identified as using SSL if it has the small yellow padlock at the bottom of the browser.

In SSL, communication between the server and the client is encrypted using their certificates. This encryption creates virtual information that is not hackable by others.  The steps of how SSL works is shown in the following diagram:

The purpose of SSL is to provide a means to allow secure communication between two parties. However, one party must have a certificate trusted by the other in order to help prevent man in the middle attacks. SSL also supports authentication, encryption and key exchange.

SSL uses a handshake protocol. Suppose a client wants to make a purchase from a website server, but this server does not know anything about the client.

The first step is for the client to send a message to the server. After the server receives the message, it acknowledges it by sending the client a message in return. The server also sends the client its certificate and asks for the client’s certificate. The client sends its certificate, a client key exchange message, and a certificate verification message. Both the client and server send change cipher spec messages and then send finished messages to end the handshake

2.2.1.1.2  Transaction Layer Security (TSL)

The Transaction Layer Security protocol, commonly known as TLS, is based on SSL and will soon become its successor. TLS has some changes in its MAC, has clearer and more precise specifications, cleaner handling because of not having a client certificate, and more flexibility.

2.2.1.1.3  Secure Electronic Transaction (SET)

Secure Electronic Transaction, SET, provides a way for the client’s credit card number to be sent to authorizing banks. However, there was not enough market acceptance of SET to make it commonplace.

2.2.2   Type Of E-Payment

E-Payment have more types, it’s so make online payment so easily. Customer can choose one way to transaction on online payment. Customer can transaction with Card, Internet, Mobile Payment,  Financial Service Kiosks, Television Set-Top Boxes and Satellite Receiver, Biometric Payments, Electronic Payments Networks, Person-to-Person (P2P) Payments.

2.2.2.1       Cards

Credit cards, debit cards and prepaid cards currently represent the most common form of electronic payments. For all 3 types of cards the consumer or the business most often uses a plastic card, commonly with a magnetic stripe. The cardholder gives his or her card or card number to a merchant who swipes the card through a terminal or enters the data to a PC. The terminal transmits data to his or her bank, the acquirer. The acquirer transmits the data through a card association to the card issuer who makes a decision on the transaction and relays it back to the merchant, who gives goods or services to the cardholder. Funds flow later for settlement with credit cards and are debited immediately for debit or pre-paid cards.

Along with magnetic stripe cards, smart cards are and will increasingly be used for payments. Smart cards are at present overwhelmingly plastic credit cards with an embedded computer chip. Until recently, many smart cards operated using proprietary rather than common standards. A standard set of specifications, EMV, has been developed and is being used increasingly so that the chips on smart cards are interoperable. Korea and Japan are among the most advanced countries in Asia for smart card payments, with Malaysia catching up fast due to government mandates for banks to issue smart cards. Most credit and debit cards are expected to be issued or reissued as smart cards by 2008 or earlier.

Over time, the chip for payment can be expected to move onto other devices. A “smart card” might then become the computer chip in a phone, PDA or other device that can perform the same function as chip in a plastic card, eliminating the need for the actual plastic card. Smart cards could thus evolve into “smart phones”, “smart PDAs” or other “smart” devices.

2.2.2.2       Internet

Online payments involve the customer transferring money or making a purchase online via the internet. Consumers and businesses can transfer money to third parties from the bank or other account, and hey can also use credit, debit and prepaid cards to make purchases online.

Current estimates are that over 80% of payments for online purchases are made using a credit card or debit card. At present, most online transactions involve payment with a credit card. While other forms of payment such as direct debits to accounts or pre-paid accounts and cards are increasing, they currently represent a less developed transaction methodology.

2.2.2.3       Mobile Payments

Mobile phones are currently used for a limited number of electronic transactions. However, the percentage seems likely to increase as mobile phone manufacturers enable the chip and software in the phone for easier electronic commerce. 

Consumers can use their mobile phone to pay for transactions in several ways. Consumers may send an SMS message, transmit a PIN number, use WAP to make online payments, or perform other segments of their transaction with the phone. As phones develop further, consumers are likely to be able to use infrared, Bluetooth and other means more frequently to transmit full account data in order to make payments securely and easily from their phone.

 Additionally, merchants can obtain an authorization for a credit or debit card transaction by attaching a device to their mobile phone. A consortium in the US also recently announced PowerSwipe, for example, which physically connects to a Nextel phone, weighs 3.1 ounces, and incorporates a magnetic stripe reader, infrared printing port, and pass-through connector for charging the handset battery.

2.2.2.4       Financial Service Kiosks

Companies and service providers in several countries, including Singapore and the US, have set up kiosks to enable financial and non-financial transactions. These kiosks are fixed stations with phone connections where the customer usually uses a keyboard and television-like screen to transaction or to access information.

At AXS stations in Singapore, for example, consumers can make electronic bill payments, send email or SMS message and make phone calls. Kiosks in the United States enable the customer to send money via wire transfers, cash checks, make purchases using cash, and make phone calls.

Located at convenient public locations such as bus or subway stations, convenience stores or shopping malls, these kiosks enable electronic payments by individuals who may not have regular access to the internet or mobile phones. 

2.2.2.5       Television Set-Top Boxes and Satellite Receiver

Specialized boxes attached to a television can also be used for payments in some locations. The set-top box attaches to the television and a keyboard or other device, and customers can make purchases by viewing items on the television. Payment is made electronically using a credit card or other account. While usage is presently low, it could grow substantially in countries with a strong cable or satellite television network.

2.2.2.6       Biometric Payments

Electronic payments using biometrics are still largely in their infancy. Trials are underway in the United States, Australia and a limited number of other countries.Most biometric payments involve using fingerprints as the identification and access tool, though companies like Visa International are piloting voice recognition technology and retina scans are also under consideration. Essentially, a biometric identifier such as a fingerprint or voice could replace the plastic card and more securely identifies the person undertaking the transaction. The electronic payment is still charged to a credit card or other account, with the biometric identifier replacing the card, check or other transaction mechanism.

2.2.2.7       Electronic Payments Networks

Various countries have electronic payments networks that consumer can use to make payments electronically. ACH (Automated Clearing House) in the US, domestic EFTPOS networks in Australia and Singapore, and other networks enable electronic payments between businesses and between individuals. The consumer can go online, to a financial service kiosk or use other front-end devices to access their account and make payments to businesses or other individuals.

2.2.2.8       Person-to-Person (P2P) Payments

P2P payments enable one individual to pay another using an account, a prepaid card or another mechanism that stores value. PayPal in the US, which was recently purchased by Ebay, is one of the most frequently used P2P mechanisms. The Tower Group estimates that the volume of P2P payments will grow from 105 million transactions in 2002 to 1.4 billion transactions by 2005. P2P payments can be made through a variety of means, including services like PayPal, transfers using card readers, or other. In the future other devices, such as mobile phones or PDAs, could also be used to enable P2P electronic payments.

CHAPTER III

PROBLEM ANALYSIS

3.1       Definition PayPal

PayPal is a Web-based application for the secure transfer of funds between member accounts. It doesn't cost the user anything to join PayPal or to send money through the service, but there is a fee structure in place for those members who wish to receive money.

PayPal relies on the existing infrastructure used by financial institutions and credit card companies and uses advanced fraud prevention technologies to enhance the security of transactions.

Max Levchin and Peter Theil founded PayPal in 1998. Levchin and Theil hoped to make online shopping more appealing to the consumer by creating a secure payment system that would be as easy to use as taking money out of your wallet. To send money through PayPal, you just enter the recipient's e-mail address and the amount of money you want to send them.

By mid-2003, PayPal's Mountain View, California-based offices were administering over 30 million accounts in 38 countries around the world. EBay, the popular Web-based auction enterprise, acquired PayPal in October 2002.

3.2       Create Account In Paypal

To use all the features on paypal first thing that should be required is a paypal account, for those who do not have a paypal account is required to make a paypal account to be able to take advantage of all the features in paypal. Steps should be taken to make a paypal account is :

ü  Open website of paypal and click button sign up and wait until user should choose type of account user need.

ü  And select one of three types of account user need and want.

ü  After this step user will go to a page that asks for user basic personal information.

ü  If user want to make business account user will choose one of list for business options.

ü In this step business sign up will appear where in this step user must enter the information about account business to be created.

ü If user want to add funds to user PayPal account from user checking account, or vice versa, user need to enter and verify user bank account with PayPal.

Figure 3.2.1 Website Paypal

Figure 3.2.2 Personal or Premier Account Sign Up Page

Figure 3.2.3 Business Sign Up Page

Figure 3.2.4 Business Account Sign Up

Figure 3.2.5 Get verified to move funds between user bank account and

user PayPal account.

3.3       Types Account Of PayPal

Figure 3.2.6 Types of account paypal

Paypal have 3 account types :

            3.3.1    Personal Accounts

Personal accounts give you access to the core features, but that's all. PayPal handles customer support for Personal accounts primarily by e-mail or through a virtual customer support agent at the PayPal Web site. There's a phone number available, but it's not toll-free and may have extensive wait times. And with type personal accounts paypal can’t recieve payment with credit card or debit card.

3.3.2        Premier Accounts

Premier account are almost same with personal accounts but difference is that a premier accounts can be registered with a business, group or individual. Also, you can set up multiple users to access a business account and thist type can recieve payment with credit card or debit card.

3.3.3  Business Accounts

Business accounts are almost same  premier accounst but the main difference is that a business accounts must be registered with a business or group name. PayPal does not charge to buyer to sends the money to the seller. PayPal will charge to the seller (beneficiary) of 1.9% to 2.9% of the amount of money received.

In addition to PayPal's core functions, Business and Premier accounts provide these options:

a)            Accepting debit and credit card payments

b)           Allowing senders to set up recurring payments (subscriptions)

c)            Unlimited use of a PayPal ATM/debit card

Business and Premier Accounts also get a toll-free customer service number and extended customer service hours.

3.4       How Paypal work

As an online financial transaction broker, paypal let’s people send money to each other's email addresses. At no time will either party see the other's credit card or bank information. Similiar to an escrow service, paypal acts as the middleman holder of money. Through its policies, practices and business integrity, paypal has earned the trust of both parties.

With multiple guarantees in place, buyers and sellers entrust paypal with their credit card and bank information. Paypal keeps their private customer information secret. Then while "blinded" from the other party's confidential information, strangers safely send money to each other through paypal and email.

Escrow is a service that provides a means of security in the handling of important property, funds, and documents. An escrow holder works with the Buyers, Sellers, Lenders and Borrowers ("the principals") involved in a transaction to assure funds and documents change hands at the appropriate point in time, after preset conditions have been met.

Figure 3.1 Schema of Paypal

Source : www.indonesiapal.com

3.5       Function of Paypal

Paypal is an online payment network of the largest and trusted in the world, which can be used to receive and make payments online without exposing credit card no to many people.

This method is more secure than a credit card transaction. And by Paypal customers do not need to bother to open an account at Bank America or elsewhere to receive / send payments all over the world.

3.6         Feature of Paypal

   Paypal has many features that are beneficial to the customer so that the customer will easier to make activities buying and selling to use paypal. Feature of paypal such as :

ü  Send Money

ü  Request Money

ü  Auction Tools

ü  Website Payments

ü  Money Market

ü  Virtual Debit Card

ü  Account Insurance

ü  E-mail Customer service

ü  Mass Payments

ü  Unlimited Credit Card Payments

ü  Payment Receiving Preferences

ü  Subscriptions

ü  ATM/Debit Card

3.7       Paypal Payment Method

Customers can make payment in paypal by selecting the type of payment that is provided by paypal. Payment in paypal can through :

ü  PayPal Balance

ü  Instant transfer from your bank account (if eligible)

ü  PayPal Credit (Bill Me Later, PayPal Extras Card, or PayPal Smart Connect)

ü  Debit card

ü  Credit card

ü  eCheck (a delayed transfer from your bank account - may result in significantly slower shipping by seller)

3.8       Why Should Paypal

PayPal is one of the many types of online payment that is most often used in making payments via the Internet. so many reason to make people should have account paypal and using paypal as akind online payment, such as :

ü PayPal accounts can be obtained for FREE customers don’t charge a penny for the registration open a PayPal account. If there is a cost when the process of verification (premier and business account types), the cost will be refunded by PayPal in the next month. Also no minimum balance required as is the case when customers open an account (account) in the bank.

ü PayPal secure credit card transactions on the Internet customer can  transact safely use a credit card or at least reduce the risk of misuse of customers credit card. Customers do not need to share customers credit card information to all sellers and buyers. Customers  just share it with PayPal.

ü Paypal transactions in a safe and comfortable PayPal uses technology that is constantly updated to ensure the safety and convenience of transacting online.

ü Paypal accepts all major credit cards world, namely Visa, Master and American Express customers can transact via Visa, Master, or American Express. Customers can also transact using available funds in customers PayPal account to another PayPal fellow owners.

ü The cost of shipping is cheap customers can use PayPal for remittance transactions. The fee charged is very small, even free to the shipper (all account types) and receiver (for the type of personal account).

ü Cash withdrawal at any time customers can do a cash withdrawal or withdraw funds from PayPal anytime, without having to wait for a certain time period.

ü PayPal network wide PayPal operates in more than 190 countries and 17 currencies. This may indicate the large potential Internet business now and in the future.

ü PayPal can be cashed at a local bank in Indonesia This is good news for the netters Indonesia, starting in October 2007 PayPal opened an opportunity for the owners of Indonesian Paypal account to be able to disburse their funds on Paypal into dollars into their bank accounts in Indonesia.

To take advantage of all the facilities Paypal, then customers already have Paypal account verified first.

3.9  Problem With Paypal

Though paypal does have millions of seemingly satisfied customers, not all users have had such a pleasant experience. In fact, so many people have felt slighted by paypal that entire Web sites exist to discuss problems about paypal and mock its business practices. The most prominent is paypal Sucks. The biggest criticism of paypal is that it acts like a bank, but it isn't regulated like one.

This means that paypal offers none of the protection that real banks offer, and it isn't required to maintain any of the security, customer service or dispute resolution services that banks provide. At the same time, paypal holds large amounts of their customers money, makes millions of financial transactions and even offers credit and debit cards. So why isn't it considered a bank? In 2002, the Federal Deposit Insurance Corporation (FDIC) declared that because paypal didn't meet the federal definition of an entity accepting deposits as a bank, hold any physical money or have a bank charter, it was not a bank. In other words, paypal isn't a bank because it doesn't call itself a bank.

As a result, most states license paypal as a "money service." One of the most common problems encountered by paypal users is the sudden and inexplicable freezing of their accounts. If your paypal account is frozen, you can't add or withdraw any funds from your account, and you're required to go through a long, complicated process to verify your identity. Some users claim that paypal has simply seized their funds and never returned them. Other complaints against paypal include rude customer service representatives, a long and confusing User Agreement and loose hiring practices that may have led to account fraud.

3.10      How Implementation Paypal On Website

 User can implement paypal on the website as one of the means to pay because with implemented paypal will enable customers to make payments for goods or services required more easily. And this is a steps in entering paypal on the website :

ü   Visit the PayPal website (link in the Resources section below) and log in if user currently hold a premier or business PayPal account. PayPal website integration software is available to business and premier account holders. There is a monthly fee for a business account, but not for a premier account. Fees are deducted per transaction.

ü  Open a PayPal premier or business account. Click the "Business" tab on the PayPal home page. That opens the business page. Under the row of tabs on this page, the top box on the upper left is labeled: open a PayPal account. Click the "Create account" button inside that box. This will direct user to a page for choosing a personal, premier or business PayPal account. A premier or business account will allow user to set up PayPal on a website.

ü  Create a premier account by clicking the "Get started" button inside the premier box. This opens a page requesting personal information. Fill in the boxes with user email address, a password, user physical address and phone number. Then click the button at the bottom marked "Agree and create account." An account verification message will be sent to the email address user provide. The message will contain a link for user to click to confirm user email address. User premier account will be open once user email address is confirmed.

ü  Log in to user PayPal premier account on the PayPal home page with user email address and newly created password. Click the "Profile" choice on the second row of tabs. That opens user profile summary page. Under selling preferences, click "Create new button." Choose "Products" or "Services" from the drop-down menu, then click the dot beside "No, create a 'Buy now' button," and fill in the product or service and price in the boxes provided. Then scroll to the bottom of the page and click "Create button." This opens a page showing the HTML code for the product or service and price user listed.

ü  Click the "Select code" button under the HTML code. Copy the text of this HTML code onto the clipboard by right clicking and selecting "Copy." Go into the web editor tool for user website and bring up the page user want the 'buy now' button to appear on. Set the page on an HTML view to prepare it for receiving the code. Paste the text where user want the button positioned by right clicking over that spot and choosing "Paste." This will post user new 'buy now' button and add PayPal payment options to user website.

3.11  Using Account Paypal To Transactions

  One of the functions of the paypal account is to make transactions using a paypal account where users can perform sending and receiving funds.

          3.11.1  Sending Funds

          More than 70 percent of all eBay sellers offer PayPal as a payment option, and a large chunk of PayPal's business still comes from online auctions. However, one of the keys to PayPal's success has been its ability to expand beyond the eBay market. users can use it send money to a friend, donate to a charity and buy items from  online merchants. You can use PayPal to purchase goods from non-eBay merchants who have set up a PayPal accounts.

Receiving Funds

          Merchants who want to use PayPal to accept payments have a wide range of options available. For basic payments, such as online auctions or simple Web site sales, the merchant can simply provide buyers with their e-mail address, and buyers can make the appropriate payments to the PayPal account. eBay sellers can place PayPal buttons on their auctions, and the checkout invoice PayPal sends to auction winners will include a link to pay via PayPal.

3.12  Technologies Used By PayPal

The technologies used by PayPal consist of the main security mechanisms that most sites would employ. PayPal uses HTTPS and SSL to encrypt the data stream when a user establishes a session with the PayPal site. It is unknown what security mechanisms are used to protect their databases containing information about their customers.

3.12.1  Secure Sockets Layer (SSL)

According to the PayPal website, PayPal encrypts information sent to their website using SSL. It uses an encryption key that is 128-bits long, which is currently the most secure level being used today. Before proceeding, the server checks whether or not the user’s browser uses SSL 3.0 or higher.

PayPal also uses an electronic firewall to protect its data from the Internet. Their servers are behind the firewall and not directly connected to the Internet in order to protect private information from unauthorized computer.

CHAPTER IV

SUMMARY

4.1.    Conclusion

          The conclusion of this ISAS article are :

4.1.1.   Online payment through PayPal is relatively safe because it uses SSL technology

4.1.2.   Transaction With Paypal can asure security and privacy on the user, Cause PayPal using Secure Sockets Layer (SSL) .  

4.1.3.   If you Want Create a Account, You will have 3 ways, Personal, Premier, Business. Depent What You Needed.

4.2.    Suggestion

          The suggestion of this ISAS article are :

4.2.1.   User Must be Carefully on the transaction, Cause  many more fake accont.

4.2.2.   If you want transaction on Paypal, You must know step by step or feature on Paypal.

BIBLIOGRAPHY

1.      http://www1.american.edu/initeb/sm4801a/epayment3.htm

2.      http://en.wikipedia.org/wiki/E-commerce_payment_system

3.      http://www.astronomysight.com/_message/00000465.htm

4.      http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/security-outside.

5.      http://www.fightidentitytheft.com/paypal_scam.html

6.      http://www.fightidentitytheft.com/paypal_scam_email_form.html

7.      http://www.paypal.com/cgi-bin/webscr?cmd=_help-ext&eloc=27&loc=4&unique_id=3945&source_page=_login-submit&flow

8.      http://searchsecurity.techtarget.com/sDefinition/0%2C%2Csid14_gci214006%2C00.html

9.    http://www.cs.bris.ac.uk/~bradley/publish/SSLP/chapter4.html

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