WO2001084454A1

WO2001084454A1 - Secure electronic payment method for fraud reduction and reduced transaction costs

Info

Publication number: WO2001084454A1
Application number: PCT/US2001/003767
Authority: WO
Inventors: Thomas A. Cocotis; Timothy A. Von Kaenel
Original assignee: Cma Business Credit Services
Priority date: 2000-05-02
Filing date: 2001-02-05
Publication date: 2001-11-08
Also published as: AU2001241451A1

Abstract

A transaction payment method conducted through a computer network provides a substantial reduction in fraud, transaction cost and complexity. A user (84) establishes an account with a transaction service company (92) and submits rigorous validation of identity and financial accounts. A secure communication channel is established between the user and the transaction service company. The user establishes a credit, debit or other account at a financial institution (86) and provides account information to the transaction service company. When the user purchases merchandise at a vendor site (88), the user specifies the transaction service company as the method of payment. The vendor transmits a purchase confirmation number to the user and sends the purchase confirmation number and purchase amount to the transaction service company. The user then communicates the purchase confirmation number through the secure channel to the transaction service company, which verifies availability of funds and authorizes the transaction.

Description

SECURE ELECTRONIC PAYMENT METHOD FOR FRAUD REDUCTION AND REDUCED TRANSACTION COSTS

TECHNICAL FIELD OF THE INVENTION

The present invention pertains in general to electronic payment systems and in particular to the prevention of fraudulent transactions

BACKGROUND OF THE INVENTION

The Internet has become a major medium for financial transactions Both consumers and business are increasingly using the Internet to make purchases that formerly would have been done either in person, on the telephone or through mail The volume of such transactions has become very significant and is growing rapidly Many vendors of products and services work only through the Internet, or have a substantial portion of their sales through the Internet. Despite this success, a serious problem has arisen in the making of payments for goods and services through the Internet Most such transactions are paid with credit cards which are subject to fraudulent use As more credit cards become available and more credit card information is passed through open channels of electronic communication, the possibilities for fraud increase. By obtaining the name, address, credit card number, and expiration date, a party can often make an unauthorized purchase that is charged to the credit card

Credit card companies have established policies that apply when a fraudulent transaction is made. If a purchase transaction is made in person with a vendor and proves to be fraudulent, the credit card company bears the loss. However, if the transaction is not made in person and is conducted through mail or telephone order (MOTO), the risk of loss is borne by the vendor. Further, some credit card companies charge a fine to the vendor for entering into a fraudulent transaction. In view of these policies and the potential for fraud on the Internet, vendors working through the Internet can suffer substantial losses due to fraudulent credit card transactions

A particular hazard in the use of credit cards is that each vendor has a record of all of its credit card transactions, that is, the card information for each customer. Should this file of information be compromised, an enormous amount of credit card information would be made available for fraudulent use. This problem is multiplied by the thousands of vendors having such information, many of whom may have lax or insufficient security measures.

Various anti-fraud measures have been adopted to reduce the instance of fraud committed with credit cards through Internet purchases. One such measure is address verification services (AVS) in which the address of the credit card user must be provided along with the credit card information. While this can contribute to a reduction in fraud, the easy availability of home address information reduces the effectiveness of this anti- fraud measure.

In order for commerce on the Internet to continue to grow and prosper, there is a need for a process and structure for significantly reducing the fraud incurred in the payment for goods and services over the Internet by use of credit cards, other charge systems or ACH (Automated Clearing House). Further, the current method of processing authorizations and payment for credit cards involves numerous parties and steps, each of which almost always involves an additional processing charge. A reduction of this complexity and the multiple charges can enhance the value and volume of commerce through the Internet.

SUMMARY OF THE INVENTION

A selected embodiment of the present invention is a method for secure payment for purchases made through a computer network such as the Internet. A user must initially establish a secure and trusted relationship with a transaction service company to ensure that the user is correctly identified and that a secure communication channel can be established between the user and the transaction service company. The user establishes a financial account with a financial institution or with the transaction service company and the user provides all information necessary for the transaction service company to transfer funds from the user account. The user connects to a vendor through a computer network and selects goods or services for purchase from the vendor. After the selection of goods or services, the user selects the transaction service company as the method for payment. The vendor provides the user with a purchase confirmation number corresponding to the transaction. The vendor also provides the purchase confirmation number and a request for payment, including the payment amount and an identification of the goods/services, to the transaction service company. Optionally, the vendor information can be sent to the transaction service company via the user. Next, the user establishes the secure communication channel with the transaction service company and supplies the purchase confirmation number to the transaction service company. A comparison is made by the transaction service company between the purchase confirmation numbers received from the user and the vendor to detect a match. If such a match is made, the transaction service company determines if the user's account has sufficient credit for the purchase. If this is confirmed, the vendor is advised by the transaction service company that the transaction is approved. Next, the vendor releases the goods/services to the user. The vendor then makes a request for funds transfer for the purchase to the transaction service company. Upon receipt of this request, the transaction service company submits a funds transfer request to the user financial institution that maintains the user account. This institution transfers the appropriate funds from the user account to an account for the vendor.

The user account can be with a institution separate from the service company, such as a bank issuing a credit card or debit card, may be established with a financial institution affiliated with the transaction service company or may be established at an account maintained by the transaction service company itself. When the transaction service company maintains the account or has direct access to the account, the process of authorization approval and funds transfer is performed by the transaction service company itself.

BRIEF DESCRIPTION OF THE DRAWINGS

For a more complete understanding of the present invention and the advantages thereof, reference is now made to the following description taken in conjunction with the accompanying drawings in which:

Fig. 1 is a schematic illustration of a conventional credit card payment network, Fig. 2 is a state diagram illustrating the operation of a prior art payment network as shown in Fig. 1, Fig. 3 is a schematic illustration of a verification and payment network in accordance with the present invention,

Fig. 4 is a state diagram illustrating a payment system in accordance with the present invention in which funds payment is done through authorization with a user's financial institution,

Fig. 5 is a state diagram representing an embodiment of the present invention in which funds transfer is performed through a service company bank affiliated with a transaction service company,

Fig. 6 is a state diagram illustrating a further embodiment of the present invention utilizing a line of credit of the user by the transaction service company,

Fig. 7 is a state diagram illustrating a further embodiment of the present invention utilizing a credit line of the user and a bank associated with the transaction service company for funds transfer,

Fig. 8 is a state diagram of a still further embodiment of the present invention utilizing a line of credit of the user and an affiliated bank of the transaction service company for funds transfer,

Fig. 9 is a screen display for a vendor website illustrating a payment option selection in accordance with the present invention, and

Fig. 10 is a screen display illustrating user verification of payment through a secure channel with a transaction service company by submission of a purchase confirmation number.

DETAILED DESCRIPTION

The conventional method for making payments for purchases of goods and services through the Internet is illustrated in Figures 1 and 2. A network 20 utilizes Internet 22 for providing communications with a user 24 and vendor 26. A network credit card interface 30 receives credit card information from Internet vendors and converts this information into a format which can be used by a credit card processor 32 for the conventional processing of credit card bills and payments between an issuing bank 34 associated with the user 24 and the vendor's bank 36 which associated with the vendor 26. The establishment of an account together with the subsequent selection of a product and the processing of the payment is illustrated by the state diagram in Figure 2 through the following sequential steps

1 Initialize Credit Card/Bank Account - The user 24 establishes a credit card or a bank account with an issuing bank by submitting the usual application forms The bank 34 then issues a credit card or opens an account and provides the user 24 with a predetermined credit limit

2 Select Item For Purchase - User 24 logs onto the Internet 22 and selects the vendor 26 site which has merchandise for sale The user 24 selects the desired merchandise and enters the billing information including his name, address, credit card number, and expiration date Typically, no further information is entered

3 Request Authoπzation - Upon receiving the user's credit card information, the vendor 26 sends the credit card information and the amount of the purchase for an authoπzation to the network credit card interface 30 4 Request Authorization - The network credit card interface 30 then transmits the information after appropriate format translation to a credit card processor 32

5 Request Authorization - The credit processor card 32 transmits a request for authorization for the purchase to the credit card issuing bank 34

6 Authoπzation Approval - The issuing bank 34 evaluates the credit card request and makes a determination such for the validity of the credit card and the availability of sufficient credit If the credit request is approved, the issuing bank 34 transmits an authorization approval back to the credit card processor 32

7 Authorization - Upon receiving authorization, the credit card processor 32 transmits an authorization for that particular purchase back to the vendor 26 8 Deliver Goods/Services - Upon receiving the authorization, the vendor 26 delivers the goods/services to the user 24

9 Capture Funds - The vendor 26 typically groups a number of purchases from users in a batch and transmits this batch in a request to capture funds to the credit card processor 32 10 Request For Payment - Credit card processor 32 processes its credit card information received from a wide variety of vendors and separates the request for each of the issuing banks and transfers a request for payment to the issuing bank

11 Transfer Of Funds - The issuing bank transfers the identified funds for the purchase to the vendor bank 36 into the account of the vendor 26

12 Billing - Typically at the end of the month, the issuing bank 34 accumulates all charges to a particular account and sends a bill to the user 24

13 Payment - Upon receipt of the bill for the monthly use of the credit card, the user sends a payment such as by check or electronic transfer to the issuing bank 34 A major problem with the conventional configuration and processing shown in

Figures 1 and 2 is that it is subject to fraud Each vendor in this system maintains a record of its customer credit card information These records are subject to disclosure through break-in or inadvertence If an unauthorized party is able to obtain the credit card number, name and expiration date for a user, it is likely that this person can make a fraudulent purchase. However, some methods of fraud prevention and security are provided, such as address verification service (AVS), but this likewise can be defeated by the wide availability of such information via the Internet The incidence of fraud in commercial transactions on the Internet raises a serious problem that inhibits the development of Internet commerce. The present invention is directed to the reduction of such fraud and a simplification of processing to lower the expenses incurred in making purchases through the Internet

The present invention provides a configuration and process that can substantially reduce the incidence of fraud in the payment of transactions through a network, such as the Internet, and further can reduce the number of processing steps thereby lowering the fees incurred in such payment processing. Referring to Figure 3 there is illustrated a network 50 that illustrates the interaction of the entities and systems involved in an embodiment of the present invention. The primary communication between the entities is provided by an Internet 52 communications network. A user 54, such as an individual consumer, is connected to communicate through the Internet 52. The user 54 can be connected to any one of multiple vendors such as 56 and 58. A transaction service company 60, which is described below in greater detail, provides fraud protection and potentially more efficient processing for purchases made by the user 54 with any of the vendors 56 or 58

The user 54 establishes a line of credit with a user financial institution 62 such as by use of a credit card, debit card, cash deposit or other credit line The vendor A(56) and B(58) have corresponding vendor A bank 64 and vendor B bank 66 In certain embodiments of the present invention, the transaction service company 60 works with an affiliated service company bank 68

Various embodiments of the present invention are described in further detail below, but in general, the user 54 initially establishes a trusted and secure relationship with the transaction service company 60 and provides the service company 60 with his financial information, such as credit card, debit card or line of credit such that the service company 60 can authorize payment from the user account to the vendor banks

The vendors 56 and 58 are set up with the transaction service company 60 to offer the service company 60 as an alternative for payment of goods and services in place of conventional credit or debit cards (see Fig 9) The user 54 connects through the Internet 52 to a vendor, such as 56 The user 54 selects specific goods and/or services and then designates the transaction services company 60 for payment The vendor 56 next sends a purchase confirmation number to the user 54 The user 54 then initiates a transfer connection to the service company 60, or is automatically transferred by the selection of the service company for payment User 54 then sets up a secure link by entering his user name, password and any other required security information The purchase confirmation number received from the vendor 56 is provided to the service company 60 Preferably the purchase confirmation number is stored in the user's computer by the vendor and is automatically provided to the service company after the user has set up the secure communication channel to the service company The purchase confirmation number can be sent to the service company Concurrently, the vendor 56 transmits the purchase confirmation number together with the purchase information, such as identification of the merchandise and cost of the merchandise, to the transaction service company 60 The service company 60 then compares the purchase confirmation number received from the user 54 with the purchase confirmation number received from the vendor 56 If these match, then there is a very high confidence that the user 54 is the correct party requesting the transaction, and that there is no fraud involved in this transaction Through multiple techniques, described below, the transaction service company can effect notification of the vendor that the user 54 line of credit is valid, and that the vendor is safe in shipping the goods or providing services to the user 54 The transaction company 60 further, through various methods as described below, effects payment from the user financial institution to the appropriate vendor bank, such as 64 and 66 for the purchase made by the user 54 These processes are described below in more detail in Figures 4-10

Referring now to Figure 4, there is illustrated a state diagram 82 which includes a user 84, a user financial institution 86, a vendor 88, a vendor bank 90, and a transaction service company 92 The sequence of operations performed in this state diagram are as follows 1. Initialize Account Debit/Credit Line - The user 84 must first establish credit or funds available in some manner with the user financial institution 86 This can be the establishment of a credit card, a debit card account, a cash balance or any other type of credit line with the institution.

2. Initialize Service Company Account - The user establishes a secure communication line and a trusted account with the transaction service company 92 This setup is done through one or more methods to establish a very high level of confidence that the user is indeed the person he is represented to be and not a fraudulent registrant This level of security is accomplished in a manner that is much more stringent than used for each typical transaction for a purchase through the Internet There are numerous methods available to ensure a very high level of security for this initialization. Such secure setup techniques include:

(a) the use of a digital certificate in a card, such as the American Express Blue Card,

(b) use of a PIN (personal identification number) that is mailed to the user's home address; (c) a requirement for a walk-in verification at a bank designated by the transaction service company 92 for receipt of a PIN,

(d) use of a combination of a walk-in verification and bio-data, such as thumb print, iris scan, etc.;

(e) standard on-line credit card transaction checking with further fraud checks such as address verification and a waiting period, such as 48 hours; (f) use of a recognized legitimate entity, such as a Notary Public, to validate the user's ID

These steps are used on a one-time basis to establish the user 84 account at the transaction service company 92 The user 84 further provides account information at the user financial institution 86 to company 92 and authorizes the transaction service company 92 to perform fund transfers on behalf of the user 84 The user can further provide a shared secret, such as the name of a relative, as a backup to the password Company 92 can ask the shared secret question if the user 84 cannot remember his password

The information that is established during the initial account setup typically includes (a) User Legal Name,

(b) User Address,

(c) User Name For Access,

(d) Password,

(e) Shared Secret, (f) Bank or other Financial Institution Name;

(g) Type of Account (Credit Card, Debit Card, Credit Line, ACH, etc ), (h) Account Number (including expiration date for credit card), and (k) Account PIN

3 Select Item For Purchase - The user 84 logs onto the vendor 88 website and selects one or more items for purchase and selects the transaction service company for payment

(See Fig 9)

4 Purchase Confirmation Number - Upon completion of the selection of merchandise services by the user 84, the vendor 88 provides the user 84 with a purchase confirmation number corresponding to the transaction made between the user 84 and vendor 88. The purchase confirmation number is stored in the user's computer

5. Purchase Confirmation Number and Request For Payment - The vendor 88 sends the purchase confirmation number and a request for payment, which includes the amount of the purchase and any other information necessary for credit approval and payment, to the transaction service company 92 Optionally, the vendor 88 can provide the same information to the service company 92 by transmission through the user 84. In this case, the information can be secured with a digital signature of the vendor so that the validity and source of the information can be confirmed at the service company 92

6 Purchase Confirmation Number - The user 84 has specified to the vendor 88 that it wishes to make the payment by use of the transaction service company 92 This is done by selecting the transaction service company as a method of payment as shown in Figure 9

After this selection is made, in a preferred method, the user is transferred to a web page of the transaction service company 92, as shown in Figure 10. At this page, the user enters security information including the user's name and password Should the user 84 be unable to remember his password, he may alternatively leave this field blank and be presented with a query as to his previously entered shared secret If the user can then enter the correct shared secret, the process continues for the processing of the payment After the secure channel is set up, the purchase confirmation number stored in the user's computer is automatically sent to the service company 92

7 Request Authorization - Upon receipt of the purchase confirmation number and request for payment information from the vendor 88 and matching this with the purchase confirmation number received through the secure communication with the user 84, the transaction service company 92 submits a request authorization for payment to the user financial institution 86 This includes all of the necessary information such as credit card, expiration date, amount of purchase and type of merchandise 8. Authorization Approval - Upon evaluation of material received from the transaction service company 92, the user financial institution 86 determines if the request can be approved. If so, such approval is sent to the transaction service company 92

9. Authorization Approval - If approval is received by the transaction service company 92, such authorization for the purchase is transmitted to the vendor 88 identifying the specific transaction

10. Deliver Goods/Services - After the vendor 88 has received authorization approval, the goods and/or services are provided to the user 84.

11. Request Funds Transfer - The vendor 88 requests either singly or through batch processing a request for funds to pay for the transaction(s). This is sent to the transaction service company 92. 12 Request Funds Transfer - Upon receipt for a request for funds from the vendor 88, the transaction service company sends the request, either singly or in batch processing, to the user financial institution 86. This institution may be a bank, or it could represent a complete credit card processing system, such as described in reference to Figures 1 and 2 13 Transfer Funds - After receiving the request for a funds transfer from the transaction service company 92, the institution 86 effects a funds transfer to the vendor bank 90 Thus, the vendor 88 is paid for the goods or services purchased by the user 84

Note that in making the purchase by the user 84 at the vendor 88 web site, the user does not need to enter his credit card, address and other information as is typically required for a purchase from a vendor through the Internet Thus, substantial time is saved by both the user and the vendor However, the requirement that both parties (user and vendor) send the purchase confirmation number to the transaction service company 92 substantially reduces the possibility of fraud The user 54 has been extensively screened in advance and a secure communication channel can be established between the user 84 and the transaction service company 92 If a secure link is not established between these parties and the correct purchase confirmation number supplied by the user 84, the transaction is terminated for both delivery of goods/services and payment. A fraudulent party would not only have to steal the credit card information and identify for the user 84, but would also have to obtain the user ID and password of that user in order to effect a fraudulent transaction This user information can be retained by the user and need not ever be sent over a non-secure channel, such as normally done with credit card information. Thus, the security of the transaction is substantially increased.

A major security aspect of the present invention is that user's credit card information is not provided to the vendor when a purchase is made, Therefore, this information cannot be compromised by a security breach at the vendor. This is in sharp contrast to the existing systems in which each vendor maintains a file of credit card information for all of its customers

A still further important security aspect of the present invention is that the security codes applied by the user to set up the secure channel to the service company are never transmitted in an open context, as with credit card information and are thus much less subject to loss or compromise. A further embodiment of the present invention is shown in a state diagram 110 in Figure 5. This diagram includes a user 112, a user financial institution 1 14, a vendor 116, a vendor bank 1 18, a transaction service company 120, and an affiliated service company bank 122. The sequential steps performed in this state diagram example are as follows. 1. Initialize Account Debit/Credit Line - A financial relationship is set up for a debit, credit, cash deposit or other means with the user financial institution 114, which as noted, may be a bank issuing a credit card together with the processing entities required for that credit card or debit card processing, or a stand alone banking institution.

2. Initialize Service Company Account - The initial setup of the account by the user 112 with the transaction service company 120 is the same as described in reference to step 2 in state diagram 82 in Figure 4.

3. Select Item For Purchase - The user 112 logs onto the web site for the vendor 116 and selects one or more items for purchase and specifies that the transaction service company 120 shall be the method of payment, such as shown in Figure 9. 4. Purchase Confirmation Number - Upon completion of the purchase order by the user 112, the vendor 116 transmits a purchase confirmation number to the user 112.

5. Purchase Confirmation Number and Request For Payment - Concurrently with step number 4, the vendor 116 sends the purchase confirmation number and a request for payment, including at least the amount and identity of the merchandise/services to the transaction service company 120. Optionally, this information can be sent to the service company 120 via the user 112.

6. Purchase Confirmation Number - The user 112 logs onto the transaction service company 120 website and provides identification and passwords to establish a highly secure communication channel with the service company 120 and through this channel sends the purchase confirmation number received from the vendor 1 16 for the purchase order.

7. Request Authorization - The transaction service company 120 compares the purchase confirmation number received through the secure channel from the user 112 with the purchase confirmation number and request for payment received from the vendor 116. If these match, a request authorization is sent to the user financial institution (which may be a credit card processing network) 114 with the necessary information such as the amount of purchase, the merchandise, the user and vendor identification. 8 Authorization Approval - The user financial institution 114 evaluates the received information from the transaction service company and determines if the user 1 12 has credit, cash on account, or other financial resources for payment of the requested funds If so, an authorization approval is transmitted to the transaction service company 120 9 Authorization Approval - Upon receipt of the authorization approval from the user financial institution 1 14, the transaction service company 120 sends an authorization approval for the goods/services to the vendor 1 16

10. Deliver Goods/Services - Upon receipt of the authorization approval for the transaction by the vendor 1 16, the goods/services are provided to the user 112 11 Request Funds Transfer - Upon releasing the goods/services to the user 112, the vendor 116 either by single transaction or batch processing, makes a request funds transfer to a transaction service company 120

12 Request Funds Transfer - The transaction service company 120 forwards the request for funds transferred to the user financial institution 114 13. Transfer Funds - After processing the request for funds transfer received from the transaction service company 120, there is a transfer of funds to the service company bank 122. The bank 122 is affiliated with the transaction service company 120. The service company bank 122 may accumulate the funds transferred over a period of time, or until a particular dollar amount is reached, or other predetermined conditions are met, before taking any further actions. Thus, the service company bank 122 may hold funds over a period of time

14 Request Funds Transfer - When the transaction service company 120 has reached a dollar limit of transactions, a time has been met or a rule of business operation is involved, the request for funds transfer is made to the service company bank 122 for vendor payment 15. Transfer Funds - Upon meeting the predetermined criteria for a particular vendor, or group of vendors, the service company bank 122 effects a funds transfer for the one or more items that have been accumulated for the vendor 116 and provides a funds transfer to the vendor bank 118 for the account of the vendor 116.

The process described in state diagram 110 can establish that the user financial institution 114 is a specific bank, financial institution or entity, such as American Express Blue Card, that has established an account with the user 112 specifically for the purchase of merchandise via the Internet The timing of the funds transfers in steps 12, 13 and 14 above can be done in such a manner as to provide an accumulation of charges over a period of time such that less processing is required through these entities or a holding of funds over a predetermined time so that interest is accrued on these funds The next embodiment of the present invention is shown in a state diagram 140 in

Figure 6 This state diagram includes a user 142, user financial institution 144, vendor 146, vendor bank 148, and a transaction service company 150 The sequential steps shown in this state diagram are as follows

1 Initialize Account Debit/Credit Line - The user 142 establishes an account at the user financial institution 144 This can be a credit, debit or any other type of account such as previously described

2 Initialize Service Company Account - The user 142 establishes a secure account with the transaction service company 150 in the manner described in step 2 of state diagram 82 3 Confirm Credit Line - Upon establishment of the account, the transaction service company 150 confirms the existence of the credit line (herein used to represent credit, debit or any other source of financing) with the user financial institution 144 The amount of the existing credit is confirmed and periodically updated in communication with the institution 144 4 Confirm Credit Line - The amount of the credit (debit, or other financial source) is provided by the user financial institution 144 to the transaction service company 150 and may be periodically updated Thus, the transaction service company 150 has in its own database the credit available to each registered user.

5. Select Item For Purchase - After registering with the transaction service company 150, the user 142 logs onto a web site for the vendor 146 and selects one or more items for purchase and specifies that the transaction service company 150 shall be the medium for payment. This is shown in Figure 9

6. Purchase Confirmation Number - Upon receipt of the order from the user 142 and the selection of the transaction service company 150 for payment, the vendor 146 sends a purchase confirmation number to the user 142 7 Purchase Confirmation Number and Request For Payment - The vendor 46 sends the purchase confirmation number for the particular order, together with a request for payment including the amount of the order and identification of the merchandise, to the transaction service company 150 As an optional procedure, the vendor can send this information via the user 142 as a digital signal file to the service company 150

8 Purchase Confirmation Number - Upon receipt of the purchase confirmation number, the user 142 either logs onto the website for the transaction service company 150, or it is automatically transferred to this web site The user 142 supplies the security information including user name, password and any other required security to establish a secure channel between the user 142 and the transaction service company 150 The purchase confirmation number for the particular transaction is sent to the transaction service company 150

9 Verify Funds Available - Upon receipt of the purchase confirmation number from both the user 142 and the vendor 146, these are matched to confirm that a valid, non- fraudulent transaction has been effected Transaction service company 150 then verifies in its own database that funds are available for the specific user 142 for the specified purchase

10 Authorization Approval - If the transaction service company 150 determines that funds are available for payment of the requested amount for the transaction, an authorization approval is sent to the vendor 146 identifying the specific purchase requested by the user 142

11. Deliver Goods/Services - Upon receipt of the authorization approval for the transaction, the vendor sends or releases the goods/services requested by the user 142

12 Request Funds Transfer - Upon release or shipment of the goods, the vendor 146, either singly or through batch processing, makes a request for funds transfer to the transaction service company 150.

13. Request Funds Transfer - The transaction service company 150 then issues a request for funds transfer, either singly or through batch processing, to the user financial institution 144. Concurrently, the transaction service company reduces the amount of available funds for the user 142 by this amount.

14. Transfer Funds - Upon receipt of the request for funds transfer, the user financial institution 144 transfers the appropriate funds, either singly or in batch transfer mode, to the vendor bank 148 and into the account of the vendor 146 A particular advantage of the process shown in Figure 6 is that the authorization for approval can be done promptly by the transaction service company 150 without reference to any other party. A further option is that the transaction service company 150 can accumulate transactions, such as micropayment transactions, before a request for funds transfer (13) is made to the institution 144. This can eliminate the per item transaction processing charges, therefore making the widespread use of micro-purchasing financially viable. Further, the reduction in the number of transaction processing steps can reduce the overall fees incurred for the processing operation.

A further embodiment of the present invention is represented as state diagram 160 in Figure 7. This state diagram includes a user 162, user financial institution 164, vendor A

168, vendor B 170, and vendor C 172. Corresponding to this are vendor A bank 174, vendor B bank 176, and vendor C bank 178. A transaction service company 180 provides secure and rapid funds authorization and payment. Company 180 works in conjunction with a service company bank 182. The sequential steps performed for this process are as follows. 1. Initialize Account Debit/Credit Line - This is the establishment of a credit, debit or other account by the user with the user financial institution 164. One example is the establishment of a credit card and another example is the establishment of a debit account.

2. Initialize Service Company Account - This is the establishment of the secure and trusted account by the user 162 with the transaction service company 180 in the method described in reference to step 2 of state diagram 82 in Figure 4.

3. Confirm Credit Line - The transaction service company 180 requests a confirmation of the existence and amount of the credit line for the user 162 with the user financial institution 164.

4. Confirm Credit Line - Upon receiving the request, the user financial institution 164 confirms the existence and amount of the credit line for the user 162 to the transaction service company 180.

5. Select Item For Purchase - User 162 logs onto the vendor A 168 web site and selects one or more items of goods or services for purchase and further specifies that the method of payment shall be through the transaction service company 180, such as shown in Figure 9. 6 Purchase Confirmation Number - After completion of the order by the user 162 and the designation of the transaction service company 180 for payment, the vendor A 168 transmit a purchase confirmation number corresponding to the order transaction made by the user 162 7 Purchase Confirmation Number and Request For Payment - Concurrently or shortly after step 6, the vendor A 168 transmits the purchase confirmation number together with a request for payment, including amount and type of merchandise, to the transaction service company 180. Or, this information can be sent in a secure manner to the service company 180 via the user 162 without a direct connection to the service company 8 Purchase Confirmation Number - The user 162 logs onto the transaction service company 180, either independently or through a transfer from the vendor A 168 web site, and establishes a secure communication channel, as previously described, with the transaction service company 180. This is initiated , for example, as shown in Figure 10 The purchase confirmation number stored at the user's computer is then sent to the transaction service company 180.

9 Verify Funds Available - Upon receipt of the purchase confirmation number from the user 162, and the purchase confirmation number and request for payment from the Vendor A 168, the transaction service company 180 matches these numbers and examines its database to determine that the account for user 162 has sufficient funds available for the transaction

10. Authorization Approval - When the transaction service company 180 has determined that sufficient funds are available to the account of the user 162 for the desired transaction, an authorization of approval for this transaction is sent to the vendor A 168.

11. Deliver Goods/Services - Upon receipt of the authorization approval for the transaction, the vendor A 168 delivers the goods/services to the user 162.

12. Request Funds Transfer - After release of the goods/services, the vendor A 168 makes a request for funds transfer to pay for the transaction This is made to the transaction service company 180.

13. Request Funds Transfer - The transaction service company 180 can either make a single request for funds transfer to the user financial institution 164 or can accumulate a series of charges from multiple vendors to the account of user 162 and then make a funds request This can be done by reaching a dollar amount, such as $50 00 increments, or can be done on a periodic time basis, such as weekly or monthly

14 Transfer Funds - Upon receiving the request for funds transfer from the transaction service company 180, the financial institution 164 effects a transfer of funds, either singly or through batch processing, to the service company bank 182

15 Request Funds Transfer - The transaction service company 180 and service company bank 182 are affiliated and operate in conjunction with each other The bank 182 can accumulate funds for multiple transfers and make ultimate payments on a periodic basis or when a predetermined funds level is reached The transaction service company 180 can accumulate funds requests likewise on an amount or time basis and make a request for funds transfer, as required by pre-established rules, to the service company bank 182

16 Transfer Funds - Upon reaching a predetermined period of time or amount, the service company bank 182 makes a transfer of funds to the appropriate bank and account, in this case to the account of vendor A 168 to the vendor A bank 174 For other vendors, transfers can be made to other corresponding accounts at the same bank or to accounts at other banks

The process shown in Figure 7 for state diagram 160 allows microtransactions to be accumulated by the transaction service company 180 before processing steps are incurred from other parties, and funds can be held or transferred according to pre-established procedures by working in conjunction with the service company bank 182 so that funds borrowed can be minimized to reduce interest payments or funds can be held for a time and to draw interest during this time

The presence of two accounts, for example user/vendor or service company/vendor, at one institution or under common control by one entity is termed "local accounts " A still further embodiment of the present invention is shown in Figure 8 as state diagram 190. This includes a user 192, vendor 194, vendor bank 196, transaction service company 198, and service company bank 200 The sequential steps in the state diagram are as follows

1. Initialize Service Company Account - The user 192 sets up a secure and trusted account with the transaction service company 198 in a manner described in step 2 of Figure 4 to establish a highly secure identification and communication relationship

IS 2 Transfer Initial Funds - The user 192 transfers funds to the service companv bank 200 which is affiliated with the transaction service company 198

3 Confirm Funds - The identity of the user 192 and the amount of the funds on deposit are transferred from the service company bank 200 to the transaction service company 198 for storage in its data files for the account of the user 192

4 Select Item For Purchase - After the user 192 has established his account with the transaction service company 198 and deposited funds with the service company bank 200, the user can log onto vendor site 194 for the purchase of goods or services After the user 192 has made a selection, he will also designate that the payment is to be done through the transaction service company 198, such as shown in Figure 9

5 Purchase Confirmation Number - Upon completion of the purchase transaction, the vendor 194 generates a purchase confirmation number for the transaction and sends it to the user 192

6 Purchase Confirmation Number and Request For Payment - After providing the purchase confirmation number to the user 192, the vendor 194 also sends the purchase confirmation number together with a request for payment, including an amount and identity of merchandise, to the transaction service company 198 As an alternative, this information can be sent via user 192 to the transaction service company 198, preferably by use of a digital signature 7 Purchase Confirmation Number - The user 192 log onto the transaction service company 198, or he is automatically transferred to this site from the vendor's site 194, and enters the appropriate security codes for establishing a secure channel between the user 192 and the transaction service company 198 The user 192 then sends the purchase confirmation number for the particular transaction if the user 192 desires to complete that transaction and make the payment for it This process is shown in Figure 10

8 Verify Funds Available - Upon receipt of the purchase confirmation number from both the user 192 and the vendor 194, the transaction service company 198 examines the account of the user 192 to determine if funds are available for payment of the transaction amount 9. Authorization Approval - If sufficient funds are available for the requested transaction by the user 192 and vendor 194, an authorization for this particular transaction is transmitted to the vendor 194.

10. Deliver Goods/Services - When the vendor 194 receives the authorization approval for payment, it delivers the goods/services to the user 192.

11. Request Funds Transfer - Upon release of the goods or services, the vendor 194 requests funds transfer for payment to the transaction service company 198.

12. Request Funds Transfer - The transaction service company can accumulate transactions charged to the account of the user 192 over a period of time, thus allowing for microtransactions, and then make a funds transfer request to the service company bank 200.

13. Transfer Funds - Upon receipt of funds transfer request for individual users, the service company bank 200 can transfer funds either individually, or through batch processing, to the vendor account at the vendor bank 196. This transfer can be done when a fixed dollar amount is reached or can be done on a period time basis. The process for payment shown in Figure 8 has the fraud reduction aspect of the invention as well as reduced fee transaction charges because the user establishes funds at an account affiliated with the transaction service company and the service company can immediately verify the availability of funds. Further, the interaction of the transaction service company 198 with the service company bank 200 permits the accumulation of transactions without incurring transaction fees until a single unit transaction, for example, a $50.00 charge, is reached. Alternatively, the user 192 may be requested periodically to transfer funds (see step 2) in increments, such as $100.00, to maintain an ongoing fund for the purchase of goods and services. The service company bank 200 can maintain this account and draw interest. The process of providing greater security through the reduction of fraud benefits both the user and the vendor, and can also make possible the use of micropayments for small charges by multiple vendors.

A purchase order screen 220 as used in conjunction with the present invention is illustrated in Figure 9. This is for a vendor 222 which is illustrated as "Vendor XYZ." The merchandise 224 is a Model 750 Computer system. The price 226 is $600.00 with a shipping fee 228 of $40.00. The total charge 230 is $640.00. The user is requested to select a method of payment, which for example may be credit card 232 for VISA, credit card 234 for MasterCard, or a transaction service company 236 such as EncrypTix If the data is acceptable to the user, he then confirms the purchase with a selection 240, in this example by marking the box Yes, to transmit the page to the vendor XYZ

Figure 10 represents a screen 260 generated by a transaction service company web site for a previously registered user The transaction service company 262 in this example is EncrypTix where the user has previously undergone a high level security verification for establishing an account. After making a purchase, the user either logs onto the transaction service company 262 web site to get the page 260, or it is automatically transferred when the transaction service company is selected, such as shown in Figure 9 When the screen 260 is displayed, the user enters the user name 264, a password 266, and then, for the specific transaction, enters a purchase confirmation number 268, which was previously received from a vendor. If this information is correct, and the user wishes to proceed with the payment of the transaction, he enters a selection in the confirm payment 270, in this example, marking a check in the box Yes, and the screen 260 is then transmitted to the transaction service company 262

In summary, the present invention comprises a process with a combination of entities that provides substantially reduced fraud for the payment of merchandise through a computer network, such as the Internet, and further provides processes and structure for funding payment of the transaction such that the fees can be reduced and the number of transaction steps can be reduced so that the overall cost, complexity and security of the process is substantially improved.

Although several embodiments of the invention has been illustrated in the accompanying drawings and described in the foregoing Detailed Description, it will be understood that the invention is not limited to the embodiments disclosed, but is capable of numerous rearrangements, modifications and substitutions without departing from the scope of the invention.

Claims

WHAT IS CLAIMED IS:

1 A method for processing payment for an order placed by a user to a vendor through a computer network, comprising the steps of receiving a purchase confirmation number from said user, said confirmation number corresponding to a purchase made by said user with said vendor, receiving from said vendor a purchase confirmation number and purchase amount corresponding to said purchase, comparing said purchase confirmation number received from said user with said purchase confirmation number received from said vendor for detecting a match, and if said purchase confirmation numbers match, initiating a transfer of funds in an amount corresponding to said purchase amount from an account of said user to an account of said vendor for payment of said purchase

2. A method for processing payment for an order as recited in Claim 1 wherein said step of initiating a transfer of funds comprises transmitting a request for payment to a credit card processor.

3. A method for processing payment for an order as recited in Claim 1 wherein said step of initiating a transfer of funds comprises transmitting a request for payment to a bank which maintains an account for said user.

4. A method for processing payment for an order as recited in Claim 1 wherein said step of initiating a transfer of funds comprises moving funds between local accounts.

5. A method for processing payment for an order as recited in Claim 1 wherein said step of initiating a transfer of funds comprises transmitting a request for payment from a pre-established credit line.

6. A method for processing payment for an order as recited in Claim 1 wherein said step of initiating a transfer of funds comprises submission of an ACH transfer.

7. A method for processing payment for an order as recited in Claim 1 wherein said step of receiving from said vendor is performed through a direct connection to said vendor.

8. A method for processing payment for an order as recited in Claim 1 wherein said step of receiving from said vendor is performed by a data transmission through said user.

9. A method for processing payment for an order as recited in Claim 1 wherein the step of initiating a transfer of funds occurs after a plurality of said purchase confirmation numbers have been received from said vendor to produce an accumulated funds amount.

10. A method for processing payment for an order placed by a user to a vendor through a computer network, comprising the steps of: receiving a purchase confirmation number from said user, said confirmation number corresponding to a purchase made by said user with said vendor, receiving from said vendor a purchase confirmation number and purchase amount corresponding to said purchase, comparing said purchase confirmation number received from said user with said purchase confirmation number received from said vendor for detecting a match, if said purchase confirmation numbers match, determining if said user has sufficient funds available for payment of said purchase amount, transmitting to said vendor an authorization for said purchase amount, receiving from said vendor a request for payment of said purchase amount, and requesting a transfer of funds from an account of said user to an account of said vendor for payment of said purchase.

11. A method for processing payment for an order as recited in Claim 5 wherein said step of requesting a transfer of funds comprises transmitting a request for payment to a credit card processor.

12. A method for processing payment for an order as recited in Claim 10 wherein said step of requesting a transfer of funds comprises transmitting a request for payment to a bank which maintains an account for said user.

13 A method for processing payment for an order as recited in Claim 10 wherein said step of requesting a transfer of funds comprises moving funds between local accounts

14 A method for processing payment for an order as recited in Claim 10 wherein said step of requesting a transfer of funds comprises transmitting a request for payment from a pre-established credit line

15 A method for processing payment for an order as recited in Claim 10 wherein said step of requesting a transfer of funds comprises submission of an ACH transfer

16 A method for processing payment for an order as recited in Claim 0 wherein said step of receiving from said vendor is performed through a direct connection to said vendor

17 A method for processing payment for an order as recited in Claim 10 wherein said step of receiving from said vendor is performed by a data transmission through said user

18 A method for processing payment for an order as recited in Claim 10 wherein the step of requesting a transfer of funds is for an amount corresponding to said purchase amount

19 A method for processing payment for an order as recited in Claim 10 wherein the step of initiating a transfer of funds occurs after a plurality of said purchase confirmation numbers have been received from said vendor to produce an accumulated funds amount

20. A method for processing payment for an order placed through a computer network, comprising the steps of establishing a user service account with authorization to charge a designated account of said user, receiving a purchase confirmation number from said user, said confirmation number representing a purchase made by said user from a vendor, receiving from said vendor a purchase confirmation number and purchase amount corresponding to said specific purchase, matching said purchase confirmation number from said user with said purchase confirmation number received from said vendor, and subsequent to said step of matching, requesting that a payment be made from said user's designated account to an account of said vendor

21 A method for processing payment for an order as recited in Claim 20 wherein said user's designated account is a credit card account

22 A method for processing payment for an order as recited in Claim 20 wherein said user's designated account is a bank account

23 A method for processing payment for an order as recited in Claim 20 wherein said user's designated account is maintained in conjunction with said user service account

24 A method for processing payment for an order as recited in Claim 20 wherein said step of requesting that a payment be made comprises transmitting a request for payment from a pre-established credit line

25 A method for processing payment for an order as recited in Claim 20 wherein said step of requesting that a payment be made comprises submission of an ACH transfer

26 A method for processing payment for an order as recited in Claim 20 wherein said step of requesting that a payment be made is performed through a direct connection to said vendor

27 A method for processing payment for an order as recited in Claim 20 wherein said step of receiving from said vendor is performed by a data transmission through said user

28 A method for processing payment for an order as recited in Claim 20 wherein the step of requesting that a payment be made occurs after a plurality of said purchase confirmation numbers have been received from said vendor to produce an accumulated funds amount

29 A method for processing payment for an order placed by a user to a vendor through a computer system, comprising the steps of establishing a user account at a transaction service company including assignment of an access code for providing secure communication between said user and said service company and an authorization for said service company to transfer funds from a user account, placement of a purchase by said user via a computer network with a vendor, selection of said service company by said user as a method of payment for said purchase, sending a purchase confirmation number from said vendor to said user, sending said purchase confirmation number and purchase amount from said vendor to said service company, establishing a secure connection between said user and said service company by use of said access code and transmitting said purchase confirmation number from said user to said service company, matching said purchase confirmation number from said user with said purchase confirmation number received from said vendor by said service company, and subsequent to said step of matching, requesting that a payment be made from said user's designated account to an account of said vendor.

30. A method for processing payment for an order as recited in Claim 29 wherein said step of requesting that a payment be made comprises transmitting a request for payment to a credit card processor.

31. A method for processing payment for an order as recited in Claim 29 wherein said step of requesting that a payment be made comprises transmitting a request for payment to a bank which maintains an account for said user.

32. A method for processing payment for an order as recited in Claim 29 wherein said step of requesting that a payment be made comprises moving funds between local accounts.

33. A method for processing payment for an order as recited in Claim 29 wherein said step of requesting that a payment be made comprises transmitting a request for payment from a pre-established credit line.

34. A method for processing payment for an order as recited in Claim 29 wherein said step of requesting that a payment be made comprises submission of an ACH transfer.

35. A method for processing payment for an order as recited in Claim 29 wherein said step of sending said purchase confirmation and purchase amount from said vendor is performed through a direct connection to said vendor.

36. A method for processing payment for an order as recited in Claim 29 wherein said step of sending said purchase confirmation and purchase amount from said vendor is performed by a data transmission through said user.

37. A method for processing payment for an order as recited in Claim 29 wherein said payment is in an amount corresponding to said purchase amount.

38. A method for processing payment for an order as recited in Claim 29 wherein the step of requesting that a payment be made occurs after a plurality of said purchase confirmation numbers have been received from said vendor to produce an accumulated funds amount

39 A method for processing payment for an order placed by a user to a \endor through a computer network, comprising the steps of establishing a user account at a transaction service company including establishment of a secure account for providing secure communication between said user and said service company, and an authorization for said service company to transfer funds from a user account, placement of a purchase order by said user via a computer network with a vendor, selection of said service company by said user as a method of payment for said purchase order, sending a purchase confirmation number from said vendor to said user, sending said purchase confirmation number from said vendor to said service company, establishing a secure connection between said user and said service compan\ by use of said access code and transmitting said purchase confirmation number from said user to said service company, matching said purchase confirmation number from said user with said purchase confirmation number received from said vendor by said service company, if said purchase confirmation numbers match, determining if said user account has sufficient funds available for payment of said purchase amount, transmitting to said vendor an authorization for said purchase amount, receiving from said vendor a request for payment of said purchase amount, and transferring funds from said user account to an account of said vendor for payment of said purchase

40 A method for processing payment for an order as recited in Claim 39 wherein said step of transferring of funds comprises transmitting a request for payment to a credit card processor

41 A method for processing payment for an order as recited in Claim 39 wherein said step of transferring of funds comprises transmitting a request for payment to a bank which maintains an account for said user

42 A method for processing payment for an order as recited in Claim 39 wherein said step of transferring of funds comprises moving funds between local accounts

43 A method for processing payment for an order as recited in Claim 39 wherein said step of transferring funds from said user account comprises transmitting a request for payment from a pre-established credit line.

44 A method for processing payment for an order as recited in Claim 39 wherein said step of transferring funds from said user account comprises submission of an ACH transfer

45 A method for processing payment for an order as recited in Claim 39 wherein said step of sending said purchase confirmation number from said vendor is performed through a direct connection to said vendor

46 A method for processing payment for an order as recited in Claim 39 wherein said step of receiving from said vendor is performed by a data transmission through said user

47. A method for processing payment for an order as recited in Claim 39 wherein said funds for said payment of said purchase corresponds to said purchase amount

48 A method for processing payment for an order as recited in Claim 39 wherein the step of transferring funds from said user account occurs after a plurality of said purchase confirmation numbers have been received from said vendor to produce an accumulated funds amount.