Critically Discuss Security Issues and the Breakdown of the Payment System. Introduction Regulation 2560/2001/EU applies to cross-border payments in euros within the EU and established with effect from 1st July 2003 the principle of equal charges for a cross-border transaction and a strictly domestic transaction. The Consultative Document â€œNew Legal Framework for Payments in the Internal Marketâ€ acknowledges that the Regulation â€œhas contributed to a considerable reduction in the price for [such] paymentsâ€¦and has provided an incentive for the payment industry to modernise their EU-wide payment infrastructuresâ€. However, it is acknowledged that technical and legal barriers still prevent EU citizens, companies and payment service providers from reaping the full benefits of a Single Payment Area for non-cash payments.
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The Executive Summary (p.2) concludes: â€œThe Internal Market for goods and services cannot function properly without cheap, efficient and secure [emphasis supplied] payment services.â€ While the Regulation addresses the first of these three criteria, considerable progress is still required in respect of the efficiency of services (and, in particular, the introduction of appropriate protection for parties in the event of breakdown) and security of networks in the face of increasing external attack. Annex 20 of the Consultative Document raises issues in respect of â€˜Security of Networksâ€™ and Annex 21 similarly invites submissions in respect of â€˜Breakdown of a Payment Network.â€™ It is proposed to address each of these subjects in turn. Security of the Networks Annex 20 describes attacks upon the databases of, inter alia, the banking industry and e-commerce merchants which have led to concerns as to payment fraud and have resulted in the recall and reissue of many thousands of payment cards. The full scale of the problem is unknown since, due to the potential for the undermining of confidence in such institutions, it has been estimated that as many as 80% of such incidents are not reported. A study undertaken for the European Commission into public perceptions of the security of electronic payments identified the fact that from a security perspective, electronic banking systems including on-line bank transfers are the preferred methods of payment. This is due to the use of a system of 2-factor identification (e.g. password and selected digits from a PIN number). By contrast, the use of â€œcard not presentâ€ payment over the internet poses risks because authentication depends upon the use of credit card numbers and expiry dates (which information can be the subject of misappropriation or the increasing crime of â€œidentity theftâ€. Regrettably, this type of transaction remains the most prevalent for cross-border payments. New, more secure solutions, have yet to achieve a significant degree of market penetration. In particular, the use of what is known as SSL – â€œSecure Sockets Layerâ€, a generic method to cryptographically secure communication on the Internet taking place between a client and a server –
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