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What is a Secure Electronic Transaction?

By Katriena Knights
Updated May 16, 2024
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A secure electronic transaction is a process used to allow the transfer of secure information over the Internet. Examples include credit card numbers, bank account numbers, government-issued identification numbers and other data that must be exchanged to complete a financial transaction. It most often is employed for electronic commerce using credit cards or direct withdrawal of funds from a bank account and for sensitive activities such as online investing or online management of a bank account. In fact, the development of secure electronic transactions integrated into a website's payment system has made electronic commerce not only possible but in many ways safer and more secure than traditional financial transactions.

The term "secure electronic transaction" refers specifically to SET, a specific security protocol that makes use of several layers of encryption to protect sensitive information. In SET, a typical secure electronic transaction works based on a series of electronic signatures. Merchants, customers and banks all receive individual digital signatures, often keyed to an individual secure electronic transaction so that each individual purchase has its own set of encryption keys, and all credit card or bank account numbers are protected from exposure and potential fraud. This results in a complex but ultimately very secure system. In order to use SET, both the customer's browser and the merchant's server must be SET-enabled.

Providing another layer of security, each transaction uses a dual signature. A set of order information is sent to the merchant under one signature, and payment information is sent to the customer's bank under another signature. Thus the credit card number is not disclosed to the merchant, and the customer's order contents are not disclosed to the bank. This system requires the order information and the payment information to be linked, and it requires use of a digital "wallet," in which the customer's information is stored.

When it initially was introduced, the secure electronic transaction protocol was supported by a number of credit card companies and merchants, including MasterCard® and Visa, who originally participated in its development. Microsoft and Netscape also supported the protocol, and it was expected to become the standard for electronic commerce. Utilization of SET, though, requires additional software to create and maintain the digital wallet, as well as additional expense and support to maintain the system. Ultimately, the level of complexity required for SET led to its being largely replaced by simpler and less expensive secure electronic transaction methods based on protocols such as secure socket layers (SSL).

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Discussion Comments

By Mor — On Jul 04, 2011

@bythewell - The thing is, there are bits of malware which will do this too. If you download the wrong thing, or visit the wrong website, or whatever, they can get onto your computer and you won't even know it.

Then, they send your keystrokes back to whoever it is that sent them out and bingo, they have your password or your credit card number, while you thought you were making a secure electronic payment.

This is what anti-virus software is for.

Also, you should look into getting one of those programs that takes out "spy-ware" as sometimes they are better at catching this kind of thing.

And, if you are really worried, you might want to think about getting another bank account that you don't access by internet (even if you can). Just put a little bit away in there, use it as a savings account maybe, and that way you know you have a safety net if your bank does get hacked.

By bythewell — On Jul 03, 2011

One of the things that really makes me nervous about online payment systems over the internet is that there are certain pieces of software or hardware that can completely bypass this sort of protocol by logging your keystrokes. They can then just figure out what your credit card number and all your information is.

I'm always careful on public computers not to access my bank account unless I absolutely have to, and if I do, I try to change my passwords afterwards.

I know it's a bit paranoid, but if someone managed to crack the password of my bank account I'd be in big trouble and might even end up homeless.

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