e-Commerce

INTRODUCTION

Internet has become an important medium for doing global

business based on the state of the art technology. Electronic

commerce has two major aspects: economical and technological.

New standards and new facilities are constantly emerging and their

proper understanding is essential for the success of an operation,

and especially for those who are assigned a duty to select,

establish, and maintain the necessary infrastructure.

In the emerging global economy, e-Commerce and e-business have

increasingly become a necessary component of business strategy

and a strong catalyst for economic development. The integration of

information and communications technology (ICT) in business has

revolutionized relationships within organizations and those

between and among organizations and individuals. Specifically,

the use of ICT in business has enhanced productivity, encouraged

greater customer participation, and enabled mass customization,

besides reducing costs.

With developments in the Internet and Web-based technologies,

distinctions between traditional markets and the global electronic

marketplace-such as business capital size, among others-are

gradually being narrowed down. The name of the game is strategic

positioning, the ability of a company to determine emerging

opportunities and utilize the necessary human capital skills (such

as intellectual resources) to make the most of these opportunities

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through an e-business strategy that is simple, workable and

practicable within the context of a global information milieu and

new economic environment. With its effect of levelling the playing

field, e-Commerce coupled with the appropriate strategy and

policy approach enables small and medium scale enterprises to

compete with large and capital-rich businesses.

On another plane, developing countries are given increased access

to the global marketplace, where they compete with and

complement the more developed economies. Most, if not all,

developing countries are already participating in e-Commerce,

either as sellers or buyers. However, to facilitate e-Commerce

growth in these countries, the relatively underdeveloped

information infrastructure must be improved. Among the areas for

policy interventions are:

High Internet access costs, including connection service fees,

communication fees, and hosting charges for websites with

sufficient bandwidth;

Limited availability of credit cards and a nationwide credit card

system;

Underdeveloped transportation infrastructure resulting in slow

and uncertain delivery of goods and services;

Network security problems and insufficient security safeguards;

Lack of skilled human resources and key technologies (i.e.,

inadequate professional IT workforce);

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Content restriction on national security and other public policy

grounds, which greatly affect business in the field of

information services, such as the media and entertainment

sectors;

Cross-border issues, such as the recognition of transactions

under laws of other ASEAN member-countries, certification

services, improvement of delivery methods and customs

facilitation; and

The relatively low cost of labour, which implies that a shift to a

comparatively capital intensive solution (including investments

on the improvement of the physical and network infrastructure)

is not apparent.

It is recognized that in the Information Age, Internet commerce is a

powerful tool in the economic growth of developing countries.

While there are indications of ecommerce patronage among large

firms in developing countries, there seems to be little and

negligible use of the Internet for commerce among small and

medium sized firms.

E-Commerce promises better business for SMEs and sustainable

economic development for developing countries. However, this is

premised on strong political will and good governance, as well as

on a responsible and supportive private sector within an effective

policy framework. This primer seeks to provide policy guidelines

toward this end.

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e-Commerce

DEFINITIONS AND CONCEPTS

Electronic commerce or e-Commerce refers to a wide range of

online business activities for products and services. It also pertains

to “any form of business transaction in which the parties interact

electronically rather than by physical exchanges or direct physical

contact.”

E-Commerce is usually associated with buying and selling over the

Internet, or conducting any transaction involving the transfer of

ownership or rights to use goods or services through a computer-

mediated network. Though popular, this definition is not

comprehensive enough to capture recent developments in this new

and revolutionary business phenomenon.

A more complete definition is: E-Commerce is the use of

electronic communications and digital information processing

technology in business transactions to create, transform, and

redefine relationships for value creation between or among

organizations, and between organizations and individuals.

E-Commerce is an emerging concept that describes the process of

buying and selling or exchanging of products, services, and

information via computer networks including the internet.

Definition of E-Commerce from Different Perspective

1. Communications Perspective

EC is the delivery of information, products/services, or

payments over the telephone lines, computer networks or any

other electronic means.

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2. Business Process Perspective

EC is the application of technology toward the automation of

business transactions and work flow.

3. Service Perspective

EC is a tool that addresses the desire of firms, consumers, and

management to cut service costs while improving the quality of

goods and increasing the speed of service delivery.

4. Online Perspective

EC provides the capability of buying and selling products and

information on the internet and other online services.

Benefit of e-Commerce

Access new markets and extend service offerings to customers

Broaden current geographical parameters to operate globally

Reduce the cost of marketing and promotion

Improve customer service

Strengthen relationships with customers and suppliers

Streamline business processes and administrative functions

Scope of E-Commerce

Marketing, sales and sales promotion

Pre-sales, subcontracts, supply

Financing and insurance

Commercial transactions: ordering, delivery, payment

Product service and maintenance

Co-operative product development

Distributed co-operative working

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Use of public and private services

Business-to-administrations (e.g. customs, etc)

Transport and logistics

Public procurement

Automatic trading of digital goods

Accounting

Dispute resolution

History of E-Commerce

The history of e commerce is a history of how Information

Technology has transformed business processes. Some authors will

track back the history of e commerce to the invention of the

telephone at the end of last century.

EDI (Electronic Data Interchange) is widely viewed as the

beginning of ecommerce if we consider ecommerce as the

networking of business communities and digitalization of business

information.

Large organizations have been investing in development of EDI

since sixties. It has not gained reasonable acceptance until eighties.

EDI has never reached the level of popularity of the web-based

ecommerce for several reasons:

High cost of EDI prohibited small businesses and medium-sized

companies from participating in the electronic commerce;

Slow development of standards hindered the growth of EDI;

The complexity of developing EDI applications limited its

adaptation to a narrow user base.

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The Internet and the Web

The Internet was conceived in 1969, when the Advanced Research

Projects Agency (a Department of Defence organization) funded

research of computer networking. The Internet could end up like

EDI without the emergence of the World Wide Web in 1990s. The

Web became a popular mainstream medium (perceived as the

fourth mainstream medium in addition to print, radio and TV) in a

speed which had never been seen before. The Web users and

content were almost doubled every a couple of months in 1995 and

1996. The web and telecommunication technology had fuelled the

stock bubble in the roaring 90s and eventually pushed NASDAQ

over 5,000 in 2000 before it crashed down to 1,200 in 2002. XML

and Web Services Besides the availability of technical

infrastructures, the popularity of the Web is largely attributed to

the low cost of access and simplicity of HTML authoring, which

are the obstacles of EDI development. The Internet and the Web

have overcome the technical difficulty of EDI, but it has not solved

the problem of slow development of

e commerce standards.

XML, as a meta mark-up language, provides a development

tool for defining format of data interchange in a wide variety of

business communities. Web Services offers a flexible and effective

architecture for the implementation. There is no doubt that XML

and the Web Services will shape the course of e commerce in years

to come

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e-Commerce

Concepts of Electronic Commerce

Electronic commerce is narrowly defined as buying and selling

products/services over the Internet. The concept has been

broadened to include all business activities of a sales cycle. The

distinction between E-Commerce and E-business has become

blurred. Ecommerce and Electronic Commerce has been used

interchangeably, Electronic Business, however, has not been a

widely accepted terminology.

David Kosiur described the Components of Electronic Commerce

in three dimensions (Processes, Institutions and Networks) in his

1997 book Understanding Electronic Commerce. We expand

Institutions as E-Commerce Players, Networks as Technologies

and add Markets as the fourth dimension of E-Commerce.

E- Commerce in Action

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e-Commerce

How e-Commerce Works

The consumer first moves through the internet to the merchant’s

web site. At the web site, the consumer is briefly given an

introduction to the product or services the merchant offers. It is at

this point that the consumer makes the decision to visit the web

store by clicking on a link or button located on the web page. After

choosing to visit the web store, the consumer is typically

connected to an online transaction server located somewhere else

on the internet which runs software commonly referred to as a

shopping cart application.

The shopping cart application has been setup by the merchant to

display all products and services offered, as well as calculate

pricing, taxes, shipping charges, etc. From there, the consumer

decides that he wants to purchase something, so he enters all

pertinent credit card information and a sales order is produced.

Depending on the ecommerce implementation, the sales order can

now take two totally different paths for confirming to the consumer

that the order is officially placed.

Scenario 1

The consumer’s credit card information goes directly through a

private gateway to a processing network, where the issuing and

acquiring banks complete or deny the transaction. This generally

takes place in no more than 5-7 seconds and the consumer is then

informed that the order was received, the credit card was

authorized, and that the product will ultimately be shipped.

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Scenario 2

The consumer’s entire order and credit card information is

electronically submitted back to the merchant’s server (usually via

email, FTP, or SSL connection) where the order can be reviewed

first and then approved for credit card authorization through a

processing network. The consumer then receives an email shortly

afterwards, confirming the order being received, the credit card

being authorized, and status on when the product will exactly be

shipped.

In both scenarios, the process is transparent to the consumer and

appears virtually the same. However, the first scenario is a more

simplistic method of setting up a shopping cart application and

does not take into consideration any back office issues that may

delay shipment (i.e., items out of stock, back orders, orders

submitted after office hours or during holidays, etc.). Most of the

e-Commerce Manager relies on the second scenario to handle all of

its ecommerce orders. This second scenario keeps the consumer

accurately informed throughout the entire ordering process. There

are several basic steps you will need to accomplish before

becoming e-Commerce Enabled.

Getting a Merchant Bank Account

Web Hosting

Web Design Considerations

Registering a Domain Name

Obtaining a Digital Certificate

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FORCES FUELING E-COMMERCE

There are three major forces fueling e-Commerce.

They include:

1. Economic forces

2. Marketing and customer interaction forces

3. Technology, particularly multimedia convergence

1. Economic Forces

One of the most evident benefits of e-Commerce is economic

efficiency resulting from the reduction in communications costs,

low-cost technological infrastructure, speedier and more economic

electronic transactions with suppliers, lower global information

sharing and advertising costs, and cheaper customer service

alternatives.

Economic integration is either external or internal. External

integration refers to the electronic networking of corporations,

suppliers, customers/clients, and independent contractors into one

community communicating in a virtual environment (with the

Internet as medium).

Internal integration, on the other hand, is the networking of the

various departments within a corporation, and of business

operations and processes. This allows critical business information

to be stored in a digital form that can be retrieved instantly and

transmitted electronically.

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Internal integration is best exemplified by corporate intranets.

Among the companies with efficient corporate intranets are Procter

and Gamble, IBM, Nestle and Intel.

Eg. sesami.net: Linking Asian Markets through B2B Hubs

sesami.net is Asia’s largest B2B e-hub, a virtual exchange

integrating and connecting businesses (small, medium or large) to

trading partners, e-marketplaces and internal enterprise systems for

the purpose of sourcing out supplies, buying and selling goods and

services online in real time. The e-hub serves as the centre for

management of content and the processing of business transactions

with support services such as financial clearance and information

services.

It is strategically and dynamically linked to the Global Trading

Web (GTW), the world’s largest network of trading communities

on the Internet. Because of this very important link, sesami.net

reaches an extensive network of regional, vertical and industry-

specific interoperable B2B e-markets across the globe.

2. Market Forces

Corporations are encouraged to use e-Commerce in marketing and

promotion to capture international markets, both big and small.

The Internet is likewise used as a medium for enhanced customer

service and support. It is a lot easier for companies to provide their

target consumers with more detailed product and service

information using the Internet.

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3. Technology Forces

The development of ICT is a key factor in the growth of

ecommerce. For instance, technological advances in digitizing

content, compression and the promotion of open systems

technology have paved the way for the convergence of

communication services into one single platform. This in turn has

made communication more efficient, faster, easier, and more

economical as the need to set up separate networks for telephone

services, television broadcast, cable television, and Internet access

is eliminated. From the standpoint of firms/businesses and

consumers, having only one information provider means lower

communications costs.

Moreover, the principle of universal access can be made more

achievable with convergence. At present the high costs of

installing landlines in sparsely populated rural areas is a

disincentive to telecommunications companies to install telephones

in these areas. Installing landlines in rural areas can become more

attractive to the private sector if revenues from these landlines are

not limited to local and long distance telephone charges, but also

include cable TV and Internet charges.

This development will ensure affordable access to information

even by those in rural areas and will spare the government the

trouble and cost of installing expensive landlines.

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e-Commerce

E-COMMERCE AND E-BUSINESS

While some use e-Commerce and e-business interchangeably, they

are distinct concepts. In e-Commerce, information and

communications technology (ICT) is used in inter-business or

inter-organizational transactions (transactions between and among

firms/organizations) and in business-to-consumer transactions

(transactions between firms/organizations and individuals).

In e-business, on the other hand, ICT is used to enhance one’s

business. It includes any process that a business organization

(either a for-profit, governmental or non-profit entity) conducts

over a computer-mediated network. A more comprehensive

definition of e-business is: “The transformation of an

organization’s processes to deliver additional customer value

through the application of technologies, philosophies and

computing paradigm of the new economy.”

Three primary processes are enhanced in e-business:

1. Production processes, which include procurement, ordering

and replenishment of stocks; processing of payments; electronic

links with suppliers; and production control processes, among

others;

2. Customer-focused processes, which include promotional and

marketing efforts, selling over the Internet, processing of

customers’ purchase orders and payments, and customer

support, among others;

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3. Internal management processes, which include employee

services, training, internal information-sharing, videoconferencing,

and recruiting. Electronic applications enhance information flow

between production and sales forces to improve sales force

productivity. Workgroup communications and electronic

publishing of internal business information are likewise made more

efficient.

The Internet Economy

The Internet economy is a broader concept than e-Commerce and

e-business. It includes e-Commerce and e-business. The Internet

economy pertains to all economic activities using electronic

networks

as a medium for commerce or those activities involved in both

building the networks linked to the Internet and the purchase of

application services such as the provision of enabling hardware

and software and network equipment for Web-based/online retail

and shopping malls (or “e-malls”). It is made up of three major

segments:

physical (ICT) infrastructure, business infrastructure, and

commerce. The CREC (Center for Research and Electronic

Commerce) at the University of Texas has developed a conceptual

framework for how the Internet economy works. The framework

shows four layers of the Internet economy-the three mentioned

above and a fourth called intermediaries.

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e-Commerce

Internet Economy Conceptual Frame

Based on Center for Research in Electronic Commerce,

University of Texas, “Measuring the Internet Economy”,

June 6, 2000; available from www.Internetindicators.com.

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TYPES OF E-COMMERCE

There are a number of different types of E-Commerce

B2B - Business to Business

B2C - Business to Consumer

C2B - Consumer to Business

B2E - Business to Employee

C2C - Consumer to Consumer

B2B - Business to Business

E-Commerce has been in use for quit a few years and is more

commonly known as EDI (electronic data interchange). In the past

EDI was conducted on a direct link of some form between the two

businesses where as today the most popular connection is the

internet. B2B e-Commerce currently makes up about 94% of all e-

Commerce transactions. Typically in the B2B environment, E-

Commerce can be used in the following processes:

Procurement;

order fulfilment;

Managing trading-partner relationships.

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e-Commerce

E-Commerce technologies have allowed even the smallest

businesses to improve the processes for interfacing with customers.

They are now able to develop services for individual clients rather

than provide a standard service. An alternative way of thinking of

B2B e-Commerce is to think of it as being used to:

Attract, develop, retain, and cultivate relationships with

customers;

Streamline the supply chain, manufacturing, and procurement

processes, and automate corporate processes to deliver the right

products and services to customers quickly and cost-effectively;

Capture, analyze, and share, information about customers and

company operations, in order to make better decisions.

B2C - Business to Consumer

This is where the consumer accesses the system of the supplier. It

is still a two way function but is usually done solely through the

Internet. B2C can also relate to receiving information such as share

prices, insurance quotes, on-line newspapers, or weather forecasts.

The supplier may be an existing retail outlet such as a high street

store; it has been this type of business that has been successful in

using eCommerce to deliver services to customers. These

businesses may have been slow in gearing-up for e-Commerce

compared to the innovative dot.com start ups, but they usually

have a sound commercial structure as well as in-depth experience

of running a business - something which many dotcoms lacked,

causing many to fail.

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C2B - Consumer to Business

Consumer to Business is a growing arena where the consumer

requests a specific service from the business.

B2E - Business to Employee

Business to Employee e-Commerce is growing in use. This form of

e-Commerce is more commonly known as an ‘Intranet’. An

intranet is a web site developed to provide employees of an

organisation with information. The intranet is usually access

through the organisations network, it can and is often extended to

an Entrant which uses the Internet but restricts uses by sign on and

password.

C2C - Consumer to Consumer

These sites are usually some form of an auction site. The consumer

lists items for sale with a commercial auction site. Other

consumers access the site and place bids on the items. The site then

provides a connection between the seller and buyer to complete the

transaction. The site provider usually charges a transaction cost. In

reality this site should be call C2B2C.

B2A is the least developed area of e-Commerce and it relates to the

way that public sector organisations, at both central and local level,

are providing their services on-line known as e-Government, it has

the potential to increase the domestic and business use of e-

Commerce as traditional services are increasingly being delivered

over the Internet.

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CHALLENGES IN ELECTRONIC COMMERCE

For more than two decades, organizations have conducted business

electronically by employing a variety of electronic commerce

solutions. In the traditional scenario, an organization enters the

electronic market by establishing trading partner agreements with

retailers or wholesalers of their choosing. These agreements may

include any items that cannot be reconciled electronically, such as

terms of transfer, payment mechanisms, or implementation

conventions. After establishing the proper business relationships,

an organization must choose the components of their electronic

commerce system. Although these systems differ substantially in

terms of features and complexity, the core components typically

include:

Workflow Application: A forms interface that aids the user in

creating outgoing requests or viewing incoming requests.

Information that appears in these forms may also be stored in a

local database.

Electronic Data Interchange (EDI) Translator: A mapping

between the local format and a globally understood format.

Communications: A mechanism for transmitting the data;

typically asynchronous or bisynchronous

Value-Added Network (VAN): a store and forward mechanism

for exchanging business messages

Using an electronic commerce system , a retailer may maintain an

electronic merchandise inventory and update the inventory

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database when items are received from suppliers or sold to

customers. When the inventory of a particular item is low, the

retailer may create a purchase order to replenish his inventory. As

the purchase order passes through the system, it will be translated

into its EDI equivalent, transmitted to a VAN, and forwarded to

the supplier’s mailbox. The supplier will check his mailbox, obtain

the EDI purchase order, translate it into his own local form,

process the request, and ship the item.

These technologies have primarily been used to support business

transactions between organizations that have established

relationships (i.e. retailer and the wholesaler). More recently, due

largely to the popularity of the Internet and the World Wide Web,

vendors are bringing the product directly to the consumer via

electronic shopping malls. These electronic

malls provide the consumer with powerful browsing and searching

capabilities, somewhat duplicating the traditional shopping

experience. In this emerging business-to- consumer model, where

consumers and businesses are meeting electronically, business

relationships will have to be automatically negotiated.

The Challenge

As the information technology industry moves towards the creation

of an open, competitive Electronic Marketplace, it must provide an

infrastructure that supports the seamless location, transfer, and

integration of business information in a secure and reliable manner.

This Marketplace will be used by all application domains to

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procure commodities and order supplies. As such, electronic

commerce applications will require easy-to-use, robust, security

services, a full suite of middleware services, and data and protocol

conversion services. Using this Electronic Marketplace, a

purchasing agent will competitively procure supplies, a

manufacturer will obtain product or parts information, and a

consumer will procure goods and services.

Security Issues

Ensuring security of payments and privacy of online transactions is

key to the widespread acceptance and adoption of e-commerce.

While the appropriate policies are in place to facilitate e-

commerce, lack of trust is still a barrier to using the Internet to

make online transactions.

Security of electronic communications is a major control issue for

companies engaged in electronic commerce. It is essential that the

commerce related data of buyers and sellers be kept private when

they are transmitted electronically. The data being transmitted also

must be protected against being purpose fully altered by someone

other than the sender.

Much online commerce continues to be handled through private

EDI networks usually run over VANs. VANs (Value Added

Networks) are relatively secure and reliable. Thus high availability

computing requires a security infrastructure for electronic

commerce and electronic business. Large public networks,

including the internet, are more vulnerable because they are

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virtually open to anyone and because they are so huge that when

abuses do occur, they can have an enormously wide spread impact.

When the internet becomes part of the corporate networks, the

organisation’s information systems can be vulnerable to actions

from outsiders. There are some typical types of computer crimes

that hakers commit on the internet on a regular basis. That is why

Internet security measures like encryption and firewalls are so vital

to the success of electronic commerce and other business uses of

the internet.

Building Blocks

In the heterogeneous, distributed environment that makes up this

Electronic Marketplace, information and services will be

accessible via methods that are as wide and as varied as the

vendors and consumers that populate and use them. No longer will

interoperability be achieved by using a single set of standards.

Competing technologies will always be available, and quite often

there will be no clear winner. Instead, emerging middleware

technologies will complement the suite of standards and standards

to provide seamless location, transfer, and integration of business

information.

One can imagine that over time, the Electronic Marketplace will be

populated with a myriad of products and services. To aid the

consumer in finding useful and necessary information from

amongst the vast sea of resources that will ultimately be available,

advances in resource discovery technologies will be critical. Key

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components that will be necessary to advance resource discovery

techniques are distributed naming and directory services.

Distributed naming services provide an environment that allows

functions to move transparently among computing platforms.

Coupling this feature with directory services provides a method for

organizations to dynamically register business capabilities as they

move on and off the information highway.

As the amount of information that can be exchanged grows,

traditional communications protocols will give way to a set of

faster and more reliable protocols. Middleware communications

will be used to hide the complexity of the underlying

communications protocols. Applications will require

programmable interfaces to message queuing, database access,

remote procedure calls, and object request brokers. It is imperative

that the communications infrastructure be able to support these and

future services in a flexible and efficient manner.

The seamless location and transfer of information will allow

consumers and providers to exchange business information, but

will not provide for the integration of that information into their

business processes. Current data translation practices allow for a

syntactic translation of information, which works well when

semantic differences can be settled out of band. In the Electronic

Marketplace, where entire business paradigms must be established

electronically, it will be necessary to carry both the semantics and

syntax of data elements through the data translation process.

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Security services will be imperative in the daily operation of the

Electronic Marketplace. Applications will require a full suite of

end-to-end security services, including authentication, integrity,

confidentiality, non-repudiation, and access control. The first three

services can be achieved through public-key cryptosystems that

employ digital signature, encryption, and key exchange

technologies. Non-repudiation can be added through the use of a

certification authority. Upon user authentication, traditional access

control or role-based access control methods can be employed to

define access rights. Perhaps the biggest challenge in creating this

Electronic Marketplace will be to overcome current

interoperability problems caused by competing security

algorithms, message formats, and certificate management systems.

Security is a prime example of a situation where competing

solutions exist and there is no clear winner in sight. Recent work in

the area of cryptographic API’s promises to provide a well-

defined, high-level interface to security services, regardless of the

complexity of the underlying algorithms. Differences in message

formats and certificate management systems must similarly be

overcome, either through standards, or through the use of

mediators and facilitators.

Solutions

To directly address the issues of building an information

infrastructure that will support an Electronic Marketplace, the

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National Institute of Standards and Technology has established two

cooperative, complementary programs.

The CAIT, under the guidance of industry participants, identifies,

develops, and demonstrates critical new technologies and

applications. The ECIF provides a laboratory environment that

supports technology transfer through rapid prototypes, pilots, the

integration of key infrastructure components and services, and the

demonstration of existing and emerging Electronic Commerce

technologies.

Through on-going projects in the areas of database access,

facilitators and mediators, resource discovery, secure messaging,

and integration technologies, the CAIT and ECIF focus on the

following:

Where enabling services and technology are not yet

commercially available, NIST fosters joint research projects

aimed at bringing together the research community and the

vendor community. This joint fellowship provides vendors with

the tools they need to quickly implement emerging technologies

while researchers remain focused in their development of new

technologies.

Where components are commercially available, NIST creates

test beds and pilots aimed at achieving interoperable solutions.

These solutions are achieved by demonstrating interoperability

among middleware technologies, standards and defect

standards.

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Promotes technical awareness via presentations, publications,

demonstrations, and consulting.

E-COMMERCE COMMUNITIES

In a word, it’s community that will drive e-Commerce in the

future. We certainly have the technology to build great business-to-

consumer and business-to-business ecommerce applications into

our business models. And attributes such as viable application

design, integration with business processes, and overall

performance matter.

But those who invest in community will see a large increase in

repeat business, improved support functions, and the opportunity to

go after new forms of e-Commerce revenue.

A successful community strategy must embrace the idea of moving

the one on-one communication that occurs offline into the virtual

world of e-Commerce. Such a strategy currently requires multiple

technical approaches. However, community solutions will soon

become more integrated and far-reaching.

The tools that form online communities include discussion or

forum software, chat functions, instant messaging, two-way

mailing lists, online collaboration tools, audio, video, and more.

We must choose to invest slowly at first and increase our

community commitment over time.

For example, the online version of some inquiry might be fulfilled

simply via a pop-up notification window on my return visit,

assuming your e-Commerce application was enabled to take a

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feedback. Or, in a more sophisticated version, you might make a

customer service representative available via video and audio. The

same type of solutions can be enabled for business-to-business

transactions.

Online business is much more exacting, and those participating

usually have a darn good idea of what they want. Better to let me

contact you and supply my long-distance requirements. The

feedback should be supplied without a long or scripted marketing

pitch, too. Community is also a wise strategic investment in other

ways. Suppose one set up a moderated discussion group or a two

way mailing list to get people talking about their products.

Consumers will often have good ideas about product

improvements or good or bad experiences with the product. By

implementing these types of open communication, a company may

gather ideas about new product offerings, improvement of existing

products, or methods of bolstering support, all of which will likely

yield repeat business.

Online conversation with business partners will also give net

positive results. A private discussion area or secured online

meetings can go a long way toward building stronger relationships

between companies. This will also serve to potentially drive new

business opportunities for both parties.

Building community has to be at the heart of any successful e-

Commerce strategy. Certainly we cannot totally mimic offline

human interaction in an online setting. However, e-Commerce

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settings today are very inhuman in nature; we need to factor in the

human part of the equation if e-Commerce is to be successful.

CONSUMER ORIENTED E-COMMERCE

E-retailing essentially consists of the sale of goods and services.

Sometimes we refer to this as the sale of tangible and intangible

goods. We can divide tangible goods into two categories: physical

goods and digital goods. Examples of physical goods would be a

book, a television set, a video recorder, a washing machine, etc.

Examples of digital goods are software and music, which may be

downloaded from the internet. The sale of intangible goods is

sometimes called e-servicing. Examples of services that may be

sold are information such as the most recent stock prices, the most

recent foreign exchange rate or education. Entertainment such as

games that would be played on the internet is also examples of e-

services. So are the sales of services such as telecommunication

services or banking services. The sales of tangible and intangible

goods are all referred to as customer oriented e-Commerce or e-

retailing, if they are sold directly to the consumer who is the end

user. Here we discuss the sale of tangible goods.

Let’s see the difference between Traditional Retailing and E-

Retailing

Traditional Retailing

Before we begin a discussion of e-retailing, it would be useful to

look at some aspects of traditional retailing. This helps to identify

some essential characteristics of retailing.

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e-Commerce

Traditional retailing essentially involves selling to a final customer

through a physical outlet or through direct physical

communication. This normally involves a fairly extensive chain

starting from a manufacturer to a wholesaler and then to the

retailer who through a physical outlet has direct contact with the

final customer.

Examples of physical outlets that retailers currently use are:

Malls

Generalized stores (e.g. department store)

Specialized stores

Franchise stores

It is useful to reflect that even in traditional retailing we have

moved away from just using a static physical outlet within which a

customer can have direct contact with the retailer. Thus, more

recent forms of traditional retailing include

direct mailing

telemarketing

door-to-door sales

vending machines

Direct mailing to a customer normally involves sending a brochure

or catalogue to a customer. The customer browses through this

catalogue and then carries out mail ordering. In some respects, this

notion of browsing through a catalogue is a forerunner of e-

retailing. Direct mailing, telemarketing, door-to-door sales, or the

use of vending machines includes other forms that have actually

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e-Commerce

moved away from a physical fixed outlet and in a way are

intermediate forms of the movement away from traditional

physical retailing outlet to the virtual retailing we see on the

internet.

E-Retailing

The internet has allowed a new kind of specialization to emerge.

Instead of specializing just in a special product line, they allow

specialization in particular classes of customers and sellers. Thus,

we see lastminute.com, which allows last minute purchases of

travel tickets, gift, and entertainment to be matched against last

minute sellers of the same items. Here, we see specialization not in

a product line but in a class of purchasers and a class of sellers.

This kind of specialization would not have been possible before we

had the internet.

In addition to these specialized stores, we also get generalized

estores Where a store sells several product lines under a single

management. Examples of these generalized stores include JC

penny and Walmart. We also have the electronic counterpart of

malls or e-malls. Emalls essentially provide a web-hosting service

for your individual store much in the way that mall provide a

hosting service in the sense of a physical location for your store.

Examples of these e-malls are Yahoo! Store,

GEOShops and CNET Stores:

In the future we may see the equivalent of franchise stores

developing. One new class of business that is developing very

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e-Commerce

quickly on the internet is the e-broker. The e-broker does not sell

directly to a customer but brings the customer in touch with a

particular supplier, so that a given set of criteria specified by the

customer is satisfied. For example, the customer may want to buy

goods at the cheapest price and so the e-broker would then do a

search to find the supplier that would provide the cheapest goods.

Or, a customer may want to find a particular kind of goods and the

e-broker sets about determining which supplier would provide

those goods. This area of e-broking is likely to grow very greatly

in the near future.

Benefits of E-Retailing

To the customer...

Customers enjoy a number of benefits from e-retailing. The first of

these is convenience. It is convenient for the customer as he does

not have to move from shop to shop physically in order to examine

goods. He is able to sit in front of a terminal and search the net and

examine the information on goods. The second aspect of

convenience he gets is in terms of time.

Normally, the traditional shop has an opening time and a closing

time and the customer can only visit the shop within these periods.

On the net, the customer can choose at any time to visit a site to

examine the goods that are available and actually carry out his

purchasing at one’s own convenient time. The third type of

convenience that the customer gets is that he has access to a search

engine, which will actually locate the products that he describes’

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e-Commerce

and also the site where they may be available, or perhaps even

locate the sites where they may be available at the best price.

The second type of benefit to customers is better information. The

Internet and the World Wide Web are essentially communication

media that allow retailers to put on quite extensive information

related to their products, which is available to the customers.

Furthermore, since the customer can look at several sites, he will

be able to obtain different pieces of information from each site to

build a far better picture for him about the products that he is

interested in. In some sites, there are customer reviews of different

products as well as reviews by the business itself. An example of

this can be found on Amazon.com. This allows-the customer to

finesse his requirements before actually making the purchase. It

also gives different sources of information. The third type of

benefit that the customer gets is competitive pricing. This is due to

two factors.

The first is lowered costs to the retailer because he does not

have to maintain a physical showroom, he does not have to hire

several shop assistants, and these savings can be passed on to

customers in the form of reduced prices.

Secondly, competitive pricing pressure that arises from the fact

that the customer is now able to look at prices at several sites.

Therefore, the pressure is always there on the retailer to

maintain a competitive price for his products.

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e-Commerce

The third benefit is customization. The customer can actually

specify the features of the products that he would like and thus

in some cases it is possible that the retailer may allow a

customized product to be delivered.

An example of this is on the Dell site. The computer site allows

shoppers to custom specify their own computer software and

hardware configurations. Thus, the customer is able to select

exactly what he wants. This ability to get the business to deliver a

product that the customer specifies he wants is the essence of C2B

ecommerce.

The benefits of e-retailing to the customer include

Convenience

Better information

Competitive price

Customization

Shopping anywhere, anytime

So with e-retailing, the customer can shop “anywhere around the

globe without being restricted to his local vicinity. He could, for

example, purchase goods over and have them delivered to a

domestic address. He can also shop, as mentioned earlier at any

time.

These are very considerable benefits of e-retailing to the customer.

These benefits could see larger and larger numbers of customers

move more and more of their shopping on to eretailing sites in the

future.

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e-Commerce

To the Business...

There are a number of benefits of e-retailing to the business itself.

The first of these is global reach. The retailer now is no longer

restricted to customers who are able to reach the store

physically. They can be from anywhere around the globe. The

retailer must, of course, deliver the goods of a purchase to the

customer. We see later that has an impact on the types of goods

that are most easily handled through e-retailing.

The second benefit is better customer service. The use of email

and the use of electronic interchange of messages between the

customer and the retailer allow better communication between

the customer and the retailer. These allow one to easily inquiries

and deal with complaints. These also allow a much more rapid

response time than was possible in the days of faxes and postal

mail.

The third benefit is the lowered capital cost to the retailer. The

retailer does not have to maintain showrooms; he can probably

have lower inventories. Thus, while Amazon.com lists over a

few million titles, it keeps an inventory of a few thousand best

selling titles only. Therefore, the retailer has lower warehousing

costs. He does not have to have many shop assistants who are

physically answering questions and Showing the customer

goods.

The fourth benefit to the retailer is mass customization. Based

on requests by the customers, the retailer is now able to carry

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e-Commerce

out mass customization with reduced time to market for the

customized products.

The next advantage is targeted marketing. The retailer is now

able to pick on a specific targeted group of customers and direct

marketing towards these customers. The retailer is also able to

provide more value-added services in the way of better

information, add-on services to basic services, or add-on options

to products that he is selling.

The last advantage to the retailer consists of different new forms

of specialized stores that he is now able to utilize.

The benefits to the e-retailer are

Global reach & Better customer service

Low capital cost

Mass customization & Targeted marketing

More value-added services

New forms of specialized stores and niche marketing

The future of E-Retailing

When one examines e-retailing, one can distinguish between two

trends, namely Technologies that help you see and experience the

product better, e.g. virtual reality, Java 3D, etc. Technologies that

help you not to see at all but use an intelligent agent (or mobile

agent) that does all the shopping tasks for you.

Summary: E-retailing essentially consists of the sale of goods and

services. Sometimes we refer to this as the sale of tangible and

intangible goods.

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e-Commerce

MODEL FOR E-COMMERCE & INFORMATION SUPERHIGHWAY

There are basically seven types of models for E-business. The E-

Business model would be closely tied to the mission of the

organization. Once the organization has decided what it aims to do

one of the models that have been explained below may be adopted.

Category Killer

A category killer would use the Internet to define a new market by

identifying a value proposition for the customer or create a new

value proposition. The organization which des so, would have the

first mover advantage in the market and would stay ahead of the

competition by continuously innovating.

Example: Amazon.com.

Channel Reconfiguration

This model would use the Internet as means of reaching the

customers and suppliers and to conduct, transactions on them. This

model supplements the legacy distribution and communication

channels. The advantage of such a model is decreased time to

market. Such a model would invest in end-to-end process

integration. This would require a major application overhaul to

develop an integrated infrastructure that allows the processes to

flow seamlessly, which in turn should lead to reduction of costs of

products by eliminating, redundancies of operations and enhancing

the scope of each operation. The advantage of such a model is

decreased time to market, and minimizing the total product cost.

Examples: Cisco.

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e-Commerce

Transaction Aggregation

This type of organization would create an electronic commerce and

payment infrastructure that integrates their existing transaction

processing capabilities with e -business capabilities. This would

facilitate a client in carrying out all the steps of purchases -

searching, comparing, and selecting and paying online. These

intermediaries may fulfill the following roles -

Support buyers in identifying their needs and finding an

appropriate seller.

Provide an efficient means of exchanging information between

both parties.

Execute the business transaction.

For example: Microsoft Expedia and eBay.

Infomediary

An infomediary provides specialized information on behalf of

producers of goods and services and their potential customers. That

is, it serves to bring together the customer and the supplier of

goods. An example of an Infomediary is priceline.com.

Event Aggregation

This model would serve to simplify a major purchasing event such

as buying a house, by offering the customer a unified front-end for

purchasing related goods and services from multiple providers. It

provides convenience to the customer and hence enhances the

relationship between the customer and the company.

E.g. RealtoLcom.

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e-Commerce

Market Segment Aggregation

The organization defines a customer base and builds a

comprehensive suite of services tailored to that customer type. Say

for instance in our country the MNC’s which have to set up their

offices would have to go through a lot of procedures before they

get the final clearances. A Market segment aggregator, who could

get all the clearances that are required, could possibly handle this

work.

E.g. American Express’s, small business exchange, catering to the

needs of small-scale companies.

Value Chain Integration

Value Chain Integration (VO) connects the organization’s systems

with its supplier’s systems using the Internet, and this integration

would lead to a joint manufacturing execution plan, keeping the

customers needs in the center. Such an arrangement provides

seamless integration within and between enterprises, tying together

large islands of information systems. The advantage is that, when

the customer keys in his requirement over the net, it would be

transmitted to every process centre in the value chain without

much loss of time. This way the organization can rapidly react to

events. E.g. Dell Online.

Strategic Model for e-Business - Software Development

1. Stage of Orientation

Define your short, medium and long term targets to discuss your

individual requirements

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e-Commerce

2. Stage of Analysis

Analyses of special requirements for your application

3. Stage of Design and Layout

Visual displays based on your ideas

4. Stage of Transformation

Realizing requirements and ideas in the software solutions

5. Stage of Implementation

Full implementation of your e Business solutions

Using Value Chains to Model An e-Commerce Business

A value chain for a product is the chain of actions that are

performed by the business to add value in creating and delivering

the product. For example, when you buy a product in a store or

from the web, the value chain includes the business selecting

products to be sold, purchasing the components or tools necessary

to build them from a wholesaler or manufacturer, arranging the

display, marketing and advertising the product, and delivering the

product to the client. In the book Designing Systems for Internet

Commerce by G. Winfield Treese and Lawrence C. Stewart, the

authors suggest breaking down the aspects of your business into

four general value-chain areas:

Attract: in which you get and keep customer interest, and includes

advertising and marketing

Interact: in which you turn interest into orders, and includes sales

and catalogs

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e-Commerce

Act: in which you manage orders, and includes order capture,

payment, and fulfillment

React: in which you service customers, and includes technical

support, customer service, and order tracking.

According to Treese and Stewart, looking at the value chain for

your business helps you to define areas of focus — what your

company is good at, or where you should concentrate your efforts

to gain competitive advantage. Within System Architect, the

Process Decomposition diagram is a handy vehicle for establishing

what business processes are performed within each of these value-

chain areas. The Process Decomposition diagram enables you to

model three model elements — Primary Process Groups, Process

Threads, and Elementary Business Processes. Each of the value-

chain areas listed above can represent a Primary Process Group.

Each group contains one or more process threads (a process thread

is a grouping of process flows that deal with a central process —

for example, ordering). Each process thread contains the

elementary business processes that make up the thread (these are

modeled on one or more Process Chart diagrams for each Process

Thread).

Let’s Take a Look at an Example

Suppose we’ve already modeled a number of Process Chart

diagrams for the various process flows that occur within our on-

line retail business. Each of these Process Chart diagrams

represents all or part of a Process Thread. We can create a Process

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e-Commerce

Decomposition diagram to model the hierarchy of our process

threads to elementary business processes, and the value chain areas

that they are contained within. Create a Process Decomposition

diagram.

Draw four Primary Process Groups on The diagram — named

Attract, Interact, Act, and React. Browse all of the Process Threads

that you’ve modelled for your business in System Architect’s

browser. Drag-and-drop them onto the diagram workspace, and

assign them to the value-chain Primary Process Groups according

to the guidelines above. Select all of the Process Threads on the

diagram, and from System Architect’s Dictionary menu, select

Update Selected Process Threads EBPs. System Architect reviews

all of the Process Chart diagrams you have built, and automatically

draws appropriate elementary business processes on the diagram,

under the Process Threads that they belong to (remember, every

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e-Commerce

Process Thread is represented by one or more Process Chart

diagrams).

Take a look at one of the Primary Process Groups, for example,

Interact. Note that you can now view this value chain category, and

see the various processes that are performed by your company to

satisfy this value chain. As Treese and Stewart state, in developing

systems for Internet commerce, you should focus on parts of the

value chain related to that of the underlying business (ie, the

product you are selling), and from looking at the value chain

required to doing business online. Understanding these two pieces

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and how they fit together is an important part of creating a

successful business in Internet commerce.

Electronic Commerce Industry Framework

Electronic commerce not only affects transactions between parties,

it also influences the way markets will be structured. Traditionally,

market ties were led through the exchange of goods, services, and

money. Electronic commerce adds a new element: information.

Market ties, such as those forming around online payments, are

now based on information goods, in-lation services, and electronic

money. Electronic Commerce Applications

Supply chain management

Video on demand.

Remote banking

Procurement and purchasing

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e-Commerce

Generic Framework for E-Commerce

To better understand the market structure that is developing around

electronic commerce, we have developed a simple framework (see

Fig.) that succinctly captures the developments in this area. Even

those aware of the importance of electronic commerce have little

under-standing of online jargon, or how the industry is structured.

Such confusion is further entrenched by the media’s use of

different names to refer to the same phenomenon or its various

elements: the Information Superhighway, the Internet, Cyberspace,

Interactive Multimedia, and so on. It is important for businesses to

understand the overall industry in order to develop business

strategies that employ electronic commerce.

The next section will explain each aspect of the electronic

commerce infrastructure in detail, beginning with the most broadly

based term: the Information Superhighway Infrastructure.

The Information Superhighway

The Information Superhighway has many different types of

transport systems and does not function as a monolithic entity;

there is no single inter-state highway that connects the digital

equivalent of Los Angeles to Miami. Instead, the architecture is a

mixture of many forms of high-speed network transport, whether it

be land-based telephone, air-based wireless, modem -based PC, or

satellite-based. For instance, mail sent from a portable PC in the

French Riviera to a computer in Los Angeles might travel across

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e-Commerce

several different types of transport networks interconnected with

each other before it reaches its destination.

The players in this industry segment can be called information

transport providers. They include: telecommunication companies

that provide phone lines; cable TV systems that provide coaxial

cables and direct broadcast satellite (DBS) networks; wireless

companies that provide mobile radio and satellite networks; and

computer networks, including private net-works like CompuServe

or America Online, and public data networks like the Internet.

This industry segment also includes hardware and software tools

that provide an interface with the various network options, and to

the customer premises equipment (CPE), or terminal equipment,

which is a generic term for privately owned communications

equipment that is attached to the net-work. This category of

subscriber terminal equipment can be divided into three parts:

cable TV set-top boxes, computer-based telephony, and net-

working hardware (hubs, wiring closets, and routers or digital

switches). The terminal equipment is in fact the gateway to

information services, commercial transactions, and 500 digitally

compressed channels.

The biggest area of growth over the last five years has been in the

router business. Routers and digital switches help to connect large

net-works (or internet works). Routers are devices that can connect

the local area networks (LANs) inside various organizations with

the wide area networks (WANs) of various network providers.

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e-Commerce

This interconnection enables easy communication between

separate networks across geo-graphical distances and provides

access to distributed computing re-sources. The router industry is a

multibillion dollar industry that is dominated by players such as

Cisco, Bay Networks, and 3COM, all three of which supply

equipment that links data communications net-works through the

Internet. In a recent valuation by Business Week, Cisco was rated

as the fortieth largest company in America, with a market value of

$26 billion. Not bad for a company with an extremely specialized

product.

IMPLEMENTATION AND MANAGEMENT ISSUES

Hardware versus Software Implementations Encryption can be

implemented in either hardware or software. Each has its related

costs and benefits. The trade-offs among security, cost, simplicity,

efficiency, and ease of implementation need to be studied when

acquiring security products.

In general, software is less expensive and slower than hardware, al-

though for large applications, hardware may be less expensive. In

addition, software is less secure, since it is more easily modified or

bypassed than some hardware products.

In many cases, encryption is implemented in a hardware device

(such as a card/key entry system), but is controlled by software.

This software re-quires integrity protection to ensure that the

hardware device is provided with correct information (controls,

data) and is not bypassed. Thus, a hybrid solution of software and

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hardware is generally provided. Effective security requires the

correct management of the entire hybrid solution.

Key Management

All keys need to be protected against modification, and secret keys

and private keys need protection against unauthorized disclosure.

The proper management of cryptographic keys is essential to the

effective use of encryption for security. Key management involves

the procedures and protocols, both manual and automated, used

throughout the entire life cycle of the keys. This includes the

generation, distribution, storage, entry, use, destruction, and

archiving of cryptographic keys. Ultimately, the security of

information protected by encryption directly depends upon the

protection afforded to keys.

With secret-key encryption, the secret key(s) must be securely

distributed (safeguarded against unauthorized replacement,

modification, and disclosure) to the parties wishing to

communicate. Depending on the number and location of users, this

task may be difficult. Automated techniques for generating and

distributing cryptographic keys can ease overhead costs of key

management, but some resources have to be devoted to this task.

Public-key encryption users also have to satisfy certain key

manage-ment requirements. For example, since a private/public-

key pair is associated with (generated or held by) a specific user, it

is necessary to link the public part of the key pair to the user. In

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e-Commerce

some cases, the key may be linked to a position or an organization,

rather than to an individual user.

In a small community of users, public keys and their owners can be

strongly bound by simply exchanging public keys. However,

business conducted on a larger scale, involving geographically

distributed users, necessitates a means for obtaining public keys

online with a high degree of confidence in their integrity and

binding to individuals. The support for the binding between a key

and its owner is generally referred to as a public-key infrastructure.

This involves support for users being able to enter the community

of key holders, generate keys (or have them generated on their be-

half), disseminate public keys, revoke keys (in case, for example,

of compromise of the private key), and change keys. In addition, it

may be necessary to build in time/date stamping and to archive

keys for verification of old signatures.

Complying with Export Rules

A number of governments have regulations regarding the import or

export of encryption. The U.S. government controls the export of

cryptographic implementations because it considers them part of

munitions. As a general rule, the U.S. government allows

encryption to be used when: the data being encrypted is of a

financial nature and the transaction is between known banks; the

content of the data is well- defined; the length of the data is

limited; and the encryption cannot easily be used for other

purposes. The rules governing export can be quite complex, since

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e-Commerce

they consider multiple factors. In addition, encryption is a rapidly

changing field, and rules may change

from time to time. Questions concerning the export of a particular

implementation should be addressed to appropriate legal counsel.

Other Business Issues

Three problems deter widespread acceptance of encryption for

public commerce. First, successful encryption requires that all

participating parties use the same encryption scheme. Standards

that make encryption feasible have to be established within an

organization or a cooperating group (such as banks).

Second, the distribution of keys has prevented wider use of

encryption, as there is no easy way to distribute the secret key to an

unknown person on the network. The only safe way to

communicate a key is in person, and even then the distributor must

provide a different secret key for each per-son. Even public-key

schemes require a method for key distribution.

The final deterrent to widespread acceptance of encryption is that it

is difficult to use. For encryption to flourish, the encryption user

interface must be simplified so that an average consumer can easily

use the software. Currently, a consumer will not wait more than a

few seconds for information access or retrieval. In the future,

encryption will be done by fast hardware rather than software.

Legal Issues

As encryption becomes commonplace in the commercial world,

employers will face the problem of producing documents that only

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certain employees can decrypt. Given labor force mobility, a

company may be confronted with the task of producing documents

encrypted by ex- employees who may not wish to cooperate.

ELECTRONIC PAYMENT SYSTEMS

Electronic payment is an integral part of electronic commerce.

Broadly de-fined, electronic payment is a financial exchange that

takes place online between buyers and sellers. The content of this

exchange is usually some form of digital financial instrument (such

as encrypted credit card numbers, electronic checks, or digital

cash) that is backed by a bank or an intermediary, or by legal

tender. Three factors are stimulating interest among financial

institutions in electronic payments: decreasing technology costs

reduced operational and processing costs, and increasing online

commerce.

The desire to reduce costs is one major reason for the increase in

electronic payments. Cash and checks are very expensive to

process, and banks are seeking less costly alternatives. It is

estimated that approximately 56 percent of consumer transactions

in the United States are cash and 29 percent are check. Credits,

debits, and other electronic transactions account for about 15

percent of all consumer transactions, and are expected to increase

rapidly. Electronic transactions numbered 33 billion in 1993 and

are expected to climb to 118 billion by the year 2000. For the same

period, paper transactions are forecast to show very modest

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growth, from 117 billion in 1993 to 135 billion in the year 2000.

Banks and retailers want to wean customers away from paper

transactions because the processing overhead is both labors

intensive and costly.

The crucial issue in electronic commerce revolves around how

con-sumers will pay businesses online for various products and

services. Currently, consumers can view an endless variety of

products and services offered by vendors on the Internet, but a

consistent and secure payment capability does not exist. The

solutions proposed to the online payment problem have been ad

hoc at best. For instance, in one method marketed by Cyber Cash,

users install client software packages, sometimes known as

“electronic wallets,” on their browsers. This software then

communicates with “electronic cash registers” that run on

merchants’ Web servers. Each vendor’s client works with only that

vendor’s own server software, a rather restrictive scenario.

Currently, merchants face the unappealing option of either picking

one standard and alienating consumers not subscribing to a

standard or needing to support multiple standards, which entails

extra time, effort, and money.

Today, the proliferation of incompatible electronic payment

schemes has stifled electronic commerce in much the same way the

split between Beta and VHS standards stifled the video industry’s

growth in the 1970s. Banks faced similar problems in off-line

commerce in the early nineteenth century. Many banks issued their

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e-Commerce

own notes, and a recurrent problem was the tendency of some

institutions to issue more notes than they had gold as backing.

Further, getting one bank to honour another’s notes was a major

problem. Innovations in payment methods involved the creation of

new financial instruments that relied on backing from governments

or central banks, and gradually came to be used as money. Banks

are solving these problems all over again in an online environment.

The goal of online commerce is to develop a small set of payment

methods that are widely used by consumers and widely accepted

by merchants and banks. This chapter offers a brief examination of

the various types of electronic payment systems. It then provides

an overview of the business, consumer, and legal implications of

electronic payment systems.

Overview of the Electronic Payment Technology

Electronic payments first emerged with the development of wire

transfers. Early wire transfer services such as Western Union

enabled an individual to deliver currency to a clerk at one location,

who then instructed a clerk at an-other location to disburse funds to

a party at that second location who was able to identify himself as

the intended recipient. Cash was delivered to the customer only

after identity was established. In this scenario, there was no

banking environment; Western Union was a telegraph company.

Assurance of payment relied on the financial stability of the firm.

Security was pro-vided to the extent that Western Union was a

privately controlled transmission facility used to send messages

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about funds transfer; its lines were not shared with the public, and

transactions were private. Authentication was provided only by a

signature at the other end of the transmission that verified that the

intended party had indeed received the funds.

During the 1960s and early 1970s, private networking technology

has enabled the development of alternative electronic funds

transfer (EFT) systems. Electronic funds transfer systems have

shortened the time of payment instruction transfer between banks,

and in the process have reduced float. However, EFT systems have

not changed the fundamental structure of the payment system.

Many of the so-called payment innovations over the past two

decades have been aimed at minimizing banking costs such as

reserve requirements, speeding up check clearing, and minimizing

fraud. However, the consumer rarely interacted with the early EFT

systems. Recent innovations in electronic commerce aim to affect

the way consumers deal with payments and appear to be in the

direction of a real-time electronic trans-mission, clearing, and

settlement system.

Consumer electronic payment systems are growing rapidly, but the

opportunities are scarcely tapped. In the United States, it is

estimated that only 3 percent of the $460 billion supermarket

industry is transacted on credit or debit cards. Only 1 percent of the

$300 billion professional services area is transacted electronically.

Less than 12 percent of business at gasoline service stations is

electronic and less than 1 percent of fast food restaurants have

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magstripe readers. The educational market alone is more than $100

billion today, only 6 percent of which is transacted electronically.

Even more important is the predicted growth ahead.

Electronic or Digital Cash

Electronic or digital cash combines computerized convenience

with security and privacy that improve on paper cash. The

versatility of digital cash opens up a host of new markets and

applications. Digital cash attempts to replace paper cash as the

principal payment vehicle in online payments. Although it may be

surprising to some, even after thirty years of developments in

electronic payment systems, cash is still the most prevalent

consumer payment instrument. Cash remains the dominant form of

payment for three reasons: lack of consumer trust in the banking

system; inefficient clearing and settlement of noncash transactions;

and negative real interest rates on bank deposits.

These reasons behind the prevalent use of cash in business

transactions indicate the need to re-engineer purchasing processes.

In order to displace cash, electronic payment systems need to have

some cash-like qualities that current credit and debit cards lack.

For example, cash is negotiable, meaning that it can be given or

traded to someone else. Cash is legal tender, meaning that the

payee is obligated to take it. Cash is a bearer instrument, meaning

that possession is proof of ownership. Cash can be held and used

by anyone, even those without a bank account. Finally, cash places

no risk on the part of the acceptor; the medium is always good.

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In comparison to cash, debit and credit cards have a number of

limitations. First, credit and debit cards cannot be given away

because, technically, they are identification cards owned by the

issuer and restricted to one user. Credit and debit cards are not

legal tender, given that merchants ‘have the right to refuse to

accept them. Nor are credit and debit cards bearer instruments;

their usage requires an account relationship and authorization

system. Similarly, checks require either personal knowledge of the

payer, or a check guarantee system. A really novel electronic

payment method needs to do more than recreate the convenience

that is offered by credit and debit cards; it needs to create a form of

digital cash that has some of the proper-ties of cash.

LEGAL ASPECTS OF E- COMMERCE

The world is used to conducting business and commerce on signed

paper documents. Two millennia of commerce have been based on

the written document with its value ‘authorized’ by the signature of

a duly authorized officer. The current legal practice has paper

documents and signatures affixed thereon as its foundation.

Electronic documents and messages, without the familiar

signatures and marks, have changes the scene. However, trade still

wants to be assured that the electronic world is safe. The EC

system must, therefore, offer at least the same level of reliability as

that which obtains in the paper world notwithstanding the

significant difference between the concepts embodied in electronic

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messages and paper documents. It is well known that frauds do

take place in the traditional paper based commercial transaction.

Signatures can be forged, paper document can be tampered with,

and even the most secure marks, impression, emblems and seals

can be forging. But then these are known, and trade as well as the

legal community knows how to deal with these problems.

Companies set aside funds to take care of losses due to such

frauds.

The EC world, on the other hand, exposes us to issues, which were

hitherto unknown, since they are directly the outcome of creating

documents electronically, transmitting them over world wide

computer communication networks. Trading partners exchange

documents electronically. They need to convince themselves that

such documents are authentic when received over networks, and

that their authentication can be established in case of dispute.

Transactions may be electronic, but the key concept of

admissibility of evidence and evidential value of electronic

documents, which are central to the law, remain the same. There

must be a way to prove that a message existed, that it was sent, was

received, was not changed between the sending and receiving, and

that it could not be read and interpreted by any third party

intercepting or deliberately receiving it. The security of an

electronic message, legal requirement, thus gets directly linked to

the technical methods for security of computers and networks.

From the legal angle, there is a further

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complication because the electronic message is independent of the

actual medium used for storage transmission. The message can be

stored on a floppy, a magnetic disk, or an optical disk. Likewise, it

may be transmitted over a Local Area Network, a Wide Area

Network, a private Value Added Network or the Internet. The

physical medium could be coaxial cable, radio link, optical fibre or

a satellite communication channel.

The legal issues of EC have generated tremendous interest among

technologists, traders and legal experts. Many of the early EDI

experiments, and even production systems went into operation

without any legal interchange agreement between trading partners,

between VANs and their customers. No laws for EC existed; in

fact they are still in the making. In India, too the Indian Customs

EDI system (ICES) Project got off theground in 1995 without any

EC/EDI law in existence, or even a proper interchange agreement.

Legal Issues for Internet Commerce

Internet commerce raises legal issues through the provision of the

following services:

Online marketing

Online retailing ordering of products and services

Financial services such as banking and trading in securities.

Exchange of electronic messages and documents

EDI, electronic filing, remote employee access, electronic

transactions.

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Trade and commerce over the Internet give rise to several legal

issues as given below.

Copyright and the Internet

Copyright developed in the printed world to protect the economic

interests of creative writers. Copyright law protects only the

expression of an idea and idea itself. In due course it protect the

originality of artists and innovators too. In recent times, however,

the subject matter of copyright has further expanded. For example,

the Copyright Designs and Patent Act, 1988 in the UK, allows

protection of the following subject matter:

Original literary, dramatic, musical and artistic works; the

typographical arrangement of published editions of literary,

dramatic or musical works; sound recordings; broadcasts; cable

programs These have been broadly classified into two groups as

‘author works’ and ‘media works’ by Hector L. McQueen. The

multimedia capability of websites enables all types of work to be

‘published’ on the Internet in the sense that copies can be

distributed to users/customers. The problems, however, is that

unlike a paper copy, this copy can be readily duplicated and

distributed further by the recipient. If the material is in the public

domain there are no difficulties. But the copyright law applies to

the downloaded matter, much the same way it applies to physical

copies.

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Issues Related to Jurisdiciary

The Internet allows anyone to set up a Website anywhere in the

world. Its location could, however, be interpreted to decide the

jurisdiction of disputes especially in EC. A Website may accept

orders from visitors to the site as part of an Internet store or a

shopping mall. For example, amazon.com is a bookstore retailing

books. A court law may rule that the location of the Website

determines the jurisdiction for that business. This is based on

accepted legal practice. Jurisdiction determines which laws would

be acceptable. EC on the Internet will grow if the parties doing

business know what rules will govern what rules govern their

activities.

Service Provider liability

Many ISPs provide users access to shared websites, Usenet news,

E-mail distribution list etc. These facilities can because by their

users to upload unlawful, defamatory, copyright or trademarks

infringing material. Unlawful material includes banned

publications, hate propaganda, pornography and obscene material,

without ISP having chance to review it.

Liability for materials distributed in the Internet may be different

for the Website operators, and the ISPs. AN ISP could be held

liable for the bulletin boards, and for aiding and abetting the

commission of an offence such as the distribution of photography.

Similarly, third-party liability for defamation, web sites, etc: “Thus

the concerns include libel and defamation, liability for

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infringement of third-party rights, liability for hosting of unlawful

materials.

EIGHT STEPS TO PLAN SUCCESSFUL E-COMMERCE

Good plans are simple plans. They are also measurable, their

implementation is accountable, he resources to deliver the plan are

available and there is a time-frame for the plan to be delivered.

Whatever planning process an organisation uses, expect that the

company will not control the direction in which online services

evolve. The customer will decide what works and what doesn’t.

Respond Fast

If the plan is to respond to customer wishes, then the most

successful plan will be the one that responds fastest. This means

that every component of the plan should be built with the intention

of proving a principle. Ask yourself if your customers want this? If

they do, then a more robust version can be built. If they don’t, then

you can redirect your time and resources and use the knowledge

gained to good effect elsewhere.

Test out Your Plan

In the online marketplace everything is a test until it’s proven by

the customer. Successful testing follows a simple rule:

Test one Thing at a Time

Only test changes that can be measured directly. If a test includes

more than one change, it’s almost always impossible to measure

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the effect of each one. Test to learn from the customer and to

improve one step at a time.

Challenge Internal Assumptions

Remove internal processing costs to make dramatic improvements

to profit margins. Analyse each sales process to clarify what it is

that staff spend time doing. In particular, look for processes in

which information is transferred.

Focus on Customer, Supplier & Distributor Benefits

What’s in it for customers, suppliers and distributors? Have you

asked what they’d like? The web’s very good at research. Are you

offering them a new way to use an existing service or a completely

new service? Is it faster, cheaper, more convenient or just new and

online? What new information do they get? Decide what you can

reliably offer each group now and plan a phased introduction of

more complex services. Complexity often arises from integrating

tried and tested stand-alone services.

Give Good Reasons to Use Online Services

Not all customers will automatically move to an online service

simply because it’s there. Equally, in a service’s early stages it

may not make good sense to risk overwhelming a new online

channel by quickly moving large numbers of customers over to the

new service.

If you prefer customers to use an online channel, find ways to:

Inform them that it is there (they may not know this) Tell them

how to change over Incentives the swap to make it worthwhile

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Introduce the new service as a special privilege beta test

programme

Calculate the Three Sets of Costs

Very few organisations have all the resources in-house to start

offering online services. There are three sets of costs that should be

calculated:

1. Current company costs that will be altered by the online changes

both internal and external costs

2. Cost to implement the changes

interim support may be needed

training for staff whose tasks change

3. New cost assumptions, post change

long-term cost-savings

long-term outsourcing arrangements

ongoing online development plans

Help Staff Adapt to Online Working

An online service will affect your staff and the work that they do.

If your organisation is typical, there will be a progressive transfer

from processing tasks towards customer service. Some may find

this work more fulfilling; others will not enjoy the increased

interaction with customers. Unless a company’s online services are

entirely online, staff who are to fulfil new service roles will require

assistance to develop new skills. They will almost certainly require

some training in how to make the most of the new technology for

the benefit of their customers.

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CONCLUSION

Just as e-mail has come to dominate our lives in communication

with anyone around the globe, e-Commerce is fast emerging as a

way of transactions between parties doing business nationally and

internationally.

At the turn of the last millennium, e-Commerce created excitement

in the hallowed corridors of Harvard Business School as well as

the poorest lanes of Hoshiarpur, Punjab, India. The reasons for this

are not far to seek. The two powerful concept of anytime-anywhere

and virtualization of the companies have demonstrated their

tremendous potential to improve business reach, to reduce costs

and cycle times, and to enhance productivity in organizations

across the globe. Consequently, consumers can hope for better

comfort and greater value-for-money.

In today’s economic scenario, the market place is increasingly

global and competitive with the growth of internet and web based

technologies. As mentioned above the turn of the last millennium

saw the emergence of what is, probably, the most powerful

paradigm that the world has witnessed in recent years – e-

Commerce. Advances in communications and computing, and the

realization of the power of the internet have made e-Commerce the

most revolutionary instrument for improving the productivity of

both corporations and individuals.

Therefore, the business process requires efficient coordination of

information between partners/suppliers/support partners and

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customers. This objective is achievable if the networks of these

parties integrate them effectively to be able to communicate better

and faster for transacting business. Without e-Commerce, the

transaction cycle becomes long resulting in delayed response and

higher cost, resulting in decreased customer satisfaction. Internet

provides a faster information highway to transact business.

Thus e-Commerce is a method to gain and maintain competitive

advantage in business transactions. It is a new way of conducting,

managing and executing business transactions and services through

electronic media and networks. It is a modern methodology that

addresses the needs of organisations, consumer, banks and

financial institutions to cut costs while improving the quality of

goods and services and improving the delivery system.

Instead of the traditional paper based transactions in commerce, the

electronic media like computers and communication networks,

web-sites, e-mails are restored to. The World Wide Web allows

suppliers to create a web presence for providing product and

service information directly to the customer. A customer can go

directly to a vendor to download the latest information with no

human intervention. Many businesses establish this type of web

presence through an Internet Service Provider (ISP).

The ultimate purpose of e-Commerce is to ensure better customer

satisfaction which is an overall psychological state that reflects the

evaluation of a relationship between the customer/consumer and a

company-environment-product-service.

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REFERENCES

1. http://www.raifoundation.org

2. The Hindu Speaks on Management Volume II

3. e-Commerce and e-Business, from www.eprimers.org

4. The Power of E-Commerce, www.infy.com

5. Introduction to computers-2, IDE, University of Kerala

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