ELC 200 Day 23. Agenda Questions from last Class? Assignment 5 corrected 3 A’s, 2 B’s, 1 C, 3 D, 4 F’s Most D’s and F’s are due to lateness Better

ELC 200

Day 23

Agenda

Questions from last Class? Assignment 5 corrected

3 A’s, 2 B’s, 1 C, 3 D, 4 F’s Most D’s and F’s are due to lateness Better off to turn in what you have on time then to finish late.

Quiz 3 Graded 6 A’s, 5 B’s, 1 C’s and 2 MIA’s

Student Evaluations Assignment 6, 7 & 8 all posted

Assignment 6 due April 27 @ 12:30PM Assignment 7 due May 1 @ 12:30PM Assignment 8 due May 8 @ 8AM

EBiz plan and presentations Due May 8 @ 8AM More information in assignments section of WebCT

Security for E-Payments

Public key infrastructure (PKI)—a scheme for securing e-payments using public key encryption and various technical components

Foundation of a number of network applications: Supply chain management Virtual private networks Secure e-mail Intranet applications

http://computer.howstuffworks.com/encryption.htm

Security for E-Payments

Public key encryptionEncryption (cryptography)—the process of scrambling (encrypting) a message in such a way that it is difficult, expensive, or time consuming for an unauthorized person to unscramble (decrypt) it

Security for E-Payments (cont.)

All encryption has four basic parts: Plaintext—an unencrypted message in human-

readable form Ciphertext—a plaintext message after it has

been encrypted into unreadable form Encryption algorithm—the mathematical

formula used to encrypt the plaintext into ciphertext and vice versa

Key—the secret code used to encrypt and decrypt a message


Two major classes of encryption systems: Symmetric (private key)

Used to encrypt and decrypt plain text Shared by sender and receiver of text

Asymmetric (public key) Uses a pair of keys Public key to encrypt the message Private key to decrypt the message

http://www.uic.edu/depts/accc/newsletter/adn26/index.html


Public key encryption—method of encryption that uses a pair of keys—a public key to encrypt a message and a private key (kept only by its owner) to decrypt it, or vice versa Private key—secret encryption code held

only by its owner Public key—secret encryption code that is

publicly available to anyone

Exhibit 10.1Private Key Encryption

Exhibit 10.2Key Sizes & Time to Try All Possible Keys

Digital signatures—an identifying code that can be used to authenticate the identity of the sender of a message or document

Used to: Authenticate the identity of the sender of a

message or document Ensure the original content of the electronic

message or document is unchanged



Digital Signatures—how they work:1. Create an e-mail message with the contract in

it

2. Using special software, you “hash” the message, converting it into a string of digits (message digest)

3. You use your private key to encrypt the hash (your digital signature


4. E-mail the original message along with the encrypted hash to the receiver

5. Receiver uses the same special software to hash the message they received

6. Company uses your public key to decrypt the message hash that you sent. If their hash matches the decrypted hash, then the message is valid

Exhibit 10.3Digital Signatures


Digital certificates—verification that the holder of a public or private key is who he or she claims to be

Certificate authorities (CAs)—third parties that issue digital certificates

Name : “Richard”key-Exchange Key :Signature Key :Serial # : 29483756Other Data : 10236283025273Expires : 6/18/04Signed : CA’s Signature

Crypto, Digital Signature and Digital Certificates

Cryptography provides security by using encryption Ensures privacy

Digital Signatures are just like a real signature DCMA makes them just as legally binding as a signed

paper document

Digital Certificates uses Cryptographic techniques to prove Identity

Digital Signature

SenderReceiver

DS Plaintext

Add Digital Signature to Each MessageProvides Message-by-Message Authentication

Encrypted for Confidentiality

Digital Signature: Sender

DS

Plaintext

MD

Hash

Sign (Encrypt) MD withSender’s Private Key

To Create the Digital Signature:

1. Hash the plaintext to create

a brief message digest; This is

NOT the digital signature

2. Sign (encrypt) the message

digest with the sender’s private

key to create the digital

Signature

Digital Signature

SenderEncrypts Receiver

Decrypts

Send Plaintext plus Digital SignatureEncrypted with Symmetric Session Key

DS Plaintext

Transmission

Digital Signature: Receiver

DSReceived Plaintext

MDMD

1.Hash

2.Decrypt withTrue Party’sPublic Key

3.Are they Equal?

1. Hash the receivedplaintext with the samehashing algorithm the

sender used. This givesthe message digest

2. Decrypt the digitalsignature with the sender’spublic key. This also should

give the message digest.

3. If the two match, the message is authenticated;The sender has the true

Party’s private key

Public Key Deception

Impostor

“I am the True Person.”

“Here is TP’s public key.” (Sends Impostor’s public key)

“Here is authenticationbased on TP’s private key.”

(Really Impostor’s private key)

Decryption of message from Verifierencrypted with Impostor’s public key,

so Impostor can decrypt it

Verifier

Must authenticate True Person.

Believes now has TP’s public key

Believes True Personis authenticated

based on Impostor’s public key

“True Person,here is a message encrypted

with your public key.”

CriticalDeception

Digital Certificates

Digital certificates are electronic documents that give the true party’s name and public key

Applicants claiming to be the true party have their authentication methods tested by this public key

If they are not the true party, they cannot use the true party’s private key and so will not be authenticated

Digital certificates follow the X.509 Standard

Digital Signatures and Digital Certificates

Public key authentication requires both a digital signature and a digital certificate to give the public key needed to test the digital signature

DS Plaintext

Applicant

Verifier

Certificate Authority

DigitalCertificate:True Party’sPublic Key

Standards for E-Payments

Secure socket layer (SSL)—protocol that utilizes standard certificates for authentication and data encryption to ensure privacy or confidentiality

Transport Layer Security (TLS)—as of 1996, another name for the Secure Socket Layer protocol

Standards for E-Payments (cont.)

Secure Electronic Transaction (SET)—a protocol designed to provide secure online credit card transactions for both consumers and merchants; developed jointly by Netscape, Visa, MasterCard, and others

Electronic Cards and Smart Cards

Payment cards—electronic cards that contain information that can be used for payment purposes Credit cards—provides holder with credit to make

purchases up to a limit fixed by the card issuer Charge cards—balance on a charge card is

supposed to be paid in full upon receipt of monthly statement

Debit card—cost of a purchase drawn directly from holder’s checking account (demand-deposit account)

Electronic Cards and Smart Cards (cont.)

The Players Cardholder Merchant (seller) Issuer (your bank) Acquirer (merchant’s financial institution,

acquires the sales slips) Card association (VISA, MasterCard) Third-party processors (outsourcers performing

same duties formerly provided by issuers, etc.)

Exhibit 10.4Online Credit Card Processing


Credit card gateway—an online connection that ties a merchant’s systems to the back-end processing systems of the credit card issuer

Virtual credit card—an e-payment system in which a credit card issuer gives a special transaction number that can be used online in place of regular credit card numbers


Electronic wallets (e-wallets)—a software component in which a user stores credit card numbers and other personal information; when shopping online; the user simply clicks the e-wallet to automatically fill in information needed to make a purchase One-click shopping—saving your order

information on retailer’s Web server E-wallet—software downloaded to cardholder’s

desktop that stores same information and allows one-click-like shopping


Security risks with credit cards Stolen cards Reneging by the customer—authorizes a

payment and later denies it Theft of card details stored on merchant’s

computer—isolate computer storing information so it cannot be accessed directly from the Web


Purchasing cards—special-purpose payment cards issued to a company’s employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit

Instrument of choice for B2B purchasing

E-Cards (cont.)

Benefits of using purchasing cards Productivity gains Bill consolidation Payment reconciliation Preferred pricing Management reports Control

Exhibit 10.5Participants & Process of Using a Purchasing Card

Smart Cards

Smart card—an electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card

Smart Cards (cont.)

Categories of smart cards Contact card—a smart card containing a

small gold plate on the face that when inserted in a smart-card reader makes contact and so passes data to and from the embedded microchip

Contactless (proximity) card—a smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device

Smart Cards (cont.)

Securing smart cards Theoretically, it is possible to “hack” into a

smart card Most cards can now store the information in

encrypted form Same cards can also encrypt and decrypt data

that is downloaded or read from the card Cost to the attacker of doing so far exceeds

the benefits

Smart Cards (cont.)

Important applications of smart card use: Loyalty Financial Information technology Health and social welfare Transportation Identification

E-Cash and Innovative Payment Methods

E-cash—the digital equivalent of paper currency and coins, which enables secure and anonymous purchase of low-priced items

Micropayments—small payments, usually under $10

Most of this work in Digital Cash comes from the research of Dr. David Chaum

E-Coin.net

System consists of three participants: User

Opens an account with eCoin.com Downloads a special e-wallet to their desktop PC Purchases some eCoins with a credit card

Merchant—embeds a special eCoin icon in its payment page

eCoin server—operates as a broker Keeps customer and merchant accounts Accepts payment requests from the customer’s e-wallet Computes embedded invoices for the merchant

E-Cash and Payment Card Alternatives (cont.)

Wireless paymentsVodafone “m-pay bill” system that enables wireless subscribers to use their mobile phones to make micropayments

Qpass (qpass.com)Charges to qpass account, are charged to a specified credit card on a monthly basis

Stored-Value Cards

Stores cash downloaded from bank or credit card account Visa cash—a stored-value card designed to

handle small purchases or micropayments; sponsored by Visa

Mondex—a stored-value card designed to handle small purchases or micropayments; sponsored by Mondex, a subsidiary of MasterCard

E-Loyalty and Reward Programs

Loyalty programs online B2C sites spend hundreds of dollars acquiring

new customers Payback only comes from repeat customers

who are likely to refer other customers to a siteElectronic script—a form of electronic money

(or points), issued by a third party as part of a loyalty program; can be used by consumers to make purchases at participating stores

E-Loyalty and Reward Programs (cont.) Beenz—a form of electronic script offered by beenz.com

that consumers earn at participating sites and redeem for products or services Consumer earns beenz by visiting, registering, or

purchasing at 300 participating sites Beenz are stored and used for later purchases Partnered with MasterCard to offer rewardzcard—stored-

value card used in U.S. and Canada for purchases where MasterCard is accepted

Transfer beenz into money to spend on Web, by phone, mail order, physical stores

Went “out of business” in 2001

E-Loyalty and Reward Programs (cont.)

MyPoints-CyberGold Customers earn cash for viewing ads Cash used for later purchases or applied to credit card

account

Prepaid stored value cards—used online and off-line RocketCash

Combines online cash account with rewards program User opens account and adds funds Used to make purchases at participating merchants

Internetcash

Teenage market—primary reason for going online Communicating with friends via email and

chat rooms homework Researching information Playing games Downloading music or videos

Internetcash (cont.)

Why they do not shop online Parents will not let them children their (the

parents) credit cards online They cannot touch the products It is difficult to return items purchased on the

Web They do not have the money Transaction may be insecure


InternetCash offers prepaid stored-value cards sold in amounts of $10, $20, $50, and $100 Must be activated to work Gives the user shopping privileges at online

stores that carry an InternetCash icon Purchases are automatically deducted from

the value of the card InternetCash’s transactions are anonymous


InternetCash is facing obstacles First, they have to find retailers willing to sell the

cards Must persuade merchants to accept the card for

online purchases Legal issues

Person-to-Person Payments

Person-to-person (P2P) payments—e-payment schemes (such as paypal.com) that enable the transfer of funds between two individuals Repaying money borrowed Paying for an item purchased at online auction Sending money to students at college Sending a gift to a family member

Global B2B Payments

Letters of credit (LC)—a written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents

TradeCard (tradecard.com)—innovative e-payment method that uses a payment card

Electronic Letters of Credit (LC)

Benefits to sellers Credit risk is

reduced Payment is highly

assured Political/country

risk is reduced

Benefits to the buyer Allows buyer to negotiate for a

lower purchase price Buyer can expand its source of

supply Funds withdrawn from buyer’s

account only after the documents have been inspected by the issuing bank

TradeCard Payments

TradeCard allows businesses to effectively and efficiently complete B2B transactions whether large or small, domestic or cross-border, or in multiple currencies Buyers and sellers interact with each other via the

TradeCard system System

Checks purchase orders for both parties Awaits confirmation from a logistics company that deliveries

have been made and received Authorizes payment completing financial transaction

between the buyer and seller

E-Checking

E-check—the electronic version or representation of a paper check Eliminate need for expensive process

reengineering and takes advantage of the competency of the banking industry

eCheck Secure (from vantaguard.com) and checkfree.com provide software that enables the purchase of goods and services with e-checks

Used mainly in B2B

Order Fulfillment: Overview

Order fulfillment—all the activities needed to provide customers with ordered goods and services, including related customer services Back-office operations—the activities that

support fulfillment of sales, such as accounting and logistics

Front-office operations—the business processes, such as sales and advertising, that are visible to customers

Overview of Logistics

Logistics—the operations involved in the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption

Delivery of materials or services Right time Right place Right cost

Exhibit 10.9Order Fulfillment and Logistics Systems

EC Order Fulfillment Process

1. Payment clearance2. In-stock availability3. Arranging

shipments4. Insurance 5. Production

(planning, execution)

6. Plant services

7. Purchasing and warehousing

8. Customer contacts

9. Returns (Reverse logistics—movement of returns from customers to vendors)

10. Demand forecast

11. Accounting, billing

Steps in the process of order fulfillment

Order Fulfillment and the Supply Chain

Order fulfillment and order taking are integral parts of the supply chain.

Flows of orders, payments, and materials and parts need to be coordinated among Company’s internal participants External partners

The principles of supply chain management must be considered in planning and managing the order fulfillment process

Problems in Order Fulfillment

Manufacturers, warehouses, and distribution channels were not in sync with the e-tailers

High inventory costsQuality problems exist due to

misunderstandingsShipments of wrong products, materials, and

partsHigh cost to expedite operations or shipments

Problems in Order Fulfillment (cont.)

Uncertainties Major source of uncertainty is demand forecast Demand is influenced by

Consumer behavior Economic conditions Competition Prices Weather conditions Technological developments Customers’ confidence


Demand forecast should be conducted frequently with collaborating business partners along the supply chain in order to correctly gauge demand and make plans to meet it

Delivery times depend on factors ranging from machine failures to road conditions

Quality problems of materials and parts (may create production time delays)

Labor troubles (such as strikes) can interfere with shipments


Order fulfillment problems are created due by lack of coordination and inability or refusal to share information

Bullwhip effect—large fluctuations in inventories along the supply chain, resulting from small fluctuations in demand for finished products

Solutions to Order Fulfillment Problems

Improvements to order taking process Order taking can be done on EDI, EDI/Internet, or

an extranet, and it may be fully automated. In B2B, orders are generated and transmitted

automatically to suppliers when inventory levels fall below certain levels.

Result is a fast, inexpensive, and a more accurate process

Web-based ordering using electronic forms expedites the process

Makes it more accurate Reduces the processing cost for sellers

Solutions to Order Fulfillment Problems (cont.)Implementing linkages between order-

taking and payment systems can also be helpful in improving order fulfillment

Electronic payments can expedite order fulfillment cycle and payment delivery period Payment processing significantly less

expensive Fraud can be controlled better

Inventory Management Improvements

Inventories can be minimized by: Introducing a make-to-order (pull) production

process Providing fast and accurate demand information

to suppliers Inventory management can be improved

(inventory levels and administrative expenses) can be minimized by: Allowing business partners to electronically track

and monitor orders and production activities Having no inventory at by digitizing products

Automated Warehouses

B2C order fulfillment—send small quantities to a large number of individuals Step 1: retailers contract Fingerhut to stock

products and deliver Web orders Step 2: merchandise stored SKU warehouse Step 3: orders arrive Step 4: computer program consolidates orders

from all vendors into “pick waves”

Automated Warehouses (cont.)

Step 5: picked items moved by conveyors to packing area; computer configures size and type of packing; types special packing instructions

Step 6: conveyer takes packages to scanning station (weighed)

Step 7: scan destination; moved by conveyer to waiting trucks

Step 8: full trucks depart for Post Offices

Same Day, Even Same Hour Delivery

Role of FedEx and similar shippers From a delivery to all-logistics Many services Complete inventory control Packaging, warehousing, reordering, etc. Tracking services to customers

Same Day, Even Same Hour Delivery (cont.)

Supermarket deliveries Transport of fresh food to people who are

in homes only at specific hours Distribution systems are critical Fresh food may be spoiled

Partnering Efforts

Collaborative commerce among members of the supply chain results in: Shorter cycle times Minimal delays and work interruptions Lower inventories Less administrative cost Minimize bullwhip effect problem

Order Fulfillment in B2B

Using e-marketplaces and exchanges to ease order fulfillment problems

Both public and private marketplaces E-procurement system controlled by one large

buyer, suppliers adjust their activities and IS to fit the IS of the buyer

Company-centric marketplace can solve several supply chain problems

Use an extranet Use a vertical exchange

Order Fulfillment in B2B (cont.)

Shippers (sellers) Receivers (buyers) Carriers Third-party logistics

providers Warehouse

companies

Vertical e-marketplaces

Transportation

e-marketplaces Logistics software

application vendors

Players in B2B fulfillment

Handling Returns

Necessary for maintaining customer trust and loyalty using: Return item to place it was purchased Separate logistics of returns from logistics of

delivery Completely outsource returns Allow customer to physically drop returned

items at collection stations

UPS Provides Broad EC Services

Electronic tracking of packagesElectronic supply chain services for

corporate customers by industry including: Portal page with industry-related information Statistics

Calculators for computing shipping feesHelp customers manage electronic supply

chains

The UPS Strategy (cont.)

Improved inventory management, warehousing, and delivery

Integration with shipping management system

Notify customers by e-mail of: Delivery status Expected time of arrival of incoming

packages

The UPS Strategy (cont.)

Representative tools 7 transportation and delivery applications

Track packages Analyze shipping history Calculate exact time-in-transit

Downloadable tools Proof of delivery Optimal routing features

Delivery of digital documents Wireless access to UPS system

Managerial Issues

What B2C payment methods should we use?What B2B payment methods should we use?Should we use an in-house payment

mechanism or outsource it?How secure are e-payments?Have we planned for order fulfillment?How should we handle returns?Do we want alliances in order fulfillment?What EC logistics applications would be useful?

Summary

Crucial factors determining the success of an e-payment method

Key elements in securing an e-paymentOnline credit card players and processesThe uses and benefits of purchasing cardsCategories and potential uses of smart

cardsOnline alternatives to credit card payments

Summary (cont.)

E-check processes and involved partiesThe role of order fulfillment and back-office

operations in ECThe order fulfillment processProblems in order fulfillmentSolutions to order fulfillment problems

Documents

ELC 200 Day 23. Agenda Questions from last Class? Assignment 5 corrected 3 A’s, 2 B’s, 1 C, 3 D, 4 F’s Most D’s and F’s are due to lateness Better