Shri S.V.

Patel college of CS & BM

Chapter 1::-- Introduction to E-commerce

Concepts and aims of e-commerce
 E-Commerce is a modern business methodology that addresses the
needs of organizations, merchants, and consumer to cut costs while
improving the quality of goods and services and increasing the speed
of service delivery.

 The term also applies to the use of computer networks to search and
retrieve information in support of human and corporate decision
making.

 E-commerce was mainly meant to do Electronic Fund Transfer (EFT)

and Electronic Data Interchange (EDI).

 E-Commerce is associated with the buying and selling of information,

products and services via computer network.

 The cutting edge for business today is Electronic Commerce (E-

commerce). Most people think E-commerce means online shopping. But
Web shopping is only a small part of the E-commerce picture. The term
also refers to online stock, bond transactions, buying and downloading
software without ever going to a store.

WHAT IS E-COMMERCE

 “Electronic commerce, commonly known as (electronic marketing) e-

commerce or e-Commerce, consists of the buying and selling of
products or services over electronic systems such as the Internet and
other computer networks.‟
• Need for E-com :

– To improve business processes and information exchange

both within anenterprise and across organizations.
– It is an integrating force that represents the digital

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convergence of 21st century business applications and

computing technologies.

• E-com Applications :

– Emphasize the generation and exploitation of new business

opportunity.
– Information about a product or service is separated from the
physical productor service.
– This information can become as crucial as the actual product or
service interms of its effect on a company‟s profits.
– Information based business transactions are creating new
ways of doingbusiness and even new types of business.

• Common E-com Applications :

(i) Paperless exchange of business information using EDI (ii) E-mail

(iii) Electronic bulletin boards

(iv) Electronic Funds Transfer (EFT) and Other similar technologies.

– These technologies normally applied in high-payments,

recognizing that paper handling activities usually increase
expenses without adding value.
– These are also considered as part of e-com application domain :
(I) Advertising

(ii) Marketing

(iii) Customer Support Functions

• Business Goals :

(i) Stay competitive

(ii) Improve productivity
(iii) Deliver quality service

• Challenges :

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– Some aspects of the e-com infrastructure are already in place :

such as to automate the key processes purchasing, invoicing etc.
How to leverage theprior investment?
– Prices for computer hardware and network equipment continue to
fall. However, investors must first exert some effort to understand
the technologyunderlying –com applications.

• EDI and E-mail like messaging based technologies, combined with

database and information management services appeared to form
technical foundation for effective electronic commerce applications.
• However none can deliver full potential of E-com.
• An integrated architecture required is emerging in the form of World
Wide Web(WWW).
• Technically and commercially, WWW client-server model
seems poised toBecome a dominant technology.

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Explain Advantages of E-commerce ( 2 marks)

1. Faster buying process

2. Store and product listing creation
3. Cost reduction
4. Affordable advertising and marketing
5. Flexibility for customers
6. No reach limitations
7. Product and price comparison
8. Faster response to buyer/market demands
9. Several payment modes

Explain Advantages of E-commerce ( 7 marks)

1) Advantages to Organizations
2) Advantages to Consumers
3) Advantages to Society

1) Advantages to Organizations
1) Using e-commerce, organizations can expand their market to national and
international markets.
2) An organization can easily locate more customers, best suppliers, and suitable
business partners across the world.
3) E-commerce helps organizations to reduce the cost to create process,distribute,
retrieve and manage the paper based information by digitizing the information.(
manual to computerised)
4) E-commerce improves the brand image of the company.
5) E-commerce helps organization to provide better customer services.
6) E-commerce helps to simplify the business processes and makes them faster
and efficient.
7) E-commerce reduces the paper work.

2) Advantages to Customers
1) It provides 24x7 support. Customers can enquire about a product or service
and place orders anytime, anywhere from any location.
2) E-commerce application provides users with more options and quicker delivery
of products.
3) E-commerce application provides users with more options to compare and
select the cheaper and better options.
4) A customer can put review comments about a product and can see what others
are buying, or see the review comments of other customers before making a final
purchase.
5) E-commerce provides options of virtual auctions.

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6) It provides readily available information.

3) Advantages to Society
1) Customers need not travel to shop a product, thus less traffic on road and low
air pollution.
2) E-commerce helps in reducing the cost of products, so less affluent people can
also afford the products.
3) E-commerce has enabled rural areas to access services and products, which are
otherwise not available to them.
4) E-commerce helps the government to deliver public services such as
healthcare, education, social services at a reduced cost and in an improved
manner.

What are the (AIMS) of ecommerce?

Ecommerce is business journey from buying to delivery with an online
experience. Below are the few objectives (AIMS) of ecommerce:

1. Reduce management costs

Businesses aim at reducing the costs incurred for the betterment of their profit.
Automating the ecommerce business can help in reducing the management cost.
Ex. Paper cost, maintenance cost, Store rent cost etc.

2. Developing business relations (B - C)

With ecommerce as the primary use, business development can be easily
achieved. The direct communication between a company and the customer, the
business relationship can be boosted. Eventually, the ecommerce market shall be
expanded.

3. Providing a unique customer experience

Uncountable ecommerce businesses are functioning out there in the market. When
a customer searches for a certain product (for instance, shampoo), they will
probably click on the first three links that are shown on the Google Search Engine
Results Page. All the rest links are either avoided, never seen, or are visited by a

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few. This itself shows the competition in the ecommerce market. One of the best
ways to stand out from the crowd is by providing a unique customer experience.
This includes giving a personalized experience (discount , gifts , cash back ,
voucher) to each customer or visitor of your online store, website, or mobile app.
Ex. paytm

4. Increasing the number of loyal customers (Customer Satisfaction)

Customers are the core of all business strategies. Therefore, ensuring the great
customer experience is of prime importance for the growth of the business. You
need to fulfill your customers where they spend their time. More than 60% of
consumers look for purchasing goods and services online. You can increase the
number of loyal customers by giving the best experience to your already existing
customers as well as bring in newer customers.
(Exchange, return, cancel polices)

5. Boosting the efficiency of services

With the continually growing technology, you need to enhance the efficiency of
your services. By choosing an online ecommerce platform to create an online
store, you can efficiently reduce the cost of managing and selling online. You have
various opportunities to boost the efficiency of your service that eventually
increase the profit earned. By reducing the delivery time, you can witness happy
customers getting back to your business two times faster. Another way is to
provide your customers with automated services such as status update, invoice
creating, chat support, etc.

6. Making responsive ecommerce website ( make attractive website ,

mobile application)

With the increasing use of smart phones for shopping online, it has become more

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than mandatory for ecommerce businesses to go mobile. Apart from creating a

native mobile app, like the one offered from Amazon prime mobile application, you
need to create a responsive ecommerce website. It is one of the major objectives
of all leading ecommerce businesses. By responsive, it means to create a website
that can be viewed from any devices of varying screen size, equally. Studies say
that Google may next rank a website based on its mobile website. A mobile-
friendly website earns more traffic than the rest.

7. Increasing sales
The objective of increasing sales will always remain continuous and constant for an
ecommerce business. In order to thrive in the ecommerce industry, you need to
boost your sales, constantly. All other objectives are zeroed down to make this
objective happen. Only you can decide what is perfect for your business and what
is not. Every business is unique, and so is yours!

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1.3 E-COMMERCE FRAMEWORK

 The E-commerce application will be build on the existing technology

infrastructure- computers, communication networks and
communication software forming the information highway (i-way).
 There are two very important pillars to supports the applications of e-
commerce in framework public policy legal and privacy issues and
technical standards for electronic documents, multimedia and network
protocols.
 The two pillars supporting all e-commerce applications and infrastructure.
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 Common business services infrastructure 
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Messaging and info distribution infrastructure 
Public policy Technical
legal and standards
privacy issues Multimedia content & network publishing infrastructure for electronic
documents,
multimedia
Information Superhighway infrastructure and network
protocols

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[GENERIC FRAMEWORK OF E-COMMERCE]

 Public policy legal and privacy issues – to govern such issues as

universal access, privacy and information pricing.

 Technical standards for electronic documents, multimedia and network

protocols
– to dictate the nature of information publishing, user interface and
transport inthe interest of compatibility across the entire network.

 The generic framework of e-commerce contains mainly four

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infrastructures.

 1. common business services infrastructure- it providing the facility for

the buying and selling process. It includes security/authentication,
electronic payment, directories/catalogs.
 2. the messaging and information distribution infrastructure- as a
means of sending and retrieving information.

 3. multimedia content and network infrastructure- for creating products

and means to communicate about it.

 4. the information superhighway infrastructure- the very foundation

for providing highway system along which all e-commerce must travel.
It includes telecome, cable TV, wireless, internet etc.

 Any successful e-commerce application will require the i-way

infrastructure in the same way the regular commerce needs interstate
highway networks to carryout goods from point-to-point.

 You must travel across this highway, whether you are an organization
purchasing supplies or a consumer ordering a movie on demand.

 I-way will be mesh of interconnected data highways of many forms

like telephone wires, cable TV wires, radio based wireless – cellular and
satellite.

 Building the various highway is not enough, transportation vehicles are

needed, routing issues must be addressed, and transportation of costs
important.

 The information and multimedia content determines what type of

vehicle is needed.

 For example- MOVIES= VIDEO + AUDIO

DIGITAL GAMES= MUSIC + VIDEO + SOFTWARE

E-BOOKS= TEXT + GRAPHICS + DATA + MUSIC +

PHOTOGRAPHS
+ VIDEO.

 In a traditional transportation business, diesel engines or gasoline for

powered motors to move the vehicle (truck) along the roadway.

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 On the i-way, messaging software fulfills this role, in any number of

forms like – e-mail, EDI or point-to-point file transfer.

 There are many e-commerce applications included in framework of e-

commerce.

 1. Supply chain management- A supply chain is a network of facilities

and distribution options that performs the functions of procurement of
materials, transformation of these materials into intermediate and
finished products, and the distribution of these finished products to
customers.
 2. Video on demand - Almost every home has a television today. It
offers programmes from a number of available channels and is very
simple to use. The Cable TV (CATV) makes it possible to choose
programmes from large number of channels. Then became video rental
business in combination with a video recorder, which provides
customers to select movies when they will. This service may be called
video on demand.

 3. Remote banking - Remote Banking is one of the most important

modern banking services enabling the customer to make payments
from any place in the world and at any time via a PC, fixed or mobile
phone.

 4. Procurement and purchasing - Procurement is the acquisition of

appropriate goods and/or services at the best possible total cost of
ownership to meet the needs of the purchaser in terms of quality and
quantity, time, and location.

 5. Online marketing and advertising - Internet marketing, also referred

to as i- marketing, web-marketing, online-marketing, Search Engine
Marketing (SEM) or e-Marketing, is the marketing of products or
services over the Internet.

 6. Home shopping- Home shopping allows consumers to shop for goods

while in the privacy of their own home, as opposed to traditional
shopping, which requires you to visit brick and mortar stores and
shopping malls.

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1.4 Electronic Commerce Consumer Applications

 Consumer desires are very hard to predict pin-point or decipher in

electronic markets whose shape, structure and population are still in
the early stages.
 Needs envisioned include entertainment on-demand (including 500 -
channel TV), video-on-demand, news-on-demand, electronic retailing
via catalogs, home shopping networks, interactive distance education,
collaboration through desktop videoconferencing, medical
consultations etc.
 To plan the infrastructure, hard choices about a winning application
have to be made.
 Currently the application of choice among cable and telecom providers
developing infrastructure is : Video-on-demand.
Why Video-on-demand ?

• Mostly house-holds have TV and connected to cable

• Most of the free time is spent watching TV
• Not all watching the TV are watching the same channel
• Sight, sound and motion combine to make TV a powerful means of
marketing.
• It is seen as part of an overall long-term trend from the passive
delivery vehicles of movies, radio and TV to consumer interactive
platforms.
• As currently envisioned, it is merely a cheaper and more
convenient replacement for the corner video store. ( To see a
video, consumers would pick one from a wide selection and would
be billed later)
• The changing trends in consumer choice can be seen in
consumption of sports, TV shows and educational programs
( e.g popularity of CNN channel).

(But, Video-on-demand is not a killer application for E-com.)

 1. Consumer Applications and Social Interaction

• Applications oriented toward social interaction will be winner in long

run.

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• Impact of telephone on business and social communications and

influence of television on consumer behavior and entertainment is
very significant.
• Other social revolutions have bearing on the e-com applications
(e.g. current trends in radio and TV talk shows are replicated in on-
line news groups)
• Social interactions were also promoted by the introduction of
the 800 tollfree service around.
• Contrast to toll-free services is caller-paid 900service (audio text)
• Audio text allows callers to access a live, prerecorded/interactive
program.
• Four major 900services are fax-back, interactive, recorded – sports
scores, financial services and weather, opinion polling, and
conferencing or simultaneous conversation using GAB (Group
Access Bridging)
• 900services are explored by marketers as a way to offset costs in
areas like customer service by getting caller to pay.
• The most successful marketplaces are expected to be those that
cater to customers‟ loneliness, boredom, education and career.
• Video-on-demand, adult entertainment (sports, gambling),
electronic mails, grocery shopping and local news can be added to
this list.

-> 2. What do consumers really want ?

• The key questions are : Do consumers want new services and will
they payfor them ??
• Plans for video-on-demand and other applications are
predicted on imaginary customers who are
expected to buy multimedia services.
• To accurately gauge consumer intentions with respect to
services they donot yet understand is very difficult.
• Focus groups and limited market tests suggest consumers show no
pressing demand for additional services or for a 500-channel
interactive TV.
• Some businessmen are convinced that public will gobble up
interactiveservices if they are made available.
• Challenges facing marketers in electronic markets :-
– Consumers are generally satisfied with the range of choices
now available on cable TV. The main complaint is quality and
cost ofservice.

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– If a new system requires more steps to do essentially the

same things as present day systems, consumers may resist it
– Some system developers and s/w programmers assume
consumers want to move from passive to interactive TV
watching, but most of the public want to lay back and just
watch TV.
• New interactive systems must be easy to use, inexpensive and
appealing in terms of satisfying a need before consumers will use
them and buy them.
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 3. What are consumers Willing to spend ?

• Right now, charge for a rental video is a cash, out-of-pocket item.

Video-on- demand would necessitate monthly billing.
• If consumers are unwilling to spend the amounts needed to fully
recover the costs of bringing entertainment to their homes, n/w
operators may look to advertisers to fill the gap.
• Television is truly a broadcast medium, interactive multimedia is not.
• N/w operators could target consumers with advertising but this
would raise technical and privacy issues not easily resolved.
• Issues of how customer data will be collected, stored and who will
have to access to it are difficult to resolve

 4. Delivering Products to customers

• In addition to developing e-com applications, packaging and

distributionmust be considered.
• Until user interfaces become sophisticated, the process of
scrolling through dozens of menus to select a video will be time
consuming and frustrating.
• Children and adults have similar options to select the video from.
• Cocooning may be a very valid concept, but it does not mean
that peoplewill never want to leave their homes

 5. Consumer Research and Electronic Commerce

• Evaluating customer preference is the main uncertainty facing

application designers -
– What mix of voice, data, video, entertainment, education,
information, geographic coverage, mobility, and interactivity
will consumers demand?
– How much time and money will they be willing to spend to
use these networks?

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– How much will regional or cultural differences influence

application architectures?
• Results of surveys :-
– Movies on demand attract the most interest, then news,
which fares relatively well.
– People are more interested in facts than in growing number
of entertainment services envisioned for the electronic
market place
– Consumer‟s rate high-tech entertainment and shopping
networks lower than info access, community involvement,
self-improvement and communication computer services.
– Most desirable on-line capability - voting in elections
– People also favors on-line public opinion poll, interactive
electronictown hall political meetings/
– Gaining access to reference and government
information and educational courses is preferable to
entertainment services.
– Consumers discredited expert predictions that “video text”
wouldtransform the society.
• Companies argue that consumers don‟t yet know what interactive
televisionis and can‟t be sure they will pay for it or use it.
• So there is split between commercial applications being promoted
bybusiness and the public‟s needs and interests.

1.2 Electronic Commerce Organization Applications

 Companies do not buy info and communication technology just

because of itssimplicity and interesting write-ups about it.
 Companies adopt technology to save money and improve the bottom line.
 How can electronic markets be utilized :
– To further organizational goals: better coordination, faster
problemsolving, and improved decision making.
– To help better serve the customers
– To better interact with suppliers and distributors
 How the new applications impact business processes currently
establishedinternally?

 1. Changing Business Environment :

• Customers and businesses seek the flexibility to change trading

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partners,platforms, carriers and networks at will.

• Companies are looking outside and within when shaping business
strategies
• These activities include establishing private electronic
connections to customers, suppliers, distributors,
industry groups and even competitors :
– to increase the efficiency of business communications
– To help expand market share
– To maintain long-term viability in today‟s business environment
• The Information superhighway will allow business to exchange info
among constantly changing sets of customers, suppliers and
research collaborators in a government and academia on a global
basis.
• Internetworking via a public network infrastructure provides a firm
with a pathways to conduct e-com between trading partners,
support collaboration with partners
• Firms utilize consumer and market research to form the
assumption that shape its strategy, dictate its decisions about what
to do/not do, and define meaningful results.
• On the issue of developing a theory of business in electronic
marketplace, it is stated that “with the aid of new technology and
new forms of corporate organization, firms are finding ways to do
things faster, better and cheaper, revitalizing entire industries and
redefining the terms of economiccompetition at the same time.”

Electronic Commerce and the retail Industry ::

• Consumers are pushing retailers to the wall, demanding lower

prices, betterquality, a large selection of in-season goods.
• Retailers are revamping distribution channels to ensure low
warehouse costsby :
– reducing average inventory levels
– Coordinating consumer demand and supply patterns
• More and more retailers turning to overseas suppliers (in
part due tocheaper labor costs).
• Retailers are putting that pressure on manufacturing and suppliers.
• Quest for efficiencies has led to turmoil and consolidation within
the retailindustry.
• The pressure on retailers and suppliers can be seen in
disappearance of jobs, in mergers and business failures in
manufacturing sector.
• Electronic markets could provide a partial solution by promising
– customers more convenience

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– Merchants greater efficiency and Interactivity with

suppliers torevitalize the troubled retailing sector.
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 2. Marketing and Electronic Commerce :

• E-com is forcing companies to rethink the existing ways of doing :

– Target marketing (isolating and focusing on a segment of
population)
– Relationship marketing (building and sustaining a long-term
relationship with existing and potential customers)
– Event marketing (setting up a virtual booth where interested
people can come and visit)
• Conventional direct marketers devote 25 % of revenues on printing
and postage costs for catalogs.
• Interactive marketing could help cut such expenses and may even
deliver better results.
• Interactive marketing accomplished in electronic market via
interactive multimedia catalogs*.
• Ideally, an interactive shopping program should produce full-
motion demonstrations of the selected products, but such a
practical and economicaltechnology has yet to be developed.
• Consumer info services are a new type of catalog business. (e.g.
CUC international)
• Virtual-Reality Inventory – stock nothing, sell everything.

 3. Inventory Management and Organizational Applications ::

• With stiff global competition, managers need to catch on quickly to

better ways of doing international business.
• Adaptation would include moving toward computerized “paperless”
operations to reduce trading costs and facilitate the adoption of
new business processes.
• Inventory management is one often-targeted business process.
• Solutions for these processes :
– Just-in-Time (JIT) inventory systems (in manufacturing
industry)
– Quick response programs (in retail industry)
– Consignment tracking systems (in transportation industry)

 Just-in-Time Manufacturing :

• It is viewed as an integrated management system, consisting of a

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number of different management practices, is dependent on the

characteristics of specific plants.
• JIT management system is based on two principles :-
– Elimination of waste (time, materials, labor and equipment)
in production cycle.
– Empowering workers
• Management practices associated with JIT systems :
– Focused factory
– Reduced set-up times
– Group technology
– Total productive maintenance
– Multifunction employees
– Uniform workloads
– JIT purchasing
– Total quality control
– Quality circles

JIT purchasing

– Allows a manufacturer to incorporate it‟s supplier efforts

toward eliminating waste in the upstream portion of the
manufacturing cycle.
– Focuses on the reduction of inventories throughout the
logisticalsystems of the manufacturing firms involved
– Provides a careful audit of the production process.
– Optimizes supplier and customer relations
– In production, needed materials are to be supplied just in
time (noearlier or later than is demanded for processing)
– Production costs decrease as required stock level is reduced.
– Market risks passed on through supplier chain (material
from supplier is ordered by production plant, only if products
can be sold)
– Quality control of production is considerably enhanced.
– All stages of production are closely monitored for adequate
assessment of imperfections.
– Concept of co-maker ship has been introduced by such
collaboration between suppliers and customers.
– To achieve JIT savings, corporations have installed private
communication networks. The I-way makes this practice
more affordable and easily available to a number of small
firms.

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 Quick Response Retailing [QRR]

• Quick Response (QR) is JIT purchasing version for retailing.

• Most often, shoppers do not keep a store filled with merchandise
until thewanted product is out of stock.
• The failure to stock merchandise that matches customer
demand can beextremely costly.
• To reduce risk of being out of stock, retailers are implementing QR
systems.
• QR provides a flexible response to product ordering & lowers costly
inventorylevels.
• QR retailing focuses on market responsiveness while maintaining
low level ofstocks.
• It creates a closed loop encompassing the retailer, vendor, and
customerchain (Fig: Quick Response Chain)
• Availability of accurate information with respect to the current
sales enables sophisticated marketing capable of responding to
consumer‟s preferences.

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 4. Supply Chain Management

• Inventory management solutions (QR & JIT) address only part of

the overallpicture.
• These may not be feasible if a company depends on an
unresponsivesupplier for key components.
• What is required is a technique for managing unanticipated
problems (orperturbations) in the supply chain.
• Supply Chain management (SCM) integrates the internal and
externalpartners on the supply and process chains
– to get raw materials to the manufacturer and finished
products to theconsumer.
• SCM process increasingly depends on electronic markets because of :
– Global sourcing of products and services to reduce costs
– Short product life cycles
– Increasingly flexible manufacturing systems resulting in a
variety ofcustomizable products.

 Functions of SCM

• Supplier Management
– The goal is “to reduce number of suppliers and get them
to becomepartners in business in a win/win relationship.”
– Benefits :
• Reduced purchase order (PO) processing costs
• Increased number of POs processed by fewer employees
• Reduced order processing cycle times.
• Inventory Management
– The goal is “to shorten the order-ship-bill cycle.”
– Majority of partners are electronically linked, information
can besent/received quickly.
– Documents can be tracked to ensure they were received.
– Benefits :
• Improved Audit Capabilities. (Documents can be
tracked toensure they were received).
• Enable the reduction of inventory levels
• Improve inventory turns
• Eliminate out-of-stock occurrences.

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• Distribution Management
– The goal is “to move documents related to shipping (bills of
lading, purchase orders, advanced ship notices, and manifest
claims)”
– Benefits :
• Improved Resource planning (Documents can be sent in
momentand contain accurate data).
• Channel Management
– The goal is “to quickly disseminate information about
changing operational conditions to trading partners.”
– Benefits :
• Technical products and pricing information can be
posted to electronic bulletin boards, thus allowing
instant access.
• Electronically linking production with their international
distributor and reseller networks eliminate thousands of
labor hours per week in the process.
• Payment Management
– The goal is “to link the company and the suppliers and
distributors so that payments can be sent and received
electronically.”
– Benefits :
• Increased speed at which companies can compute
invoices.
• Reduced clerical errors
• Lower transaction fees and costs with increasing
productivity (number of invoices processed )
•
• Financial Management
– The goal is “to enable global companies to manage the
money invarious foreign exchange accounts.”
– Companies must work with financial institutions to boost their
ability todeal on a global basis.
– They need to assess their risk and exposure in global financial
markets
– They need to deal with global info as opposed to local
marketinformation.

• Sales Force Productivity

– The goal is “to improve the communication and flow of
information among the sales, customer and production
functions.”
– Linking the sales force with regional and corporate offices

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establishes greater access to market intelligence and

competitor information that can be funneled into better
customer service and service quality.
– Companies need to collect market intelligence quickly and
analyze it more thoroughly.
– Companies also need to help their customers (relationship
management) introduce their products to market faster,
giving them acompetitive edge.
 5. Work Group Collaboration Applications

• For workgroup applications, e-com represents a ubiquitous inter-

network
– that enables easy and inexpensive connection of various
organizationalsegments
– to improve communication and information sharing among
employeesand to gather and analyze competitive data in real-
time.
• E-com also facilitates sales force automation by enabling
salespeople to carry product and reference information in one
portable device.
• Applications such as video-conferencing, document sharing,
multimedia e- mail are expected to reduce travel and encourage
telecommuting.
• Processing costs can be reduced by improving the distribution
channel for documents and records to suppliers, collaborators and
distributors.
• Video conferencing is now the best-established application.
• Organizational applications of e-com have to meet the challenges of
new business environment, where the emphasis is on service
quality, flexibility and customization of production to meet
customer needs.

Work Group Collaboration Applications Video-conferencing

• It allows distant business colleagues to communicate without the

expense,time and inconvenience of traveling.
• In hospitals, it allows surgeons to examine computerized X-rays
and CAT scans of distant patients whose doctors need second
opinion.
• Its appeal and applicability to small business is limited because it :
– Requires of significant investment in equipment
– Entails the use of dedicated facilities with special communication

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lines.
• It is beginning to penetrate the desktop PC market (limited
growth due totechnical limitations)
• Faster chips for processing video (compressing and
decompressing) isrequired.
• As the point-to-point or point-to-multipoint video conferencing
drops, it is expected to continue its penetration into the corporate
marketplace.

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1.6 Introduction of m-commerce

 M Commerce can be defined as any electronic commerce activity conducted

over a wireless network through mobile devices. It includes activities such as
buying and selling of goods, provision of services and information, online
transactions etc.

Applications of M-commerce

M-commerce transactions of buying and selling of goods and services on mobile

device, they have so many applications. Let us take a look at a few examples,

 Mobile Banking: Using a mobile website or application to perform all your

banking functions. It is one step ahead of online banking .For example, in
Nigeria, the majority of banking transactions happen on mobile phones. Ex.
UNO ( SBI NET BANKING)

 Mobile Ticketing and Booking: Making bookings and receiving your tickets on
the mobile. The digital ticket or boarding pass is sent directly to your phone
after you make the payment from it. Even in India now IRTC and other services
provide m-ticketing services.

Ex. Yatra , Makemytrip , IRCTC

 E-bills: This includes mobile vouchers, mobile coupons to be redeemed and

even loyalty points or cards system.

Ex. Amazon Pay , Paytm

 Auctions: Online auctions having now been developed to be made available via
mobile phones as well.

 Stock Market Reports and even stock market trading over mobile applications.
 Ex. Angle Broker

 M-commerce and mobile marketing- Business organizations can advertise

their products and offers by sending SMS to consumers. Also, they can give
reward points to customers to increase their sales.

Ex. 99acers

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 For finance- People who use mobile phones can make transactions easily from
anywhere. Even if they have to make a payment of something, they can easily
do so and will also receive a receipt regarding the payment.

Ex. Free charge , Amazon pay

 For retail and after-sale services- Customers can view a product online to
know its price and details. Also, they can buy products or can even ask for
service online. Ex. Myntra , jabong sanpdeal,

 Hotel reservations- Hotel rooms can be booked online through smartphones,

making it more convenient for the user.

Ex. Agado , luxurysapce

 Healthcare and Medicine- Apart from ordering medical supplies online,

patients can send their health status to their doctors and get help, making it
easier for old age people.

Ex .midecare , Medlife

 For interoffice communication- Salespeople often need to check the latest

prices and offers on the company's products while they may not be in office.
They can access all the information easily through their smart phones.

Ex. Yahoo search , Google

 For gaming- Online games are becoming very popular these days. The
multiplayer games can be easily accessed by smart phones

 Ex Freefire , pubgee

 For information- People can check the news, cricket scores etc. Also, students
can check their university exam results easily.

Ex . VNSGU.AC.In , Cricbuzz

 Mobile entertainment- Users can access thousands of tv shows, web series,

and movies, all through their portable mobile devices.

Ex hotstar , gaana , sonylive

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Advantages of M-commerce

 It provides a very convenient and easy to use the system to conduct business
transactions.

 Mobile commerce has a very wide reach. A huge part of the world’s population
has a mobile phone in their pocket.

 M-commerce also helps businesses target customers according to their location,

service provider, the type of device they use and various other criteria.

 The costs of the company also reduced.

Disadvantages of M-commerce

 The existing technology to set up an m-commerce business is very expensive.

It has great start-up costs and many complications arise.

 In developing countries, the networks and service providers are not reliable. It
is not most suitable for data transfer.

 Then there is the issue of security. There are many concerns about the safety
of the customer’s private information. And the possibility of a data leak is very
high.

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Chapter 2 :-Network infrastructure for E-com,

Payment and security
 Introduction ::
• E-com needs a n/w infrastructure to transport the content.
• Information Superhighway (I-way)
– A high capacity (broadband), interactive (two-way)
electronic pipelineto the home or office capable of :
– simultaneously supporting a large number of e-com applications
– providing interactive phone like connectivity between
users andservices and between users and other users.
• Principal shortcoming of the existing communications infrastructure :
– Inability to provide integrated voice, data and video services.
• Emergence of integrated electronic commerce applications in
health care, manufacturing, education and other industries is
paving the way for a n/w infrastructure capable of supporting
multiple types of info.
• Interest in the I-way is slowly diffusing to other industries as the
investmentin new info technologies and tools accelerates.
• Companies are upgrading their n/w infrastructure or creating new
products
• They are reorganizing through mergers and acquisitions to
better preparefor life on the I-way.

2.1 I-Way ( Information - Superhighway )

 Any successful E-commerce application will require the I-Way

infrastructure in the same way that regular commerce needs the
interstate highway network to carry goods from point to point.

 A myriad of computers, communications networks, and communication

software forms the nascent Information Superhighway (I-Way).

 The I-Way is not a U.S phenomenon but a global one, as reflected by

its various labels worldwide. For instance, it is also called the National
Information Infrastructure (NII) in the United States, Data-Dori in
Japan and Jarring, whichis Malay for "net" in Malaysia.

 The I-Way developed technologies will be key elements in the business

transformation.

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 The I-Way will be a mesh of interconnected data highways of many

forms: telephone wires, cable TV wires, radio-based wireless-cellular
and satellite

 The I-Way is quickly acquiring new on-ramps and even small highway
systems.

2.2 Components of I-way ::

• Three major components make up the I-way infrastructure :

Consumer (Network) Access Equipment (CAE)

– Represents a critical category
– Its absence or slow progress holds up other segment of I-way.
– E.g. Interactive TV is uncommon because of lack of
affordable equipment on customer‟s side for access
and provider‟s side fordistribution.
– CAE includes hardware and software vendors who provide :
• Physical devices – routers, switches etc.

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• Access devices – computers, set-top boxes etc

• Software platforms – browsers, operating systems etc.

Local or access roads, or on-ramps :

– Called “last mile” in telecommunications industry
– Simplify linkages between businesses, schools and
homes to thecommunications backbone.
– Four categories of access ramps providers:
1>Telecom based

2> Cable TV based

3> Wireless based

4> Computer based on-line info services.

(including value added networks VANs)

– These backbone access providers link users and E-com

applicationproviders.
– Before choosing provider, consumer should decide the services.
– Careful consideration is required to applications deployed or
accessed, objectives and costs, security and privacy.(These
factors influence choice of tools and the access ramps
consumers/business choose).
• Linking all the components of the I-way require vast capital
investments in “open systems” (interoperable equipment that uses
common standards) and installing gateways between various
networks.
• A final requirement is switching hardware and software to
move huge amounts of data effortlessly over such a
complex network.

Linking all the components of the i-way will require large

capital investment in open systems and installing gateways between
various networks. A final requirement is switching hardware and
software to move huge amounts of data effortlessly over such a
complex network.
Global Information distribution Networks :

– Represents the infrastructure criss-crossing countries and

continents.
– Most of the I-way infrastructure already exists in the vast

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n/w of fiber- optic strands, coaxial cables, radio waves,

satellites, and copper wires spanning the globe.
– This backbone includes such networks as long-distance
telephonelines, satellite networks, and the Internet.
– Although Internet uses the same hardware, its history,
protocols andregulations put it into different category.

Network Access Equipment

• Customers premises equipment (CPE) or terminal equipment is a
generic term for privately owned communications equipment that
is attached to thenetwork.
• Three parts :
– Cable-TV set-top boxes
– Computer based telephony
– Hubs, wiring closets and routers or digital switches.

1.Cable TV Set-top Boxes

– Also known as cable converter boxes, converter

boxes, andconverters/descramblers.
– Will be Gateway for information services, commercial
transactions, and500-digitally compressed channels.
– Will have greater intelligence and more features than
the existingconverter boxes such as :
• Enabling users to make phone calls
• Surf the Internet
• Plan the viewing schedule for the week.
– This will be possible because, all cable-boxes are owned
not by cable subscribers but by the cable systems that
delivers programming.
– Type of boxes will be decided by local cable company.
• Simplest set-top boxes will feature on-screen text-menus enabling
featureslike :
- Lockout, favorite-channel grazing, time-delay programming for
unattendedVCR recording.

• At the high end it might be a box with a menu system based on

icons fornavigating through various activities :
– To shop, access a bank account, play video games, watch a
pay-per-movie, examine an on-screen TV schedule.
• Cable operators will be able to download software through the

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cable systeminto the set-tops.

• Set-tops will have slots for add-on cards that can be used to :
– change or add applications, provide security, expand unit‟s
memory
• Set-top boxes will also have a serial data port that can be
hooked up to aprinter.
• Main goal : to be flexible for the applications of tomorrow.
• For more sophisticated transactions, much of the intelligence will
be in the set-top device (as opposed to residing in a central
computer).

->> Comparison of accessing I-way via a set-top v/s a PC

• Criteria for comparison

(i) Display

(ii) Controls

(iii) Pipeline

(iv) Brains

(v) Accessibility

• Display
– TV is well adapted to showing full-motion video to
viewers sitting several feet away, but it‟s text display is
extremely limited.
– High-definition TV, still getting off the ground, is sharper
but still toopoor for text.
– Computer displays can easily display video, text, and
graphics crisplyto a viewer seated one and half feet away.
– Computers wouldn‟t have to adapt much to match TV‟s
strengths, but TV is a long way from matching a computer
monitor‟s strength.
• Controls
– Set-top will use a hand-held remote control that permits
selectionsfrom menus.
– Computer has a full-function keyboard;most also have a
mouse for pointing, clicking and high-lighting;other
devices such as joysticks, trackballs, light pens, and voice

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recognition systems are widely available.

– Far more flexible and powerful ways to interact with a
computer thanwith a television.

• Pipeline
– Existing cable TV systems can deliver a huge amount of
info rapidly one way – to the home – but must be modified
to allow a significantreturn flow.
– New modems and networks let computers communicate
over highcapacity cable lines.
– Future systems will need high-capacity lines to deliver the
vast volumeof data needed for digitized video like movies on-
demand.
• Brains
– Set-top box is a special-purpose computer with powerful
graphics and communications features but limited
versatility*
– Box is largely a slave to the central computers of the
interactivesystem.
– PCs are very versatile ; interactive applications are just
part of itsversatility.
– PCs are powerful in their own right and not dependent on
system‟s central computers with which they
communicate.
– Centralized control has usually given way to autonomy for
users.
• Accessibility
– Every household has a TV and is familiar and comfortable with
using it.
– People most likely to use interactive systems may be the
same onesmost attracted to computers.
– Leap to interactive use is greater from passive TV watching
than from active computer use.Thus, universality of TV is less
advantageous thanit appears.
– But a Significant part of public remains uncomfortable with
computers.

2.Computer-Based Telephony

• Largest CPE product sectors are Private Branch Exchanges (PBXs),

facsimile products, modems, voice processing equipment, video
communication equipment.
• Personal communicators combine voice, data, and facsimile

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functions and enable users to send, store, and receive

information over either wireline orwireless networks.
• These software intensive equipments improve business
productivity by reducing communications and travel
expenses.
• PBXs
– A telephone exchange local to a particular organization
who use,rather than provide, telephone services.
– Earlier manual PBX (Private Manual Branch Exchange –
PMBX) was in use which involved company employed
operators manually switching each call using a manual
switchboard.
– Now PABX (Private Automatic Branch Exchange) is in use
that is used for switching calls between internal lines and
between internal and Public switched Telephone Network
(PSTN) lines.
– PABX can route calls without manual intervention, based
entirely on the number dialed. Not all PABXs can route
external calls to internalnumbers automatically however.

3.Digital Switches, Routers and Hubs

Hub:
● Hubs are network devices operating at physical layer of the OSI
model
● Computers connect to a hub via a length of twisted-pair cabling
hub to be connected to another hub to create larger networks
which is called cascading, done through BNC connectors.
● The BNC connector (initialism of Bayonet Neill–Concelman) is a
miniature quick connect/disconnect radio frequency connector used
for coaxial cable.
● Typically hub can connect from 8 to 24 connections together.
● There are three types of hubs:
1) Active hub
2) Passive Hub and
3) Intelligent hub .
● Active hub :
Active regenerate a signal before forwarding it to all the ports on
the device and requires a power supply. Small workgroup hubs
normally use an external power adapter, but on larger units the
power supply is built in.
● Passive hubs:

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which today are seen only on older networks, do not need power
and they don’t regenerate the data signal. It is just a connector
that connects the wires coming from different branches.
● Intelligent hub
regenerates the signal ,performs network management and
intelligent path selection.
Functions:
● like repeater hubs can also regenerate signal
● The basic function of a hub is to take data from one of the
connected devices and forward it to all the other ports on the
hub.This method of operation is inefficient because, in most cases,
the data is intended for only one of the connected devices
● Due to the inefficiencies of the hub system and the constantly
increasing demand for more bandwidth, hubs are slowly but surely
being replaced with switches.
Switch:
● It can perform in both the second and the third layer of the OSI
Model, the Data-Link and the Network layer respectively.
● Layer 2 switch: While in the Data-Link layer, it can successfully
perform the task of a Switch by forwarding all the frames to the
required devices using the MAC Addresses.
● Layer3 switch: Furthermore, it can also perform the task of a
Router;it can receive data Packets and successfully forward them
to their destination IP Addresses to make sure that they reach
their destination.
● Rather than forwarding data to all the connected ports like hub,
a switch forwards data only to the port on which the destination
system is connected. It looks at the Media Access Control (MAC)
addresses of the devices connected to it to determine the correct
port. A MAC address is a unique number that is stamped into every
NIC. By forwarding data only to the system to which the data is
addressed, the switch decreases the amount of traffic on each
network link dramatically.
● Switches can also further improve performance over the
performance of hubs by using a mechanism called full-duplex . In
full-duplex mode it can send and receive data on the connection at
the same time. In a full-duplex connection, the maximum data
throughput is double that for a half-duplex connection
● Data transmission speed in switches can be double that of other
network devices like hubs used for networking. This is because
switch shares its maximum speed with all the devices connected to
it. This helps in maintaining network speed even during high
traffic. In fact, higher data speeds are achieved on networks
through use of multiple switches.

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Benefits or advantages of Switches

● They increase the available bandwidth of the network.
● They help in reducing workload on individual host PCs.
● They increase the performance of the network.
● Networks which use switches will have less frame collisions. This
is due to the fact that switches create collision domains for each
connection.
● Switches can be connected directly to workstations.
Drawbacks or disadvantages of Switches
● They are more expensive compared to network bridges.
● Network connectivity issues are difficult to be traced through the
network switch.
● Broadcast traffic may be troublesome.
● If switches are in random mode, they are vulnerable to security
attacks e.g.spoofing IP address or capturing of ethernet frames.
● Proper design and configuration is needed in order to handle
multicast packets.
● While limiting broadcasts, they are not as good as routers.
Routers:
● Routers are networking devices operating at layer 3(Network
layer) or a network layer of the OSI model.
● They are responsible for receiving, analyzing, and forwarding
data packets among the connected computer networks. When a
data packet arrives, the router inspects the destination address,
consults its routing tables to decide the optimal route and then
transfers the packet along this route.
● It connects different networks together and sends data packets
from one
network to another.
● A router can be used both in LANs (Local Area Networks) and
WANs (Wide
Area Networks).
● It transfers data in the form of IP packets. In order to transmit
data, it uses IP address mentioned in the destination field of the IP
packet.
● Routers have a routing table in it that is refreshed periodically
according to the changes in the network. In order to transmit data
packets, it consults the table and uses a routing protocol.
● In order to prepare or refresh the routing table, routers share
information among each other.
● Routers provide protection against broadcast storms.
● Routers are more expensive than other networking devices like
hubs,bridges and switches.
Routing Table

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The functioning of a router depends largely upon the routing table

stored in it. The routing table stores the available routes for all
destinations. Therouter consults the routing table to determine the
optimal route through which the data packets can be sent.
A routing table typically contains the following entities −
1. IP addresses and subnet mask of the nodes in the network
2. IP addresses of the routers in the network
3. Interface information among the network devices and channels
Routing tables are of two types −
Static Routing Table − Here, the routes are fed manually and are
not refreshed automatically. It is suitable for small networks
containing 2-3 routers.
Dynamic Routing Table − Here, the router communicates with
other routers using routing protocols to determine the available
routes. It is suited for larger networks having large number of
routers.
Functions of a Router:
1) Forwarding –
Router receives the packets from its input ports, checks it header,
performs some basic functions like checking checksum and then
looks upto the routing table to find the appropriate output port to
dump the packets onto, and forwards the packets onto that output
port.
2) Routing –
Routing is the process by which the router ascertains what is the
best path for the packet to reach the destination, It maintains a
routing table which is made using different algorithms by the
router only.
Benefits or advantages of Routers
● It provides connections between different network architectures
such as ethernet & token ring etc.
● It can choose the best path across the internet work using
dynamic routing algorithms.
● It can reduce network traffic by creating collision domains and
also by creating broadcast domains.
● It provides sophisticated routing, flow control and traffic
isolation.
● They are configurable which allows network manager to make
policy based on routing decisions.
Drawbacks or disadvantages of Routers
● They operate based on routable network protocols.
● They are expensive compared to other network devices.
● Dynamic router communications can cause additional network
overhead. This results into less bandwidth for user data.

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● They are slower as they need to analyze data from layer-1

through layer-3.
● They require considerable amount of initial configurations.
● They are protocol dependent devices which must understand the
protocol they are forwarding.

Global Information Distribution Networks

Two major technologies underpinning high-speed global information
distributionnetworks are :

– Fiber Optic long distance networks

– Satellite networks

Fiber Optic Long Distance Networks

– Connectivity is available via cable (fiber/coax) owned by

long-distanceor interexchange carriers (IXCs).
– Fiber optic cable provides better-quality service for
interactive applications and is likely to grow for
international transmission*.
– Interexchange carriers (IXCs) also play a significant role in
local access market by teaming with firms in the wireless and
cable TV business.
– Alternative arrangements are being explored to lower the
cost of using local networks that will also allow IXCs to
provide local network access themselves through business
partnerships or acquisitions.
– Interexchange carriers (IXCs) have advanced switched
networks nationwide that can serve as a back-bone for
alternative local accessnetworks.
– US long-distance services are provided by AT&T and others.
– In Europe, uniform speed, efficiency, levels of technology
and cost of telecom services are necessary for both voice
and data services.
– At present, wide disparities remain among different network
operatorsin terms of both efficiency and pricing.
– Major long-distance carriers have focused their attention on
wireless technologies and made plans to work with or
acquire companies in thewireless market.
– This would enable them to provide long-distance services to
cellular users and to develop a more economical local access

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network to reachtheir own subscribers.

Satellite Networks

– Initially, satellites were used to transport long-distance tele

communications and one-way video broadcasts.
– Advent of fiber optic changed the role of satellite in global
communication industry.
– Communications satellites are crucial part of the global
communications infrastructure.
– Advantages of satellite networks
• They are accessible from any spot on the globe.
• Can provide broadband digital services, including
voice, data, and video to many points without the
cost of acquiring right-of-way and wire installation
• Can add receiving and transmitting sites without
significantadditional costs.
– Today, about 150 communications satellites in geo
synchronous orbit (GEO) are providing a wide range of
services, including broadcast video and overseas telephone
links.
– Geo synchronous satellites are designed to broadcast a
wide beam toensure wide area coverage.
– Network‟s receiving stations require large antennas to
capture therelatively weak signal.
– Satellite can provide services to areas that cannot reached by
fiber.
– Earth blanketing satellite services* are expected to provide
the basic infrastructure to beam data and voice practically
anywhere in the world.

• VSAT (Very Small Aperture Terminal)

– Many satellite networks use a large number of small dishes

(VSATs) for the outlying nodes and one central hub with a
big dish that can transmit very powerful signal and is very
sensitive to incoming ones.
– This system minimizes the cost of the majority of the
ground stations at the expense of maintaining one big one,
which can be shared by several users.
– This approach can cause additional delays :

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• VSATs are not powerful enough to talk to one

another directlythrough the satellite.
• Messages must pass through the hub and make two
trips intospace before reaching the final destination
– VSATs are typically used by organizations (e.g. oil
companies) that require data or voice communications
between sites distributed over ageographical area.
– VSAT networks are often used in countries where telephone
links areoverloaded, unreliable or difficult to obtain.

– Strategic advantages :
• Average availability of 99.5 % and ease of rapid
development inremote or hard-to-reach areas.
• With a VSAT network, organizations have control
over andinsight into entire network from a single
point


 

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2.3 Transaction models

 E-commerce is can be further categorized into the
following:
Business -to- Business (B2B)

Business to business is one in which a company deals with another company for business
and exchanging of goods, products, services. Some of the examples of b2b e-commerce
sites are a company's official site, brokering sites etc.

Business –to- Consumer (B2C)

Business to customer is one where the company sells its goods to the customer or trades
with the customers. This is electronic retailing and called as e-tailing in common. One of
the best examples is amazon.com.

Consumer –to- Business (C2B)

Consumer to business is when a customer works for a certain company for business and
the company buys it, here the consumer has to price the trade. Example for such a site is
priceline.com.

Consumer –to- Consumer (C2C)

Consumer to consumer is more like auctioning, bartending, etc. where a consumer places
bid and other buys it. Here the websites acts an intermediate for the business Example for
such sites is eBay.

Business-to-government (B2G)

It is a business model that refers to businesses selling products, services or information to

governments or government agencies. B2G networks or models provide a way for
businesses to bid on government projects or products that governments might purchase
or need for their organizations.
Eg: Defense firm sending military equipment to govt.

Government to business

E-commerce is a business model were all the information and services are provided by the
Government to the Business Organizations. The information is shared through a vast
network of different government websites.
The business Organization use that information to apply for various permission needed for
starting a new business, and other specifications.
Eg: filling business tender

Government to government (G2G)

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It is the electronic sharing of data and/or information systems between government

agencies, departments or organizations. The goal of G2G is to support e-government
initiatives by improving communication, data access and data sharing.
Eg :-NEGIS (north east gang information system) where police dept share state
information to another states

Government-to-consumer

This model describes when a government or public sector entity uses ecommerce to sell
goods or services to consumers.
Eg:-online job portal for customer like OJAS.

Consumer to Government

E-commerce business allows consumers to provide feedback or ask for information about
government authority from the public sector.
Eg:- Paying an electricity bill via the government website business model.

 E-Commerce provides advantages to both the Business provider,

consumers.

 For the business it is provides easier way to market a particular product

at low cost and also the product easily reaches the global market.

 For the consumers they can buy products from home, so no tedious
work in buying and they can trade any time. E-commerce thus is a
greater benefit provided it has ultimate security.

 The main vehicles of E-commerce remain the Internet and the World
Wide Web, but use of email, fax, and telephone orders are also
prevalent.

E-COM Application Services :

• It will be comprised of existing and future applications built on

the innatearchitecture.
– Three distinct classes are :
• Consumer-to-Business Transactions
• Business-to-business Transactions
• Intra organization Transactions

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Global Suppliers

Classic EDI

Procurement, distribution and logistics

Accounting,
Engineering Manufacturing
Finance
and research and production
and management
Private Internal
commerce publishing

Advertising sales Customer service

Consumer-oriented
Electronic Commerce
Customers

Different types of E-com pplications

E-Com Application Services

1) Consumer-to-Business Transactions

• Also called Marketplace transaction

• Customers learn about products differently through electronic publishing
• Buy products differently using electronic cash and secure payment systems
• Have the products delivered differently.
Mercantile Process Models

• Mercantile processes define interaction models between consumers and

merchantsfor on-line commerce.
• To buy and sell goods, a buyer, a seller and other parties must interact in
ways thatrepresent some standard business process.
• A common way of doing business over the I-way will be essential to
the futuregrowth of e-com.
• The establishment of a common mercantile process (a set of processes)
is expected to increase convenience for consumers who won‟t have to
figure out a new businessprocess for every single vendor.

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• Mercantile Models from the consumer‟s perspective

– On-line consumer expects quality, convenience, value, low price and

control.
– To meet these expectations, a business process model is needed
that provides a standard product/services purchasing process
from an interactiveservices and merchandising point of view.
– Business process model from a consumer‟s perspective has
seven activitiesthat can be grouped into three phases

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2) Business to Business (B2B) Transactions

• Also called Market – link transaction

• Businesses, governments and other organizations depend on computer-
to-computer communication as a fast, an economical and a dependable
way to conduct business transactions.
• B2B transactions include the use of EDI and electronic mail for
purchasing goods and services, buying information and consulting
services, submitting requests forproposals and receiving proposals.
• Current manual process of printing, mailing, and rekeying is costly, time-
consumingand error-prone.
• To reduce these costs, small businesses are looking toward E-com.
• The advantages of E-business to business transactions
– Lower procurement costs;
– Reduced processing errors and inventory costs;
– Reduced time to market;
– Extended business reach; and
– Improved customer service.
• Key Entities in B2B E-com

– Selling Company – with marketing management perspective

– Buying Company - With procurement management perspective
– Electronic intermediary – a third party intermediating service provider
(the scope of service may be extended to include the order
fulfillment)

– Deliverer – who should fulfill the JIT delivery

– Network platform – such as the Internet, intranet and extranet
– Protocols and communication – such as EDI and comparison
shopping,possibly using software agents
– Back-end information system – possibly implemented using the
intranet andERP (Enterprise Resource Planning) systems.

• Information offered by B2B applications

– Product – specification, prices and sales history

– Customer – sales history and forecasts
– Supplier – product line and lead times, sales terms and conditions
– Product process – capacities, commitments, product plans
– Transportation – carriers, lead times, costs
– Inventory – inventory levels, carrying costs, locations
– Supply chain alliance – Key contacts, partners‟ roles and
responsibilities,scheduling
– Competitor – benchmarking, competitive product offerings, market
share

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– Sales and marketing – point of sale (POS), promotions

– Supply chain process and performance – process descriptions,
performance measures, quality, delivery time, and customer
satisfaction.

3) Intra-organizational Transactions

• Also called market driven transactions

• A company becomes market driven by
– dispersing throughout, the firm information about its
customers andcompetitors
– Continuously monitoring their customer commitment by making
improvedcustomer satisfaction an ongoing objective
• To maintain the relationships that are critical to delivering superior
customer value, management must pay close attention to service, both
before and after sales.
• A market driven business develops a comprehensive understanding of its
customers‟ business and how customers in the immediate and
downstream marketsperceive value

• Three major components of market-driven transaction :

– Customer orientation through product and service

customization.
– Cross-functional coordination through enterprise integration.
– Advertising, marketing and customer service.

2.5 Security on the Web

• Security and confidentiality are essential before businesses can
conduct financialtransactions over the Internet
• At present, credit card numbers, financial records, and other important
information are not encrypted and can be intercepted by any savvy
Internet hacker.
• Many commercial applications require that the client and server
be able to authenticate each other and exchange data
confidentially.
• This exchange has three basic properties :
– Clients are confident about servers they are communicating
with (serverauthentication).
– Client conversation with the server is private (privacy using
encryption).
– Clients‟ conversations cannot be tampered or interfered with (data
integrity).

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1 > Categories of Internet Data and Transactions

• Public data :
– Have no security restrictions, can be read by anyone.
– Should be protected from unauthorized tampering or modification.

• Copyright data :
– that is copyrighted but not secret
– Owner of data is willing to provide it but user has to pay for it.
– Objective is to maximize revenue and security.

• Confidential data:
– Material that is secret but whose existence is not secret.
– Such data include bank account statements, personal files etc.
– May be referenced by public or copyright data.

• Secret data :
– existence is secret , might include algorithms
– it is necessary to monitor and log all access to secret data.
• Security and verification are necessary for all types of data because of
sensitivity of information being transferred and to protect the consumer
from various forms of fraud and misconduct.
2 > WWW - based Security Schemes

• Several methods that can provide security in Web framework include :

• Secure HTTP :

– revision of HTTP
– Will enable the incorporation of various cryptographic message
formats (such as DSA and RSA standards) into both Web client and
server.
– Most of the security implementation will take place at the protocol.

• Security socket layer (SSL):

– Uses RSA security to wrap security information around

TCP/IP basedprotocols.
– Benefit of SSL over S-HTTP is that SSL is not restricted to HTTP,
but can also be used for security for FTP and TELNET among other
Internet services.

• SHEN:
– A security scheme for the Web sponsored by W3 consortium.
– It is noncommercial or more research oriented and is similar to

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SHTTP.
• It is likely that in near future, three security schemes will collaborate to
develop asingle standard.

3 > Existing Basic Authentication Features

– Extensions have been implemented by which the client and

NCSA (National Computer Security Association) httpd server call
external programs :
• that encrypt and decrypt their communications
• Provide secure communications between the server and client.
• Also provide authentication to ensure that users are who
they say theyare.
– This system has hooks for PEM (privacy Enhanced Mail) as
well as PGP(Pretty Good Service) encryption.
– PGP and PEM programs
• allow a sender and a receiver to communicate in a way
that does notallow third parties to read them
• Certify that senders are really who they claim to be.
– Currently, this protocol with PEM and PGP uses local key files on
the serverside.
– The simple protocol is used for :
• User name/password-level access authorization
• Rejection or acceptance of connections based on Internet
address ofclient.
• A combination of these two methods.
– This protocol is insufficient for e-com needs where strong
authentication andmessage integrity are necessary.

4> Secure Sockets Layer (SSL)

• This security protocol, called secure sockets layer (SSL), provides data
encryption, server authentication, message integrity, and optional client
authentication for a TCP/IP connection.
• SSL is layered beneath application protocols such as HTTP, SMTP,
TELNET, FTP,Gopher and NNTP
• It is layered above the Internet connection protocol TCP/IP.
• SSL provides a security “handshake” to initiate the TCP/IP connection.
• This handshake results in the client and server agreeing on the level
of security they will use and fulfills any authentication requirements
for the connection.
After handshake, SSL‟s only role is to encrypt and decrypt the message stream

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Electronic Commerce Applications

Secure HTTP (SHTTP)

TCP - based application protocol
(HTTP, SMTP, NNTP)
Secure sockets layer (SSL)

Internet Protocol (IP)

Web Security Layers

• This protocol fully encrypts all the information in both the HTTP
request and theHTTP response, including
– the URL client is requesting
– any submitted form contents (including credit card numbers)
– any HTTP access authorization information (user names and
passwords)
– all the data returned from server to client.

• SSL provides encryption that creates

– a secure channel to prevent third parties on the network from
being able to tamper with and read messages being exchanged
between client and server
– and, authentication that uses a digital signature to verify the
legitimacy ofserver.

• HTTP + SSL (or https) and HTTP are different protocols.

• HTTP can provide some information to all users using no security,
and https canprovide information securely.
• Browsers who do not implement support for HTTP over SSL will not
be able toaccess https URLs.
• A benefit of using a different URL access method (https instead of just
http) is so that non-SSL browsers can refuse to allow insecure
submission of forms that expected to be submitted securely.
• The server implements server-side support for HTTP over SSL, including
support foracquiring a server certificate and communicating securely with
SSL- enabled browsers.

• For example :

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– a document served by a normal HTTP server contains a fill-out

form thatallows a user to enter his/her credit card number
– form‟s submission action is an https URL (form to be submitted
securely)
– A non-SSL browser will not even try to submit the form. (will
give errormessage like “cannot submit”)
– If separate URL access method was not used, browser will
submit the formand pass the credit card number over net.

5 > Secure Hypertext Transfer Protocol (S-HTTP)

• S-HTTP assumes that the Web and the HTTP protocol are central to
electroniccommerce due to their installed base and ease of use.
• S-HTTP supports a variety of security mechanisms to HTTP clients and
servers.
• It provides the security options appropriate to the wide range of
potential end usespossible on the Web.
• The protocol provides symmetric capabilities to both client and server,
while preserving the transaction model and implementation
characteristics of the currentHTTP.
• To ensure a secure conversation between a Web client and server, S-
HTTP works by negotiating the type of encryption scheme used between
client and server.
• Option negotiation is used to allow clients and servers to agree on
– Transaction modes (should request be signed? Encrypted?
What aboutreply?)
– Cryptographic algorithms
– Certificate selection (e.g. sign with VISA card certificate)
• S-HTTP secured clients can talk to S-HTTP oblivious servers vice-
versa (suchtransactions would not use security features)
• S-HTTP does not require client-side public key certificates (or public keys)

• Spontaneous private transactions can occur without requiring

individual users tohave an established public key.
• While S-HTTP will be able to take advantage of common certification
infrastructure,its deployment does not require it.
• Advantage :
– S-HTTP supports end-to-end secure transactions
– Multiple encryption/decryption need not be done at every
intermediate point
– Clients may initiate a secure transaction, typically using
information suppliedin HTML fill-out forms.
– No sensitive data need ever be sent over the network in clear.
–

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6 > SSL versus S-HTTP

• S-HTTP address different pieces of security puzzle

• But these pieces are not mutually exclusive.
• S-HTTP can be layered on top of SSL
• S-HTTP provides capabilities SSL does not and vice-versa.
• SSL layers security beneath
application protocols (Such as
HTTP, FTP, and TELNET)

Whereas S-HTTP adds message or transaction-based security to

HTTP by usingmessage encryption standards as PEM and PGP.

• SSL simply encrypts the data in a given file.

• S-HTTP is a more comprehensive security package including
authentication of the client‟s identity by the server through digital signal
verification and other features.
• S-HTTP only works with transactions that use the HTTP transfer protocol.

7 > SHEN security scheme for the Web

• Browser software with encryption algorithms cannot be sent overseas

• The W3 consortium is developing SHEN, which in many ways mirrors S-
HTTP.
• SHEN provides for three separate security – related mechanisms :
– Weak authentication with low maintenance overhead and
without patent orexport restrictions.
• User identity must be established as genuine.
• Unauthorized access must be improbable but need not be
secure fromall possible forms of attack.
– Strong authentication via public key exchange
• A user identity must be established as genuine.

• Unauthorized access must be impossible except by random

chance orby access to unknown technology
– Strong encryption of message content.
• Data must not be transmitted in a form
comprehensible to a thirdparty
• An identified party acts as guarantor in this respect.

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2.4 Introduction:-
• Electronic payment systems are becoming central to on-line
business processinnovation.
• Emerging innovations in the payment for goods and services in E-com
promise tooffer a wide range of new business opportunities.
• Electronic payment systems and E-com are intricately linked given
that on-lineconsumers must pay for product and services.
• Payment is an integral part of the mercantile process and prompt
payment iscrucial.
• Prompt and secure payment, clearing and settlement of credit and debit
claims areimportant aspects of E-com.
• The way of payment for buying goods and services and the medium
of payment(currency) is a problem faced by on-line sellers.
• Electronic replicas of the conventional payment methods (cash, check,
bank draft,bills of exchange) are not well suited for speed required in e-
com purchasing process.
• Conventional instruments are too slow for micro payments and the high
transactioncosts involved in processing
• Neo(new)-payment methods must
(i) be secure (ii) have a low processing cost and (iii) be accepted
globally

Types of Electronic Payment Systems

• Electronic payment systems are increasing in banking, retail, health

care, on-linemarkets, and even government.
• Organizations are motivated by the need
– to deliver products and services more cost effectively, and
– to provide a higher quality of service to customers.
• In the early 1970s, emerging electronic payment technology was labeled
electronicfunds transfer. (EFT)
• EFT ::
“Any transfers of funds initiated through an electronic terminal,
telephonic instrument, or computer or magnetic tape so as to order,
instructor authorize afinancial institution to debit or credit an account.”
 Categories of EFT work

1.Banking and Financial payments

– Large scale or wholesale payments (e.g. bank-to-bank transfer)

– Small-scale or retail payments (e.g. ATM and cash dispenser)
– Home banking (e.g. bill payments)

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2.Retailing payments

– Credit Cards (e.g. VISA, MasterCard)

– Private label credit/debit card (e.g. J C Penny Card)
– Charge cards (e.g. American Express)

3.On-line electronic commerce payments

A)Token based payment systems

1)Electronic cash (e.g. DigiCash)
2)Electronic checks (e.g. NetCheque)
3)Smart cards or Debit cards

B)Credit card based payment systems

• Encrypted credit cards (e.g. WWW form based encryption)
• Third –party authorization numbers (e.g. First Virtual)

A)Digital Token based Electronic Payment System

• Deficiencies in current banking and retailing payment methods for
consumer-oriented E-com environment are the assumptions that :
– Parties will at some time or other be in each other‟s physical
presence.
– There will be a sufficient delay in the payment process for frauds,
overdrafts,and other undesirables to be identified and corrected.
• These payment mechanisms are being modified and used for the
conduct ofbusiness over networks.
• New forms of financial instruments are being developed e.g. “Electronic
Tokens” (inthe form of electronic cash/money or checks).
• Electronic tokens are designed as electronic analogs of various forms
of paymentbacked by a bank or financial institution.
• Types of Electronic tokens

– Cash or real-time : transactions are settled with the exchange of

electroniccurrency (e.g. Electronic cash or e-cash)
– Debit or prepaid : Users pay in advance for the privilege
of getting information
(E.g. smart card and electronic purses that store electronic money)
- Credit or postpaid: Server authenticates the customers and verifies
withthe bank the funds are adequate before purchase.

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Dimensions for analyzing the different initiatives ::

• Nature of transaction for which the instrument is designed:

– To handle micro-payments
– For more traditional products
– For specific predefined transactions
– Or, for more general transactions

1) Electronic Cash (E-cash)

• E-cash is a new concept in on-line payment system

• It combines computerized convenience with security and privacy that
improve onpaper cash.
• E-cash focuses on replacing cash as principal payment vehicle in
consumer-orientedelectronic payments.
• Cash remains dominant form of payment because of :
– Lack of trust in banking system
– Inefficient clearing and settlement of non-cash transactions.
– Negative real interest rates paid on bank deposits.

• Characteristics of cash

– Negotiable : can be given or traded to someone else

– Legal tender : payee is obligated to take it.
– Bearer instrument : owner is one who possesses it.
– Can be held even without having a bank account
– Places no risk on the part of acceptor that medium of exchange
may not begood.

Properties of E-cash :

E-cash must have the following four properties :

– Monetary Value :
• It must be backed by either cash (currency), bank-
authorized credit,or a bank certified cashier‟s check.
• E-cash without proper bank certification carries the risk
of getting returned for insufficient funds, when
deposited.

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– Interoperable :
• It must be exchangeable as payment for other e-cash,
paper cash, goods and services, lines of credit, deposits in
banking accounts, bank notes or obligations, electronic
benefits etc.
• Multiple banks are required with an international clearing
house thathandles the exchangeability issues.

– Storable and retrievable :

• Remote storage and retrieval (e.g. from a telephone or
communications device) would allow users to exchange e-
cash ( e.g. withdraw from and deposit into bank accounts)
from home or office orwhile traveling.
• To prevent creating counterfeit cash from the computer, it
is preferable to store cash on a dedicated device that
cannot be altered.
• This device should have
• A suitable interface to facilitate personal
authentication usingpasswords and other means
• And, a display for the user to view contents of the
card (e.g. Mondex card – a pocket sized electronic
wallet)

– Security :
• E-cash should not be easy to copy or temper with
while beingexchanged.
• This includes preventing or detecting duplication or double
spending.
• Detection is essential in order to audit whether prevention is
working.
• Preventing double spending is extremely difficult if multiple
banks are involved in transaction, so most systems rely on
post-fact detection and punishment.

 E-cash In Action (Digital Signatures)

• E-cash is based on cryptographic systems called “digital signatures”

• Pair of numeric keys (very large integers) work in tandem
• OneF key for locking (encoding) and other for unlocking (decoding)
• Messages encoded with one numeric key can only be decoded
with the othernumeric key.
• Encoding key is kept private and decoding key is made public.
• Digital signature is similar to watermark in paper currency.
• Bank supplies all customers (buyers and sellers) with its public key.
• This enables customers to decode any message (or currency)

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encoded with thebank‟s private key.

• If decoding by a customer yields a recognizable message, customer
can be fairlyconfident that only bank could have encoded it.
• Before e-cash can be used to buy products or services, it must be
procured fromthe currency sever.
 Purchasing E-cash from Currency Servers

– Purchasing e-cash from on-line currency server (or bank) involves two
steps
:
• Establishment of an account
• Maintaining enough money in the account to back the
purchase.
– In case, customer does not have bank account or wants
to maintain anonymity, e-cash can be purchased with
paper currency also.
– E-cash must be available in multiple currencies backed by several
banks, so that customers should be able to access and pay for
foreign as well as localservices.
– A possible solution: using an association of digital banks
similar to organizations like VISA to serve as a clearinghouse
for many credit cardissuing banks.
– Consumers use the e-cash software on the computer to generate
a randomnumber (note).
– In exchange for money debited from customer‟s account, bank
uses its private key to sign the note for amount requested and
transmits the noteback to customer.
– Effectively, the network currency server is issuing a “bank note”
with a serialnumber and a dollar amount.
– By digitally signing it, the bank is committing itself to back that
note with itsface value in real dollars.

• This method of note generation is very secure

• Neither the customer (payer) not the merchant (payee) can counterfeit
the bank‟sdigital signature
• Payer and payee can verify that the payment is valid, since each know
bank‟s publickey.

 Problems with e-cash

• E-cash can be completely anonymous

• Anonymity allows freedom of usage (even to buy products like drugs,
pornographicmaterials)
• It is possible because :
– E-cash generation software masks the original note number using
a randomnumber and then transmits it to bank.
– So it is impossible for anyone to link the payment to payer.

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• It allows bank to sign the “note” without ever actually knowing how
the issuedcurrency will be used.

 Types of transactions

– Bilateral (two party : buyer and seller) –

• transactions involving cash
• Merchant checks the veracity of note‟s digital
signature by usingbank‟s public key
• If satisfied, stored digital money and later deposit in bank
to redeemface value of note.
– Trilateral (Three party : buyer, seller and bank) –
• Transactions involving financial instruments other than cash
• Notes sent to merchant, who sends them immediately to
bank, bankverifies that notes are not previously spent
• Account of merchant is credited

 Double Spending ::-

– Problem in bilateral transactions

– Equivalent to bouncing a check
– Possible as it is very easy to make copies of the e-cash
– if anonymity (for freedom of usage) is relaxed, double spending
problem canbe avoided.
– Here, a consumer is issued a bank note on his/her unique license.
– When money is transferred it is transferred to that other person‟s
license
• bit of information is added to the note based on bank‟s
serial numberand old owner‟s license.
– If double spending is now tried, cheater can be immediately caught.
– But, bank can tell precisely the buying habits
 Detection of double spending ::-

Transfer digital cash

Payer Payee
Bank
Issue cash Digital Checking for Double
Currency spending
Database of spent “notes” Server

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• To uncover double spending :

– bank must check notes with database of spent notes.

– Like unique serial numbers in paper notes, some form of
registration should be there to uniquely identify all notes issued
globally.
– But for most systems, which handle high volumes of micro
payments, thismethod will be too expensive.
– Also, banks have to carry added overhead because of the
content checkingand auditing logs.

2) Electronic cheque (E-CHEQUE)

• Another form of electronic tokens
• Designed for individuals and entities who prefer to pay on credit but
not throughcash.
• Buyers must register with a third party account server (also billing
server) beforethey are able to write electronic checks.
• Registration processes vary with particular account server and may
require a creditcard or a bank account to back the checks.
• To complete a transaction, buyer sends a check to the seller for
required amountusing e-mail or other transport methods.
• When deposited, check authorizes transfer of account balances.
• Works almost similar to paper check – payer‟s name and account
number, name offinancial institution, payee‟s name and check amount.
• E-CHEQUE will bear digital equivalent of signature ( a
computed numberauthenticating the owner of check)
• E-CHEQUE will need to be endorsed by the payee, using another
electronic signaturebefore payment.
• Properly signed and endorsed checks can be electronically
exchanged between financial institutions through electronic
clearinghouses
1… Payment transaction sequence

Transfer electronic check

Payer Payee

Forward
Banker Accounting server check for
Deposit
Payer
check
authenticatio
n

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• Payer puts digital signature on check and give it to payee (seller)

• On receiving the check, seller endorse the check and presents it to
accountingserver for verification and payment.
• Accounting server verifies digital signature on the check and transfers it to
bank
• Seller‟s endorsed check is an order to a bank computer for fund transfer.

2… Advantages of Electronic checks

1>Simplifying customer education:

– E-CHEQUE works in the same way as traditional check.

2> Well suited for clearing micro-payments:

– Uses conventional cryptography which makes it much faster

that systembased on public-key cryptography (e-cash).

3> Create float:

– Availability of float is an important requirement of commerce.

– Third party accounting server can make money by charging buyer
and sellera transaction fee or flat rate fee.
– Or, it can act as a bank and provide deposit accounts and make
money onthe deposit account pool.

4> Easier acceptance:

– Financial risk is assumed by accounting server.

5> Reliability and scalability:

– Using multiple servers.

6> Inter-account server protocol:

– Allow buyer and seller to belong to different domains, regions and

countries.

3… Prototype Electronic check system : NetCheque

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– Developed at Information Sciences Institute

– Will include software for writing and depositing checks
independent of other applications and application programming
interface.
– “Accounting server” software will allow organizations to set-up
their own in-house, on-line “banks”
– These banks accept paper checks or credit card payments in
exchange forcrediting a customer‟s NetCheque account.
– Accounting servers will enable large organizations to pay bills
and settle accounts with NetCheque written with their own
banks
– NetCheque can be used as a resource management tool inside
organizations,a form of internal cash.
3) Smart Cards (Smart card based
Electronicpayment systems)

• Hold promise for secure transactions using existing

infrastructure.
• Smart cards are credit or debit cards and other
card products enhanced with microprocessors
capable of holding more information than
traditional magneticstripe.
• Chip, at its current state of development can store
significant amount of data.
• Smart card technology is widely used in France,
Germany, Japan, Singapore etc to pay for public phone
calls, transportation and shopper loyalty programs.

• Two types :

• Relationship based smart credit cards

• Electronic purses – debit cards / electronic
money.
 Relationship based Smart Cards

• Traditional credit cards are fast evolving into smart

cards as consumers demand payment and financial
services products that are user friendly, convenient
and reliable.
• Relationship based smart card is an enhancement of
existing card services and/oraddition of new services.
• The financial institutions deliver services to
customers via a chip-based card orother device.

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• These services include access to multiple financial

accounts, value-added marketing programs, or other
information storage.
• It addresses each individual‟s specific financial and
personal requirements.
• Enhanced credit cards store cardholder information
including name, birth date, personal shopping
preferences, and actual purchase records.
• Despite the increasing flexibility, relationship –
based cards are credit based and settlement occurs
at the end of the billing cycle.

• Offers from Relationship-based products

• Access to multiple accounts - such as

debit, credit, investment or stored value
for e-cash on one card or electronic
device.
• A variety of functions - such as cash access,
bill payment, balance enquiry or funds transfer
for selected accounts.
• Multiple access options at multiple locations
using multiple device types – such as an
ATM, a screen phone, a PC, a PDA or
interactive TVs

 Electronic Purses[e-wallet] and Debit Cards

• Electronic purse – Wallet-sized smart cards

embedded with programmablemicrochips.
• E-purse stores sums of money for people to use instead
of cash for everything from buying food, to making
photocopies, to paying subway fares.

• Working :

• Purse is loaded with money at an ATM or through

use of special telephone.
• It can be used to pay for something in a
machine equipped with a cardreader.
• Machine only verifies that a card is
authenticated and there is enough money
available for buying the thing.
• Then, the value of purchase is deducted
from the balance on the card and added to

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an e-cash box in the machine.

• Remaining balance on the card is
displayed on the machine or can be
checked at an ATM or balance-reading
device.
• When balance on e-purse is depleted, it can be
recharged with more money.
• Vendor can collect the receipts periodically
in person or by telephone and transfer to
bank account.
• Advantages :

• It would virtually eliminate :

• Fumbling for change or small bills
in a busy store or rush-hour toll
booth.
• Waiting for a credit card purchase to be
approved.
• Allows customers to pay for rides and
calls with a prepaid card that
“remembers” each transaction.

 Smart Card Readers and Smart Phones

• Smart card reader that can communicate with the chip on

a smart card.
• It can read from and write to smart cards and can
also support a variety of keymanagement methods.
• Some readers combine elements of a PC, a point-of-
sale terminal and a phone to allow customers to
quickly conduct financial transactions without leaving
their homes.
• In simplest form, card reader has a two-line by 16-
character display that can show both a prompt and a
response entered by the user.
• Efficiency is enhanced by color-coded function keys
that can be programmed to perform the most
frequently used operations in a single key-stroke.
• It can communicate via an RS-232 serial interface with
the full range of transaction automation systems
(including PCs and Electronic Cash Registers (ECRs).
• Can be customized for specific requirements.
• Operating environment allows programmers to
use „C‟ language to create and modify applications
without compromising device‟s security functions.
• Card readers in the form of screen phones are becoming

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more prominent because :

• Of consumer familiarity with phones
• It features a four-line screen, a magnetic
stripe card reader and a phone keypad
(folds away to reveal a keyboard).
• Include advanced telephone functions (two-
way speaker phone capability, a dialing
directory, phone log for tracking calls)

 Business issues and smart cards

• For merchants, smart cards are a very convenient

alternative to handling cash.
• Cash is expensive to handle, count and deposit and
incurs slippage (theft, fraud ormisplacement)
• As per estimations, 4 percent cash value deposited is eaten
up in handling costs.
• Since embedded microchip is harder to tamper with,
bank and card issuers expectto cut down on fraud.
• There is enormous potential for a debit card with a
prepaid feature that replacescoins and small bills.
• A more advanced usage of smart cards (Mondex) –
electronic purses that can be loaded with five
currencies at one time – is under trial
• The banks that issue Mondex cards will not be able to
keep track of who makes orreceives payments.
• While bankers are concerned with fraud and abuse,
others want anonymity andflexibility.
• Most extensive deployment of electronic purses in
Denmark.
• Dan Mont (consortium of banks and telephone
companies), has issues 150,000stored-value cards.
• Dan Mont makes money by interest on the money
it holds on the cards (calledfloat)

B)Credit card-based electronic payment

systems
• To avoid the complexity associated with digital cash and
electronic checks.
• If consumers want to purchase a product or service,
they simply send their credit card details to the
service provider involved, credit card organizations
will handlethe payment like any other.

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• Categories of credit-card payment on on-line

networks :

• Payments using plain credit card details

• Payments using encrypted credit card details
• Payments using third – party verification

• Payments using plain credit card details :

• Easiest method of payment is the exchange of

unencrypted credit cards over a public network
(telephone lines or Internet)
• Low level of security makes this method
problematic
• Authentication is also a significant problem
and without encryption, there is no way to do
this.

• Payments using encrypted card details :

• Encrypting the credit card details before sending

them out.
• But there will be credit card transaction cost
involved
• Such costs would prohibit low-value
payments (micropayments) by adding cost to
the transactions.

• Payments using third party verification :

• Introduction of a third party is one

solution to security and verification
problems.
• Third party is a company that collects and
approves payments from one client to
another.
• After a certain period of time, one
credit card transaction for the total
accumulated amount is completed.

• Some companies/consortiums attempting to

provide infrastructure for on- line credit card
processing :

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• First Virtual Holdings

• Interactive Transaction Partners
• Master Banking
• VISA Interactive
• Block Financial
• Prodigy.

 Encryption and credit cards

• Encryption is instantiated
• when credit card information is entered into a
browser or other e-com device
• And, sent securely over the network from
buyer to seller as an encryptedmessage.

• To make a credit card transaction truly secure and

nonrefutable, the following steps must occur before
actual goods, services or funds flow :
• A customer represents credit card
information ( plus authenticity signature and
other information e.g. maiden name)
securely to merchant
• Merchant validates customer‟s identity as owner
of that credit card account
• Merchant relays credit card charge
information and signature to its bank or on-
line credit-card processors.
• Bank or processing party relays the information to
customer‟s bank forauthorization approval
• Customer‟s bank returns credit card data,
charge authentication, and authorization to the
merchant.
• Credit card systems will have to develop distributed key
servers and card checkers.
• Support for Privacy Enhanced Mail (PEM) and Pretty
Good Privacy (PGP) encryption has been built into
several browsers
• When credit card companies do decide to accept digital
signatures, they will need to maintain a public server
with all of the public keys.
• Electronic payment system is not an inexpensive
proposition, but neither is fraud.
• Encrypted credit card transactions may not be
micro enough for purchasinginformation.
• Providing credit card processing service for
numerous half-dollar and one-dollartransaction may

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not be financially attractive.

• To solve this problem, third party payment processors are
entered into.

~~> Processing payments using encrypted credit cards ::

Processing payments using encrypted credit cards

 Third Party Processors and Credit Cards

• In third party processing, consumers register with a
third party on the Internet to verify electronic micro
transactions
• Verification mechanisms differ from electronic token
systems as :
• They depend on existing financial instruments.
• They require on-line involvement of at least
one additional party to ensureextra security.
• Examples of companies providing third-party payment
services : First Virtual, OpenMarket
• Payments can be made by credit card or by debiting a
demand deposit account via the automated

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clearinghouse.
• Third party processors can be referred to as On-line Third-
Party Processors (OTTPs)
• OTTPs have created seven steps process for a
fast and efficient way to buy information on-
line.
• To use this system, both customers and merchants
must be registered with theOTTP.

OTTPs‟ seven-step process

1. Consumer acquires an OTTP number by filling out a registration form

– so that OTTP have customer information profile backed by a
traditionalfinancial instrument (e.g. credit card)
2. To purchase product/information, consumer requests item from
merchant by quoting OTTP account number. Purchase can be in
one of the two ways :
– Merchant is authorized via browser settings to access
customer‟s OTTP account automatically and bill the
customer.
– Customer can type the account number.
3. Merchant contacts OTTP payment server with customer account number
4. OTTP payment server verifies the account number for the vendor and
checks forsufficient funds.
5. OTTP server sends electronic message to buyer through e-mail or
automatic WWWform. Buyer responds in one of three ways :
– Yes, I agree to pay
– No, I will not pay
– Fraud, I never asked for this.
6. If OTTP server gets a Yes from buyer, merchant is informed and
customer isallowed to download the information.
7. OTTP will not debit buyer‟s account until it receives confirmation of
purchase completion. If consumers receive information. Product and
decline to pay, accountcan be suspended.

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Customer Merchant
Request
Client Browser Merchant’s server

Verification Authorization

Payment server

On-line third-party
Processors with links
to multiple systems

Credit cards Charge cards Bank accounts Private label DigiCash

VISA American debit cards cards
Express J C Penny

On-line process using a third-party processor

• Two key servers: payment server & merchant server.

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 Business processes and Consumers

• Advantages of credit cards over E-CHEQUEs
• Credit card company assumes a large share
of financial risk for both buyer and seller in a
transaction
• Credit card transactions are usually
quicker and easier than check
transactions
• Implementing payment policies will be
simpler when payment is made by credit
rather than the cash.
• Record keeping with credit cards is one of the
features consumers value most because of
disputes and mistakes in billing.
• Many message relays and authorizations take place in real
time, whilethe customers wait.
• Such exchanges may require sequence-specific
operations such as staged encryption and decrypting
and exchanges of cryptographic keys.
• Encryption and transaction speed must be balanced
• On-line credit card users must find the process to be accessible,
simple, and fast
• Speed will have design and cost implications as it is a
function of network capabilities, computing power,
availability at every server, and specific form oftransaction

 Infrastructure for On-line Credit Card Processing

• On-line retail transaction processing on the I-way is an

extremely lucrative business.
.
• Regional EFT networks, credit card associations,
equipment vendors, data processors, software
developers, bill payment companies, and
telecommunication providers all wooing banks with
the goal of building the transaction processing
infrastructure on Internet.
• Competition is based on :
1. Service quality

2. Price

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3. Processing system speed

4. Customer support

5. Reliability

 Risk (Risks and Electronic Payment Systems)

• One essential challenge of E-com is Risk Management. Major risks are

• Fraud or mistake :

• Requires improvements in the legal framework

• Virtually all electronic payment systems need some ability
to keepautomatic records.
• Once information has been captured electronically, it is
easy andinexpensive to keep.
• The record feature is an after-the-fact transcription of what
happened
• Features of these automated records include :
• Permanent storage
• Accessibility and traceability
• Payment system database
• Data transfer to payment maker, bank, or monetary authorities.
• Record keeping for the purpose of risk management conflicts
with thetransaction anonymity of cash.
• Anonymity has to be addressed through regulation covering
consumerprotection in electronic transactions.
• An anonymous payment system without automatic record
keeping willbe difficult for bankers and governments to accept

• Privacy issues :

• Requires improvements in the security framework.

• Electronic payment system must ensure and maintain privacy.
• All details of consumer‟s payments can easily be aggregated :
where, when, and sometimes what the consumer buys is
stored.
• This collection of data tells much about the person and as
such canconflict with the individual‟s right to privacy.
• Users must be assured that knowledge of transactions will be
confidential, limited only to the parties involved and their
designatedagents (if any).
• Privacy must be maintained against eavesdroppers on the
network andagainst unauthorized insiders.
• Users must be assured that they cannot be easily duped,

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swindle or falsely implicated in the fraudulent transaction.

• For many types of transactions, trusted third party agents will be
needed to vouch for authenticity and good faith of the involved
parties.

• Credit risk :

• Devising procedures to constrict or moderate credit and reduce

float inthe market.
• Credit or systemic risk is a major concern in net settlement systems
• A bank‟s failure to settle its net position could lead to a chain
reactionof bank failures.
• A digital central bank guarantee on settlement removes the
insolvencytest from the system.
• As banks will more readily assume credit risks from other
banks.
• If the central bank does not guarantee settlement, it must
define, at least internally, the conditions and terms for
extending liquidity to banks in connection with settlement.

 Designing (Designing Electronic Payment Systems)

• Factors to be considered before designing :

• Privacy :
• a user expects to trust in a secure system
• Electronic commerce must merit equal trust as telephone
system.

• Security :
• Secure system verifies identity of two-party
transactions through “userauthentication”
• It reserves flexibility to restrict information/services
through accesscontrol.
• Tomorrow‟s bank robbers will just need a computer
terminal, a phonecall and little ingenuity.

• Intuitive interfaces :
• Users value convenience more than anything.

• Database integration :
• To date, separate accounts have been stored on separate
databases

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• The challenge is
• to tie together these separate
databases together and
• To allow customers access to any
one of them While keeping data up-to-
date and error free.

• Brokers :
• A “network banker” must be in place to :
• broker goods and services
• Settle conflicts
• Facilitate financial transactions
electronically.
• Electronic commerce must merit equal
trust as telephone system.

• Pricing :
• How to price payment services??
• Should subsidies be used to encourage users to
shift the payment mode (cash to bank payments,
paper cash to e-cash)
• With subsidies there may be wastage of resources,
if money invested insystems that will not be used.
• On the other hand, it must be recognized that without
subsidies, it is difficult to price all services affordably.

• Standards :
• Without standards, welding of different
payment users into different networks and
different systems is impossible.
• Standards enable interoperability
• Giving users the ability to buy and
receive information, regardless of which bank
is managing their money.

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