Unit 5
Unit 5
Unit 5
COURSE FILE
DIGITAL MARKETING AND E-COMMERCE (KMBN 207)
UNIT – 5
UNIT 5 (6 Hours)
Applications of E-Commerce: Introduction, History of Electronic Commerce, Advantages and
Disadvantage of E-commerce, Roadmap of e-commerce in India, E-business Models Based on the
Relationship of Transaction Parties, e-commerce Sales Life Cycle (ESLC) Model, Electronic
Payment Systems, Electronic Cash, Smart Cards and Electronic Payment Systems, Credit Card
Based Electronic Payment Systems, Risks and Electronic Payment Systems, Electronic Data
Interchange (EDI)
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Early Development:
The history of E-commerce begins with the invention of the telephone at the end of last century. EDI
(Electronic Data Interchange) is widely viewed as the beginning of ecommerce if we consider
ecommerce as the networking of business communities and digitalization of business information.
Large organizations have been investing in development of EDI since sixties. It has not gained
reasonable acceptance until eighties. The meaning of electronic commerce has changed over the last
30 years.
Originally, electronic commerce meant the facilitation of commercial transactions electronically,
using technology such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT).
These were both introduced in the late 1970s, allowing businesses to send commercial documents
like purchase orders or invoices electronically. The growth and acceptance of credit cards, automated
teller machines (ATM) and telephone banking in the 1980s were also forms of electronic commerce.
Another form of E-commerce was the airline and railway reservation system.
Online shopping, an important component of electronic commerce was invented by Michael Aldrich
in the UK in 1979. The world’s first recorded business to business was Thomson Holidays in 1981.
The first recorded Business to consumer was Gateshead SIS/Tesco in 1984. During the 1980s, online
shopping was also used extensively in the UK by auto manufacturers such as Ford, General Motors
and Nissan. The systems used the switched public telephone network in dial-up and leased line
modes.
From the 1990s onwards, electronic commerce would additionally include enterprise resource
planning systems (ERP), data mining and data warehousing. An early online information
marketplace, including online consulting, was the American Information Exchange, another pre
Internet online system introduced-in 1991. In 1990 Tim Berners-Lee invented the World Wide Web
and transformed an academic telecommunication network into a worldwide everyman everyday
communication system called internet/www(dot)Commercial enterprise on the Internet was strictly
prohibited until 1991.
Although the Internet became popular worldwide around 1994 when the first internet online
shopping started, it took about five years to introduce security protocols and DSL allowing continual
connection to the Internet. By the end of 2000, many European and American business companies
offered their services through the World Wide Web. Since then people began to associate a word “E-
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commerce” with the ability of purchasing various goods through the Internet using secure protocols
and electronic payment services.
The Internet and the Web:
The Internet was conceived in 1969, when the Advanced Research Projects Agency (a Department of
Defense organization) funded research of computer networking. The Internet could end up like EDI
without the emergence of the World Wide Web in 1990s. The Web became a popular mainstream
medium (perceived as the fourth mainstream medium in addition to print, radio and TV) in a speed
which had never been seen before. The Web users and content were almost doubled every a couple
of months in 1995 and 1996.
Advantages and Disadvantage of E-commerce
E-commerce provides the following main advantages:
(i) Convenience – Customers can order products or services 24 hours a day wherever they are.
(ii) Information – Customers can find reams of comparative information about companies, products,
competitors and prices without leaving their office or home.
(iii) Fewer Hassels – Customers don’t have to face sales people or open themselves upto persuasion
and emotional factors, they also don’t have to wait in line.
(iv) Quick Adjustment to Market Conditions by Marketers – Companies can quickly add products to
their offering and change prices and descriptions.
(v) Lower Cost – On-line Marketers avoid the expense of maintaining a store and the costs of rent,
insurance and utilities.
They can produce digital catalogues for much less cost than the cost of printing and mailing paper
catalogues.
(vi) Relatively Building – On-line marketers can dialogue with consumers and learn from them.
Marketers can download useful reports or a free demo of their softwares.
(vii) Audience Sizing – On-line Marketers can learn how many people visited their web site and how
many of them shopped at particular places on the site. This information can help them improve offers
and advertisements.
(viii) On-line Marketing – It is easy affordable by small firms, who otherwise would not have been
able to advertise in the print or broad cost media.
(ix) E-Commerce – E-commerce through Internet and web site can access and retrieve information
very fast, compared to overnight mail and even fax.
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(x) Large and Medium – These companies have designed their own websites to automate corporate
purchasing. The high cost on invoices and purchase order copies including time are saved a great
deal due to E-commerce and Internet phase.
(xi) Internet newsgroups set up for commercial purposes help companies place on-line
advertisements and thus save cost and time.
(xii) New groups, Bulletins board systems (BBSs) and Web committees help also buyers, sellers and
people in general to have access to valuable information on diverse topics including information of
cultivation for farmers.
E-Commerce – Disadvantages
1. Security:
Security continues to be a problem for online businesses. Customers have to feel confident about the
integrity of the payment process before they commit to the purchase. Banks such as ICICI Bank,
HDFC Bank, State Bank of India have added secure payment gateways to process online banking
transactions quickly and safely.
2. System and Data Integrity:
Data protection and the integrity of the system that handles the data are serious concerns. Computer
viruses are rampant, with new viruses discovered every day. Viruses cause unnecessary delays, file
backups, storage problems, and other similar difficulties. The danger of hackers accessing files and
corrupting accounts adds more stress to an already complex operation.
3. System Scalability:
A business develops an interactive interface with customers via a website. After a while, statistical
analysis determines whether visitors to the site are one-time or recurring customers. If the company
expects 2 million customers and 6 million show up, website performance is bound to experience
degradation, slowdown, and eventually loss of customers. To stop this problem from happening, a
website must be scalable, or upgradable on a regular basis.
4. E-Commerce is Not Free:
So far, success stories in e-commerce have forced large business with deep pockets and good funding
to invest in creating on-line websites. According to a report, small retailers that go head-to-head with
e-commerce giants are fighting losing battle. As in the brick-and-mortar environment, they simply
cannot compete on price or product offering. Brand loyalty is related to this issue, which is supposed
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to be less important for online firms. Brands are expected to lower search costs, build trust, and
communicate quality. A search engine can come up with the best music deals, for example, yet
consumers continue to flock to trusted entities such as HMV.
5. Consumer Search is not Efficient or Cost-Effective:
On the surface, the electronic marketplace seems to be a perfect market, where worldwide sellers and
buyers share and trade without intermediaries. However, a closer look indicates that new types of
intermediaries are essential to e-commerce. They include electronic malls that guarantee legitimacy
of transactions. All these intermediaries add to transaction costs.
6. Customer Relations Problems:
Not many businesses realise that even e-business cannot survive over the long term without loyal
customers. Building customer loyalty to a specific site is not an easy task. Customers are notoriously
fickle-minded, and do not minding visiting a competing website just to avail even one-time benefits
or discounts.
7. Products-People Won’t Buy Online:
Imagine a website called furniture, com or living.com, where venture capitalists are investing
millions in selling home furnishings online. In the case of a sofa, you would want to sit on it, feel the
texture of the fabric etc. Beside the sofa test, online furniture stores face costly returns which makes
the product harder to sell online.
8. Corporate Vulnerability:
The availability of product details, catalogues, and other information about a business through its
website makes it vulnerable to access by the competition. The idea of extracting business intelligence
from the website is called web framing. And such threats are increasing day by day in this digital,
networked world.
9. High Risk of Internet Start-Up:
Many stories unfolded in 1999 about successful executives in established firms leaving for Internet
start-ups, only to find out that their get-rich dream with a dot.com was just that – a dream.
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(source: https://www.ibef.org/industry/ecommerce.aspx)
E-business Models Based on the Relationship of Transaction Parties
E-commerce business models can generally be categorized into the following categories.
Business - to - Business (B2B)
Business - to - Consumer (B2C)
Consumer - to - Consumer (C2C)
Consumer - to - Business (C2B)
Business - to - Government (B2G)
Government - to - Business (G2B)
Government - to - Citizen (G2C)
Business - to - Business
A website following the B2B business model sells its products to an intermediate buyer who then
sells the product to the final customer. As an example, a wholesaler places an order from a
company's website and after receiving the consignment, sells the end product to the final customer
who comes to buy the product at one of its retail outlets.
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Business - to - Consumer
A website following the B2C business model sells its products directly to a customer. A customer
can view the products shown on the website. The customer can choose a product and order the same.
The website will then send a notification to the business organization via email and the organization
will dispatch the product/goods to the customer.
Consumer - to - Consumer
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A website following the C2C business model helps consumers to sell their assets like residential
property, cars, motorcycles, etc., or rent a room by publishing their information on the website.
Website may or may not charge the consumer for its services. Another consumer may opt to buy the
product of the first customer by viewing the post/advertisement on the website.
Consumer - to - Business
In this model, a consumer approaches a website showing multiple business organizations for a
particular service. The consumer places an estimate of amount he/she wants to spend for a particular
service. For example, the comparison of interest rates of personal loan/car loan provided by various
banks via websites. A business organization who fulfills the consumer's requirement within the
specified budget, approaches the customer and provides its services.
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Business - to - Government
B2G model is a variant of B2B model. Such websites are used by governments to trade and exchange
information with various business organizations. Such websites are accredited by the government
and provide a medium to businesses to submit application forms to the government.
Government - to - Citizen
Governments use G2C model websites to approach citizen in general. Such websites support
auctions of vehicles, machinery, or any other material. Such website also provides services like
registration for birth, marriage or death certificates. The main objective of G2C websites is to reduce
the average time for fulfilling citizen’s requests for various government services.
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Source: https://theintactone.com/2021/05/13/e-commerce-sales-life-cycle-eslc-model/
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make a clear business case (including extensive research and risk assessments) before deciding to
migrate platforms. Check out Space 48’s golden rules of replatforming blog to learn more.
In this third stage of the ecommerce lifecycle, the attempts to reinvigorate your company’s
momentum and growth should always be strategic. In my experience, the solution to plateauing
growth may only require realigning your business goals with changing customer trends, keeping up-
to-date with new technology and channel strategies.
Research and analysis is required to optimise processes and improve customer experience. This will
steer your strategy. Research may reveal issues and you might find you need to replatform, but there
needs to be sound reasoning behind decisions to implement technology and tools.
· Any business model acts as the core · Revenue model refers to the cost structure and
architecture of an organisation’s business. target profit margins.
· The business model is a part of a business · It shows how revenue is generated through
strategy. sales, leasing, subscription, support, and so
on.model refers to the cost structure and target
profit margins.
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• A business model helps the organisation how to offer or put out the offer to the prospective
customer by choosing an appropriate medium to communicate about their products and
services.
• It also helps the organisation to choose the infrastructure. It also includes the software
packages that they will depend on for hosting the website by studying their needs and
requirements.
• It helps the organisation to decide and frame administrative structures for handing E-
Commerce.
• It helps the organisation frame polices for trading in E-Commerce domain.
• It helps the organisation to decide the type of relationship they will have with the customers
based on the products and services they are offering. Based on relationship, business models
are- business to consumer (B2C), business to business (B2B), consumer to consumer (C2C),
and consumer to business (C2B).
The use of e-money also brings with it an increased sense of security. To prevent loss of personal
information while transacting online, advanced security measures are implemented like
authentication and tokenization. Stringent verification measures are also employed to ensure the full
authenticity of the transaction.
Disadvantages of Electronic Money
Electronic money comes with the following disadvantages:
1. Necessity of certain infrastructure
To use electronic money, the availability of certain infrastructure is necessary. It includes a computer
or a laptop, or a smartphone, and a stable internet connection.
2. Possible security breaches/hacks
The internet always comes with the inevitability of possible security breaches and hacks. A hack can
leak sensitive personal information and can lead to fraud and money laundering.
3. Online scams
Online scamming is also possible. All it takes for a scammer is to pretend to be from a certain
organization or a bank, and consumers are easily convinced to give away their bank/card details.
Despite the increased security and presence of authentication measures to counter online scams, they
are still something to be looked after.
(Source: https://corporatefinanceinstitute.com/resources/knowledge/finance/electronic-money/)
Smart Cards and Electronic Payment Systems
Smart Cards
A smart card is about the size of a credit card, made of a plastic with an embedded microprocessor
chip that holds important financial and personal information. The microprocessor chip is loaded with
the relevant information and periodically recharged. In addition to these pieces of information,
systems have been developed to store cash onto the chip. The money on the card is saved in an
encrypted form and is protected by a password to ensure the security of the smart card solution. In
order to pay via smart card, it is necessary to introduce the card into a hardware terminal. The device
requires a special key from the issuing bank to start a money transfer in either direction. Smart cards
can be disposable or rechargeable. A popular example of a disposable smart card is the one issued by
telephone companies. After using the pre-specified amount, the card can be discarded.
Smart cards have been extensively used in the telecommunications industry for years. Smart-card
technology can be used to hold information on health care, transportation, identification, retail,
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loyalty programs and banking, to name a few. Smart cards enable information for different purposes
to be stored in one location. The microprocessor chip can process different types of information, and
therefore, various industries use them in different ways. Due to their multipurpose functions, their
popularity in Turkey is also on the rise.
Smart cards are broadly classified into two groups:
Contact: This type of smart card must be inserted into a special card reader to be read and updated. A
contact smart card contains a microprocessor chip that makes contact with electrical connectors to
transfer the data.
Contact-less: This type of smart card can be read from a short distance using radio frequency. A
contact-less smart card also contains a microprocessor chip and an antenna that allows data to be
transmitted to a special card reader without any physical contact. This type of smart card is useful for
people who are moving in vehicles or on foot. They are used extensively in European countries for
collecting payment for highway tolls, train fares, parking, bus fares, and admission fees to
movies, theaters, plays, and so forth.
Smart cards can accommodate a variety of applications that allow the customer to make purchases
from a credit account, debit account, or stored value on the card. These cards can even have multiple
applications operating at the same time. The customer, for example, could have a frequent flyer
program working on the same card as the customer debit or credit account. This enables the customer
to earn points in his or her favorite program.
Several computer manufacturers (e.g. Compaq) are developing keyboards that include smart card
slots that can be read like bank credit cards. A smart card can be programmed for different
applications. Some cards contain programming and data to support multiple applications, and some
can be updated with new applications after they are issued. IBM, Microsoft, Schlumberger, and Bull
are among the major players in smart card development and utilization.
Some of the advantages of smart cards include the following:
• Stored many types of information
• Not easily duplicated
• Not occupy much space
• Portable
• Low cost to issuers and users
• Included high security
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The disadvantages of smart cards are the lack of universal standards for their design and utilization.
On the other hand, smart card applications are expected to increase as a result of the resolution of
these disadvantages in the near future.
(Source: https://ocw.metu.edu.tr/pluginfile.php/354/mod_resource/content/0/Lecture_4.pdf)
Credit Card Based Electronic Payment Systems
A credit card is a system of payment named after the small plastic card issued to users of the system.
A credit card is different from a debit card in that it does not remove money from the user’s account
after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the
user) to be paid to the merchant. It is also different from a charge card (though this name is
sometimes used by the public to describe credit cards), which requires the balance to be paid in full
each month.
A secured credit card is a type of credit card secured by a deposit account owned by the cardholder.
Typically, the cardholder must deposit between 100% and 200% of the total amount of credit
desired. Thus if the cardholder puts down Rs. 1000, he or she will be given credit in the range of Rs.
500–Rs. 1000. In some cases, credit card issuers will offer incentives even on their secured card
portfolios. In these cases, the deposit required may be significantly less than the required credit limit,
and can be as low as 10% of the desired credit limit. This deposit is held in a special savings account.
Secured credit cards are an option to allow a person with a poor credit history or no credit history to
have a credit card which might not otherwise be available. They are often offered as a means of
rebuilding one’s credit. Secured credit cards are available with both Visa and MasterCard logos on
them. Fees and service charges for secured credit cards often exceed those charged for ordinary non-
secured credit cards, however, for people in certain situations, (for example, after charging off on
other credit cards, or people with a long history of delinquency on various forms of debt), secured
cards can often be less expensive in total cost than unsecured credit cards, even including the
security deposit.
the individual account number, and the final digit is a validity check code. In addition to the main
credit card number, credit cards also carry issue and expiration dates (given to the nearest month), as
well as extra codes such as issue numbers and security codes. Not all credit cards have the same sets
of extra codes nor do they use the same number of digits.
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To make a credit card transaction truly secure and non-refutable, the following sequence of steps
must occur before actual goods, services, or funds flow:
A customer presents his or her credit card information (along with an authenticity signature
or other information such as mother’s maiden name) securely to the merchant. The merchant
validates the customer’s identity as the owner of the cred-it card account.
The merchant relays the credit card charge information and signature to its bank or on-line
credit card processors.
The bank or processing party relays the information tot the customer’s; bank for authorization
approval.
The customer’s bank returns the credit card data, charge authentication, and authorization to
the merchant.
In this scheme, each consumer and each vendor generates a public key and a secret key. The public
key is sent to the credit card company and put on its public key server. The secret key is re-encrypted
with a password, and the unencrypted version is erased. To steal a credit card, a thief would have to
get access to both a consumer’s encrypted secret key and password. The credit card company sends
the consumer a credit card number and a credit limit. To buy something from vendor X, the
consumer sends vendor X the message, ‘It is now time T. I am paying Y dollars to X for item Z,”
then the consumer uses his or her password to sign the message with the public key.
The vendor will then sign the message with its own secret key and send it to the credit card company,
which will bill the consumer for Y dollars and give the same amount (less a fee) to X. Nobody can
cheat this system. The consumer can’t claim that he didn’t agree to the transaction, because he signed
it (as in everyday life). The vendor can’t invent fake charges, because he doesn’t have access to the
consumer’s key. He can’t submit the same charge twice, because the consumer included the precise
time in the message. To become useful, credit Card systems will have to develop distributed key
servers and card checkers. Otherwise, a concentrated attack on these sites could bring the system to a
halt.
Advantages and Disadvantage of credit cards:
Credit cards have advantages over cheques in that the credit card company assumes a larger share of
financial risk for both buyer and seller in a transaction. Buyers can sometimes dispute a charge
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retroactively and have the credit card company act on their behalf. Sellers are ensured that they will
be paid for all their sales—they needn’t worry about fraud.
One disadvantage to credit cards is that their transactions are not anonymous, and credit card
companies do in fact compile valuable data about spending habits.
Record keeping with credit cards is one of the features consumers value most because of disputes
and mistakes in billing. Disputes may arise because different services may have different policies.
For example, an information provider might charge for partial delivery of a file (the user may have
abandoned the session after reading part of the file), and a movie distributor might charge depending
on how much of the video had been downloaded. The cause of interrupted delivery needs to be
considered in resolving disputes (e.g., intentional customer action versus a problem in the network or
provider’s equipment). In general, implementing payment policies will be simpler when payment is
made by credit rather than with cash.
The complexity of credit card processing takes place in the verification phase, a potential bottleneck.
If there is a lapse in time between the charging and the delivery of goods or services (for example,
when an airline ticket is purchased well in advance of the date of travel), the customer verification
process is simple because it does not have to be done in real time. In fact, all the relaying and
authorizations can occur after the customer-merchant transaction is completed, unless the
authorization request is denied. If the customer wants a report (or even a digital airline ticket), which
would be downloaded into a PC or other information appliance immediately at the time of purchase,
however, many message relays and authorizations take place in real time while the customer waits.
Such exchanges may require many sequence-specific operations such as staged encryption and
decrying and exchanges of cryptographic keys.
Encryption and transaction speed must be balanced, however, as research has show that on-line users
get very impatient and typically wait for 20 seconds before pursuing other actions. Hence, 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, available at every
server, and the specific form of the transaction. The infrastructure supporting the exchange must be
reliable. The user must feel confident that the supporting payment infrastructure will be available on
demand and that the system will operate reasonably well regardless of component failures or system
load conditions. The builders and providers of this infrastructure are aware of customer requirements
and are in fierce competition to fulfill those needs.
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system assumes the right person. If this information falls into the possession of fraudsters, then they
can defraud the money.
Impulse Buying
Electronic payment systems encourage impulse buying, especially online and customers are likely to
make a decision to purchase an item they find on sale online,because it will cost just a click to buy it
through credit card.
Impulse buying leads to disorganized budgets and is one of the disadvantages of electronic payment
systems.
2. From Merchant's Perspective:
Forget payment.
Insufficient funds in customers account.
Slow Financial service providers.
3. From Financial Service Providers Perspective:
Stolen customer or service credentials.
Tax Evasion
Businesses are required by law to provide records of their financial transactions to the government so
that their tax compliance can be verified. Electronic payment however can frustrate the efforts of tax
collection. Unless a business discloses the various electronic payments it has made or received over
the tax period, the government may not know the truth, which could cause tax evasion.
Payment Conflict
Payment conflicts often arise because the payments are not done manually but by an automated
system that can cause errors. This is especially common when payment is done on a regular basis to
many recipients. If you do not check your pay slip at the end of every pay period, for instance, then
you might end up with a conflict due to these technical glitches, or anomalies.
critical first step to protecting your eCommerce business. In fact, failing to maintain compliance
could result in hefty fines — and could ultimately result in loss of services from reputable
eCommerce vendors.
2. Recognize signs of suspicious activity.
Unusually large orders or high-priced orders
Expedited shipping on large quantities or high-priced orders
Expedited shipping when billing and shipping addresses differ
Orders where the purchaser asks to pick up the order at your location
Fake phone numbers (e.g. 555-987-6543)
Suspect email addresses (e.g. 1234XYZ@gmail.com, or addresses that seem like randomly
generated combinations of numbers and letters)
Inconsistent address information (e.g. zip code doesn’t match state or city)
3. USE SET
Secure Electronic Transaction (SET) was a communications protocol standard for securing credit
card transactions over insecure networks, specifically, the Internet.
It was supported initially by Mastercard, Visa, Microsoft, Netscape, and others.
With SET, a user is given an electronic wallet (digital certificate) and a transaction is conducted and
verified using a combination of digital certificates and digital signatures among the purchaser, a
merchant, and the purchaser's bank in a way that ensures privacy and confidentiality.
SET makes use of Netscape's Secure Sockets Layer (SSL), Microsoft's Secure Transaction
Technology (STT), and Terisa System's Secure Hypertext Transfer Protocol (S-HTTP). SET uses
some but not all aspects of a public key infrastructure (PKI).
4. AVS:
Address Verification System is an automated fraud prevention method used to reduce the risk for
merchants selling in the “card-not-present” – e. g. online or telephone purchase – environment. AVS
checks the billing address listed in the transaction against any other address registered with the
issuing bank. Merchants should request both billing and shipping addresses of the consumer so an
AVS check can be conducted before a transaction is processed.
5. CVV:
Card Verification Value is the three-digit security code printed on the back of the credit or debit card
(in the case of American Express, four digits on the card front). It is not stored in the magnetic strip
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or embossed on the card, so it can’t be as easily retrieved by thieves unless the card is in their
possession. Visa calls it a CVV2, MasterCard calls it a CVC2, and American Express calls it CID.
6.Geolocation by IP Address:
This can help to identify the consumer’s precise location or determine the distance between billing
address of the person who is paying for the product and actual location of the person who is placing
the online order. Thus, it acts as an additional verification measure or authentication for transactions
that have a significant distance discrepancy. Geolocation technology provides information that
assistance online business owners conclude which transactions to look deeply into and which to
clear. This leads to an even balance between the risks of losses due to fraudulent activity and the risk
of preventing legitimate customers from completing their purchases.
internal system—no retyping required. From there, automation makes it easy to create responding
documents, and jumpstart order processing workflows.
Electronic Data Interchange also meets compliance requirements for retailers and distributors, to
ensure every outgoing document has complete data in the correct format. By “mapping” data to meet
these requirements, suppliers can easily meet buyer expectations, and create seamless
communications. Different providers use different networks and systems to deliver electronic
documents.
The Need for EDI
Traditional trade relationships rely on slow, manual processes. Often, they require your employees to
keep an eye on incoming communications, and type in each new order by hand. Not only does this
strain your team; it also reduces your supply chain visibility and order processing speed. As a result,
it can be difficult to expand your business.
The fact is, for businesses of any size, implementing EDI is essential for sustained competitiveness
and growth.
By exchanging documents digitally, one can:
Reduce costs and improve operational performance across the business
Accelerate data flow, enhance accuracy and streamline administration
Make it easier to manage inventory and reduce associated costs
Improve relationships with suppliers, and increase the vendor scorecard ratings from buyers
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