Amity School of Business

MODULE-3

E-Commerce

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E-Commerce
• Electronic Commerce is an concept that describes the selling and
buying of products, services and information via computer
networks, including the Internet

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E-Business
• E-Business refers to online transactions including interactions with
business partners, customers and vendors. E-Business interactions
are aimed at improving business processes and efficiency

• The term “E-Business" therefore refers to the integration, within

the company, of tools based on information and communication
technologies (generally referred to as business software) to
improve their functioning in order to create value for the
enterprise, its clients, and its partners.

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E-Business
• The goal of any e-Business project is to create value. Value can be
created in different manners:
• As a result of an increase in margins
• As a result of increased staff motivation
• As a result of customer satisfaction
• As a result of privileged relationships with the partners

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E-commerce Advantages
• Being able to conduct business 24 x 7 x 365 : E-commerce
systems can operate all day every day. Your physical
storefront does not need to be open in order for customers and
suppliers to be doing business with you electronically.
• Access the global marketplace: The Internet spans the world,
and it is possible to do business with any business or person
who is connected to the Internet. Simple local businesses such
as specialist record stores are able to market and sell their
offerings internationally using e-commerce. This global
opportunity is assisted by the fact that, unlike traditional
communications methods, users are not charged according to
the distance over which they are communicating.
• Speed : Electronic communications allow messages to
traverse the world almost instantaneously. There is no need to
wait weeks for a catalogue to arrive by post: that
communications delay is not a part of the Internet / e- 5
commerce world.
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E-commerce Advantages
• Cost Reduction : E-commerce helps organizations decrease costs
in creating, processing, distributing, storing and retrieving
information. For example the communication and advertising costs
could be lower by sending e-mails and using online advertising
channels, than by suing television commercials or the print media.
In terms of online ordering and online auction organizations, the
costs could be lower than running an actual shop with the
associated manpower.
• Allowing customer self service and 'customer outsourcing‘:
People can interact with businesses at any hour of the day that it is
convenient to them, and because these interactions are initiated by
customers, the customers also provide a lot of the data for the
transaction that may otherwise need to be entered by business staff.
This means that some of the work and costs are effectively shifted
to customers; this is referred to as 'customer outsourcing'.
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E-commerce Disadvantages
• Physical product, supplier & delivery uncertainty:
E-commerce purchases are made on trust. This is because,
firstly, not having had physical access to the product, a
purchase is made on an expectation of what that product is and
its condition. Secondly, because supplying businesses can be
conducted across the world, it can be uncertain whether or not
they are legitimate businesses and are not just going to take
your money. It's pretty hard to knock on their door to complain
or seek legal recourse! Thirdly, even if the item is sent, it is
easy to start wondering whether or not it will ever arrive.

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E-commerce Disadvantages
• Returning goods: Returning goods online can be an area of
difficulty. The uncertainties surrounding the initial payment
and delivery of goods can be exacerbated in this process. Will
the goods get back to their source? Who pays for the return
postage? Will the refund be paid? Will I be left with nothing?
How long will it take? Contrast this with the offline experience
of returning goods to a shop.

• Privacy, security, payment, identity, contract : Many issues

arise - privacy of information, security of that information and
payment details, whether or not payment details (eg credit card
details) will be misused, identity theft, contract, and, whether
we have one or not, what laws and legal jurisdiction apply.
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Types of e-commerce

• B2B
• B2C
• C2C
• B2G
• C2B

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Types of e-commerce
• B2B
– B2B e-commerce is defined as e-commerce
between companies. This is the type of e-
commerce that deal with relationships between and
among businesses.
– The more common B2B examples and the best
practice models are IndiaMart.com

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Types of e-commerce
• B2C
– Business-to-consumer e-commerce is between
companies and consumers, involves customers
gathering information; purchasing physical goods
or information goods; and, for information goods,
receiving products over an electronic network.
– B2C origins can be traced to online retailing. The
more common B2C business models are the online
retailing companies such as Amazon.com,
Drugstore.com etc.

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Types of e-commerce
• C2C
– Consumer-to-consumer e-commerce is
simply commerce between private
individuals or consumers.
– This type of e-commerce is characterized
by the growth of electronic marketplaces
and online auctions. The most common C2C
model is OLX.coms

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Types of e-commerce
• C2B
– Consumer-to-business (C2B) is an electronic
commerce business model in which
consumers (individuals) offer products and
services to companies and the companies
pay them. This business model is a complete
reversal of traditional business model
where companies offer goods and services
to consumers (B2C).
– This kind of economic relationship is
qualified as an inverted business type. 13
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Types of e-commerce
• G2C
– The consumer is needed a way by which
they could communications with the
government in a faster way. The common
man of India needed an alternative to
reduce the day- to-day hassles of
communicating with various government
bodies. The most successful effort that
has been highly appreciated by a lot of
people has been that of the Indian
Railways.
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E-Commerce Business Models

• STOREFRONT MODEL – This models provides a Web site with
product information, a shopping cart, and an online ordering
mechanism. Users select the products they want to buy ad place an
order thought shopping cart. The product price is usually fixed, but
can be negotiable. The storefront model is typical physical goods and
services like books, computer or a pizza delivery service. The
merchant reaches customers directly and sells without retailer sort
intermediaries.

• CLICK-AND-MORTAR MODEL- A “click-and-mortar “ shop

combines a Web Site with a physical store. The additional
advantages are that is already has an established brand name, and
that it can use its physical store to promote the Web site. Further,
users can return unwanted or defective items simply by going to the
store rather than mailing it to a Web site operator.
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E-Commerce Business Models

• BROKER MODEL – Brokers are market makers. As intermediaries ,
they bring buyers and sellers together and facilitate transactions
between them. Those can be Business- to consumer(B2C), Business-
to-Business(B2B), or consumer-to-consumer(C2C)markets. A broker
makes money by charging a fee for every facilitated transaction or a
percentage of the price of the transaction.
• SUBSCRIPTION-BASED ACCESS MODEL- Many service
operators provide subscription –based access to their service. A
visitors pays a fixed fee per month or year in return for unlimited
access to the service. Access beyond a certain limit is subject to a
extra. This model is typical for accessing databases with articles, news
and online games etc… However, possibility of subscription-based
models is doubtful. This model is slowly gaining acceptance, because
many Internet users are unwilling to pay to view content on the Web. 16
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E-Commerce Business Models

• PREPAID ACCESS MODEL-Service like telephony offer
payment by the minute and are handled via a subscription. A viable
alternative is prepaid access, where users pay a certain amount for
access to the service for a certain time period. It is similar to paying
for a prepaid telephone card, which can be renewed for the same
charge. In most cases, the card is a smart card that stores the minutes
purchased. The available credit on the smart card is reduced during
usage of the service. Prepaid schemes give users greater control over
how much to spend on the service.

• CUSTOMIZED MODEL - A manufacturer such as a computer

vendor can use this model by not only offering his goods or services
for sale, but also by offering the ability to order customized versions.
The customized product is then assembled individually and shipped
to the customer. This provides added value to consumers and allows
the manufacturer to create only those products that will be sold. 17
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E-Core Values
• Ethical Issues
• Legal Issues
• Taxation Issues
• International Issues

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Ethical Issues
• Ethics can be described as Fairness, Justice, Equity, Honesty,
Trustworthiness, and equality.
• Stealing, cheating, lying or backing out of one’s words all describe
lack of Ethics.
• Code of Ethics: is a declaration of the principles and beliefs that
govern how employees of an organization are expected to behave.
• E-commerce & Ethics: Threats to Ethics are due to: faster
computers and advanced networks, massive distributed databases,
ease of access to information, transparency of software, and view
that captured information can be used as competitive weapon.
• Privacy factor: The concern relates to collection of electronic data
about consumers by businesses; security of data transmission; and
unauthorized access / reading of personal files. 19
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Legal Issues
• Every legitimate business operates in a legal environment.
However, many of the legal issues that arise in e-commerce
environment are not settled due to lack of specific laws and legal
guidelines.

• When a product is bought over the Internet and found defective,

liability becomes an Issue. Who is liable and for what reasons?
Each party involved (e-merchant, vendor, shipper and
manufacturer) is potentially vulnerable to legal action.

• Legal issues revolve around: Fraud, Negligence, Mis-

representation, warranty, non-delivery, return, payment, damaged
goods, jurisdiction, etc. 20
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Taxation Issues
• Taxation issues are the most controversial issue facing e-
commerce & global taxation authorities.
• In an e-commerce environment, collection of tax is not
easy, due to, location of the merchant’s business,
location of buyer, the type of goods, etc.
• Each state and country has different sales taxes &
jurisdictions.
• For example, product A may be taxable in Country 1 &
not in Country 2 and even the taxation may differ in
different states of the same country.
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International Issues
• International issues primarily revolve around control of
web-site contents & related e-commerce transactions.
• Major concern on international level are:
- What right does any one country have to determine
the contents/material available on the Internet.
- Can a country regulate any entity in cyberspace &
not on the soil of that country.
• Since no common existing international laws apply to
internet & e-commerce, legislation is best left upto
individual countries and their ISPs.
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E-Commerce Applications
• Supply chain management
• Video on demand
• Remote banking
• Online marketing and advertisement
• Home shopping
• Auctions
• E-Marketing
• M-Commerce etc……..

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E-commerce Technologies
• Internet
• Intranet
• Extranet
• Firewall
• Cryptography
• Digital Signature
• Digital Certificates

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Firewall
A Firewall is a device with a combination of software and hardware ,
which guards the entrance to a private network and keeps out
unauthorized traffic. It also serves the dual purposes of guarding the
data and monitoring the traffic that is flowing out from the private
network. Firewalls are typically located at the boundary of the
networks.
Role of firewalls
a) Data Integrity – Only authorized persons should be able to change or
modify the data.
b) Authentication – Users must genuinely be who they claim to be and
not imposters
c) Confidentially or Unauthorized – Private and sensitive data must be
hidden from unwanted users.
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• Cryptography
– The translation of data into a secret code
– Encryption is the conversion of data into a form, called a
cipher, that cannot be understood by unauthorized people.
Decryption is the process of converting encrypted data back
into its original form, so it can be understood.
– Plaintext + key ====== Cipher Text + key ==== Plaintext

– 2 Types – Private–Key Cryptography (Symmetric

Encryption)
– & Asymmetric Encryption
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Private–Key Cryptography (Symmetric Encryption)

In private-key cryptography, the sender and recipient agree

beforehand on a secret private key. The plaintext is somehow
combined with the key to create the cipher text. The method of
combination is such that, it is hoped, an adversary could not
determine the meaning of the message without decrypting the
message, for which he needs the keys.

• The following diagram illustrates the Encryption Process .

• The following diagram illustrates the Decryption Process .

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Private-key methods are efficient and difficult to break.

However, one major drawback that the key must be
exchanged between the sender and recipient beforehand,
raising the issue of how to protect the secrecy of the key.

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Public-Key Cryptography (Asymmetric Encryption)

• A encryption system that uses two keys -- a public key known to

everyone and a private or secret key known only to the recipient
of the message.

• An important element to the public key system is that the public

and private keys are related in such a way that only the public key
can be used to encrypt messages and only the corresponding
private key can be used to decrypt them

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E-Commerce : Encryption contd…

(Alice’s private key)

(Alice’s public key)

Bob Doug
Alice’s public key is known
to all 31
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"Hey,Alice, how HNFmsEm6Un

about lunch at Taco BejhhyCGKOK
Bell. I hear they JUxhiygSBCEiC
have free refills!" 0QYIh/Hn3xgiK
Encrypt with BcyLK1UcYiY
Bob
Alice’s public key lxx2lCFHDC/A
(S)

HNFmsEm6Un
"Hey,Alice, how
BejhhyCGKOK
about lunch at Taco
JUxhiygSBCEiC
Bell. I hear they
0QYIh/Hn3xgiK
have free refills!"
BcyLK1UcYiY
Decrypt with
lxx2lCFHDC/A
Alice Alice’s private key
(R)
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• Digital Signature
– A digital signature is an electronic signature that can be
used to authenticate the identity of the sender of a message
or the signer of a document, and possibly to ensure that the
original content of the message or document that has been
sent is unchanged.
– A digital signature can be used with any kind of message,
whether it is encrypted or not, simply so that the receiver
can be sure of the sender's identity and that the message
arrived intact. A digital certificate contains the digital
signature of the certificate-issuing authority so that anyone
can verify that the certificate is real.

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Digital Signature

Encrypt with
Alice’s private key
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Digital Signature

Append

Alice now passes the message to Bob

Decrypt with 35
Alice’s public key
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• Digital Signature
– IT Act 2000 of India defines digital signature to
mean authentication of an electronic record by a
person in whose name digital certificate is issued
by means of an electronic method.

– These certificates are essential for establishing

whether the public key belongs to the purported
owner and if a competent authority has attested
the certificate information.

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• Digital Certificate

– It is a signed package containing a person’s name and his/

her public key.

– The purpose of such certificates is to guarantee that the

public key actually belongs to the correct person.

– These certificates are issued by independent third party that

everyone trusts.

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Alice Info:
Name
Department

Certificate Info:
Expiration Date
Serial Number Signature of Certificate
Authority
Alice’s Public Key:

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Alice now passes the message to Bob

Digital Signature encrypted with Alice Public Key

Certificate is valid +
Decrypted using
CA public key 39
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Digital Certificates
• Digital certificates are the equivalent of a driver's license, a
marriage license, or any other form of identity. The only
difference is that a digital certificate is used in conjunction
with a public key encryption system. Digital certificates are
electronic files that simply work as an online passport. Digital
certificates are issued by a third party known as a Certification
Authority such as VeriSign. These third party certificate
authorities have the responsibility to confirm the identity of the
certificate holder as well as provide assurance to the website
visitors that the website is one that is trustworthy and capable
of serving them in a trustworthy manner.
• Digital certificates have two basic functions. The first is to
certify that the people, the website, and the network resources
such as servers and routers are reliable sources, in other words,
who or what they claim to be.
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Digital Certificates
• The second function is to provide protection for the data
exchanged from the visitor and the website from tampering or
even theft, such as credit card information.
• A digital certificate contains the name of the organization or
individual, the business address, digital signature, public key,
serial number, and expiration date. When you are online and
your web browser attempts to secure a connection, the digital
certificate issued for that website is checked by the web
browser to be sure that all is well and that you can browse
securely. The web browser basically has a built in list of all the
main certification authorities and their public keys and uses
that information to decrypt the digital signature. This allows
the browser to quickly check for problems, and if everything
checks out the secure connection is enabled. When the browser
finds an expired certificate or mismatched information, a
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dialog box will pop up with an alert.
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Message Digest
• A message digest is a number which is created algorithmically
from a file and represents that file uniquely. If the file changes,
the message digest will change.

• In addition to allowing us to determine if a file has changed,

message digests can also help to identify duplicate files.

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E-Commerce : Process
Five Step Process

• Step 1: Create your website

• Step 2: Set up an e-commerce store

• Step 3: Get a merchant account and payment gateway

• Step 4: Create a secure payment environment

• Step 5: Generate traffic

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Electronic Payment System

Electronic payment systems are online payment systems. The
goal of their development is to create analogs of cheque and cash
on the Internet.

Types of Electronic Payment System

• Electronic Cheques
• Credit Cards
• Debit Cards
• Smart Cards

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Electronic Cheques
• An electronic cheques are modeled on paper cheque, except that
they are initiated electronically. They use digital signature for
signing and endorsing and require the use of digital certificates to
authenticate the payer, the payer’s bank and bank account. The are
delivered wither by direct transmission using telephone lines or by
public networks such as the Internets
• An electronic cheque transaction consists of the following steps:
Phase I: Purchasing goods
1. The consumer accesses the merchant server, which presents its
goods to the consumer.
2. The consumer selects the goods and purchases them by sending an
electronic cheque to the merchant.
3. The merchant may validate the electronic cheque with his/her bank
for payment authorization.
4. Assuming the cheque is validated, the merchant closes the
transaction with the consumer. 46
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Electronic Cheques
Phase II: Depositing cheque

5. The merchant forwards the cheque to his/her bank electronically.

6. The merchant’s bank forwards the electronic cheque to the
clearing house for being cashed.
7. The clearing house works with the consumer’s bank, clears the
cheque and transfers money to the merchant’s bank, which
updates the merchant’s account.
8. At a later time, the consumer’s bank updates the consumer with
the withdrawal information.

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Debit Card
• Debits cards are also known as check cards. Debit cards look
like credit cards or ATM (automated Teller Machine) cards ,
but they operate like cash or personal checks. The word debit
means subtract and, as the name suggests, your debit card will
subtract money from your account each time you use it.

• We can use it as an ATM card as well, to withdraw cash from

your account and carry out other ATM transactions.

• However, you can't use a debit card to obtain credit. This can
be an advantage since you can only buy what you can afford.
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Credit Card
• A credit card allows you to borrow money when making
purchases. The money isn't directly debited from your bank
account at the time of purchase; instead, you are sent a bill
every month for the sum total of your purchases.

• You can choose to either pay your bill in full or in part. If you
choose the latter, you will have to pay interest on the balance.

• The ability to obtain credit is both a blessing and a curse. It

allows you to fund big purchases when you are short of
money, giving you the option to pay them off over a period of
time. However, you must be disciplined and not spend beyond
your means.
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Smart Cards
• Smart cards are cards that look like credit cards, but store
information on a microprocessor chip instead of magnetic
ribbon. A microchip can hold significantly more information
than a magnetic ribbon. Because of this capacity, a single
smart card can be used for many different purposes. Unlike
magnetic strip cards which can be read by any magnetic
reader, and are therefore vulnerable to loss or theft, a smart
card can be password-protected to guarantee that it's only used
by the owner.

• Smart card is a mini-computer without the display screen and

keyboard. Smart cards contain a microchip with an integrated
circuit capable of processing and storing thousands of bytes of
electronic data.
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E-Commerce Security
• In case of e-commerce, the biggest risk today is to ensure
data security.

• The electronic system that supports e-commerce can fail due

to fraud, theft of confidential information, disruption of
service, or loss of customer confidence.

• Designing e-security involves five steps:

1. Adopting a security policy
2. Assessing Web security needs
3. Designing security environment
4. Policing the security perimeter
5. Authorizing & monitoring the security system
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E-Commerce Security issues

The following points outline the security issues related to e-commerce.
• Access Control : If access control is properly implemented, many
other security problems, like lack of privacy, will either be eliminated.
Access control ensures only those that legitimately require access to
resources are given access and those without valid access cannot have
access. This includes both physical access as well as logical access to
resources. For example, being able physically to enter a building or
having access to network equipment is one example of a threat.

•Privacy : ensures that only authorized parties can access information

in any system. The information should also not be distributed to parties
that should not receive it. Issues related to privacy can be considered as
a subset of issues related to access control. 52
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E-Commerce Security issues

• Authentication : ensures that the origin of an electronic message
is correctly identified. This means having the capability to
determine who sent the message and from where or which
machine. Without proper authentication, it will be impossible to
know who actually placed an order and whether the order placed is
genuine or not.
• Non-repudiation : is closely related to authentication and this
ensures the sender cannot deny sending a particular message and
the receiver cannot deny receiving a message. If this happens
frequently, it may not significantly harm e-commerce, however,
on a large scale this can be devastating. For example, if many
customers receive goods and then deny placing an order, the
shipping handling and associated costs with then order can be
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significant for the company processing the orders.