E-Commerce - Quick Guide

E-Commerce Overview
Broadly defined, electronic commerce is a modern business
methodology i.e. buying and selling of goods and services via
computer networks, that address the needs of organizations,
merchants and consumers to cut costs while improving the
quality of goods and services and also increasing the speed of
service delivery. It is also used to search and retrieve
information in corporate decision making.
Electronic commerce draws on technologies such as mobile
commerce, electronic funds transfer, supply chain management,
Internet marketing, online transaction processing, electronic data
interchange (EDI), inventory management systems, and
automated data collection systems. It refers to the paperless
exchange of business information using the following ways −
 Electronic Data Interchange (EDI)
 Electronic Mail (e-mail)
 Electronic Bulletin Boards
 Electronic Fund Transfer (EFT)
 Other Network-based technologies

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Features
E-Commerce provides the following features −
 Non-Cash Payment − E-Commerce enables the use of
credit cards, debit cards, smart cards, electronic fund
transfer via bank's website, and other modes of electronics
payment.
 24x7 Service availability − E-commerce automates the
business of enterprises and the way they provide services to
their customers. It is available anytime, anywhere.
 Advertising / Marketing − E-commerce increases the
reach of advertising of products and services of businesses.
It helps in better marketing management of
products/services.

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  Improved Sales − Using e-commerce, orders for the
products can be generated anytime, anywhere without any
human intervention. It gives a big boost to existing sales
volumes.
 Support − E-commerce provides various ways to provide
pre-sales and post-sales assistance to provide better
services to customers.
 Inventory Management − E-commerce automates
inventory management. Reports get generated instantly
when required. Product inventory management becomes
very efficient and easy to maintain.
 Communication improvement − E-commerce provides
ways for faster, efficient, reliable communication with
customers and partners.

Traditional Commerce v/s E-Commerce

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Sr.
Traditional Commerce E-Commerce
No.
Information sharing is made
easy via electronic
Heavy dependency on
communication channels
1 information exchange from
making little dependency on
person to person.
person to person information
exchange.
Communication or transaction
Communication/
can be done in asynchronous
transaction are done in
way. Electronics system
synchronous way. Manual
2 automatically handles when to
intervention is required for
pass communication to
each communication or
required person or do the
transaction.
transactions.
It is difficult to establish
A uniform strategy can be
and maintain standard
3 easily established and maintain
practices in traditional
in e-commerce.
commerce.
Communications of In e-Commerce or Electronic
4 business depends upon Market, there is no human
individual skills. intervention.
Unavailability of a uniform
E-Commerce website provides
platform as traditional
user a platform where all
5 commerce depends heavily
information is available at one
on personal
place.
communication.

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 No uniform platform for E-Commerce provides a
information sharing as it universal platform to support
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depends heavily on commercial / business
personal communication. activities across the globe.

E-Commerce - Advantages
E-Commerce advantages can be broadly classified in three
major categories −
 Advantages to Organizations
 Advantages to Consumers
 Advantages to Society

Advantages to Organizations
 Using e-commerce, organizations can expand their market
to national and international markets with minimum capital
investment. An organization can easily locate more
customers, best suppliers, and suitable business partners
across the globe.
 E-commerce helps organizations to reduce the cost to
create process, distribute, retrieve and manage the paper
based information by digitizing the information.
 E-commerce improves the brand image of the company.
 E-commerce helps organization to provide better customer
services.
 E-commerce helps to simplify the business processes and
makes them faster and efficient.

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  E-commerce reduces the paper work.
 E-commerce increases the productivity of organizations. It
supports "pull" type supply management. In "pull" type
supply management, a business process starts when a
request comes from a customer and it uses just-in-time
manufacturing way.
Advantages to Customers
 It provides 24x7 support. Customers can enquire about a
product or service and place orders anytime, anywhere
from any location.
 E-commerce application provides users with more options
and quicker delivery of products.
 E-commerce application provides users with more options
to compare and select the cheaper and better options.
 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.
 E-commerce provides options of virtual auctions.
 It provides readily available information. A customer can
see the relevant detailed information within seconds, rather
than waiting for days or weeks.
 E-Commerce increases the competition among
organizations and as a result, organizations provides
substantial discounts to customers.
Advantages to Society
 Customers need not travel to shop a product, thus less
traffic on road and low air pollution.

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  E-commerce helps in reducing the cost of products, so less
affluent people can also afford the products.
 E-commerce has enabled rural areas to access services and
products, which are otherwise not available to them.
 E-commerce helps the government to deliver public
services such as healthcare, education, social services at a
reduced cost and in an improved manner.
E-Commerce - Disadvantages
The disadvantages of e-commerce can be broadly classified into
two major categories −
 Technical disadvantages
 Non-Technical disadvantages

Technical Disadvantages
 There can be lack of system security, reliability or
standards owing to poor implementation of e-commerce.
 The software development industry is still evolving and
keeps changing rapidly.
 In many countries, network bandwidth might cause an
issue.
 Special types of web servers or other software might be
required by the vendor, setting the e-commerce
environment apart from network servers.
 Sometimes, it becomes difficult to integrate an e-commerce
software or website with existing applications or databases.

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  There could be software/hardware compatibility issues, as
some e-commerce software may be incompatible with
some operating system or any other component.
Non-Technical Disadvantages
 Initial cost − The cost of creating/building an e-commerce
application in-house may be very high. There could be
delays in launching an e-Commerce application due to
mistakes, and lack of experience.
 User resistance − Users may not trust the site being an
unknown faceless seller. Such mistrust makes it difficult to
convince traditional users to switch from physical stores to
online/virtual stores.
 Security/ Privacy − It is difficult to ensure the security or
privacy on online transactions.
 Lack of touch or feel of products during online shopping is
a drawback.
 E-commerce applications are still evolving and changing
rapidly.
 Internet access is still not cheaper and is inconvenient to
use for many potential customers, for example, those living
in remote villages.
E-Commerce - Business Models
E-commerce business models can generally be categorized into
the following categories.
 Business - to - Business (B2B)
 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)

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  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
endproduct to the final customer who comes to buy the product
at one of its retail outlets.

Business - to - Consumer
A website following the B2C business model sells its products
directly to a customer. A customer can view the products shown
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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
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.

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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 - Business
Governments use B2G model websites to approach business
organizations. Such websites support auctions, tenders, and
application submission functionalities.

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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E-Commerce - Payment Systems
E-commerce sites use electronic payment, where electronic
payment refers to paperless monetary transactions. Electronic
payment has revolutionized the business processing by reducing
the paperwork, transaction costs, and labor cost. Being user
friendly and less time-consuming than manual processing, it
helps business organization to expand its market
reach/expansion. Listed below are some of the modes of
electronic payments −
 Credit Card
 Debit Card
 Smart Card
 E-Money
 Electronic Fund Transfer (EFT)

Credit Card
Payment using credit card is one of most common mode of
electronic payment. Credit card is small plastic card with a
unique number attached with an account. It has also a magnetic
strip embedded in it which is used to read credit card via card
readers. When a customer purchases a product via credit card,
credit card issuer bank pays on behalf of the customer and
customer has a certain time period after which he/she can pay

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the credit card bill. It is usually credit card monthly payment
cycle. Following are the actors in the credit card system.
 The card holder − Customer
 The merchant − seller of product who can accept credit
card payments.
 The card issuer bank − card holder's bank
 The acquirer bank − the merchant's bank
 The card brand − for example , visa or Mastercard.
Credit Card Payment Proces

Step Description
Bank issues and activates a credit card to the
Step 1
customer on his/her request.
The customer presents the credit card information to
Step 2 the merchant site or to the merchant from whom
he/she wants to purchase a product/service.
Merchant validates the customer's identity by asking
Step 3
for approval from the card brand company.
Card brand company authenticates the credit card and
Step 4 pays the transaction by credit. Merchant keeps the
sales slip.
Merchant submits the sales slip to acquirer banks and
Step 5
gets the service charges paid to him/her.
Acquirer bank requests the card brand company to
Step 6
clear the credit amount and gets the payment.

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 Now the card brand company asks to clear the
Step 6 amount from the issuer bank and the amount gets
transferred to the card brand company.

Debit Card
Debit card, like credit card, is a small plastic card with a unique
number mapped with the bank account number. It is required to
have a bank account before getting a debit card from the bank.
The major difference between a debit card and a credit card is
that in case of payment through debit card, the amount gets
deducted from the card's bank account immediately and there
should be sufficient balance in the bank account for the
transaction to get completed; whereas in case of a credit card
transaction, there is no such compulsion.
Debit cards free the customer to carry cash and cheques. Even
merchants accept a debit card readily. Having a restriction on
the amount that can be withdrawn in a day using a debit card
helps the customer to keep a check on his/her spending.
Smart Card
Smart card is again similar to a credit card or a debit card in
appearance, but it has a small microprocessor chip embedded in
it. It has the capacity to store a customer’s work-related and/or
personal information. Smart cards are also used to store money
and the amount gets deducted after every transaction.
Smart cards can only be accessed using a PIN that every
customer is assigned with. Smart cards are secure, as they store
information in encrypted format and are less expensive/provides

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faster processing. Mondex and Visa Cash cards are examples of
smart cards.
E-Money
E-Money transactions refer to situation where payment is done
over the network and the amount gets transferred from one
financial body to another financial body without any
involvement of a middleman. E-money transactions are faster,
convenient, and saves a lot of time.
Online payments done via credit cards, debit cards, or smart
cards are examples of emoney transactions. Another popular
example is e-cash. In case of e-cash, both customer and
merchant have to sign up with the bank or company issuing e-
cash.
Electronic Fund Transfer
It is a very popular electronic payment method to transfer money
from one bank account to another bank account. Accounts can
be in the same bank or different banks. Fund transfer can be
done using ATM (Automated Teller Machine) or using a
computer.
Nowadays, internet-based EFT is getting popular. In this case, a
customer uses the website provided by the bank, logs in to the
bank's website and registers another bank account. He/she then
places a request to transfer certain amount to that account.
Customer's bank transfers the amount to other account if it is in
the same bank, otherwise the transfer request is forwarded to an
ACH (Automated Clearing House) to transfer the amount to
other account and the amount is deducted from the customer's
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account. Once the amount is transferred to other account, the
customer is notified of the fund transfer by the bank.
E-Commerce - Security Systems
Security is an essential part of any transaction that takes place
over the internet. Customers will lose his/her faith in e-business
if its security is compromised. Following are the essential
requirements for safe e-payments/transactions −
 Confidentiality − Information should not be accessible to
an unauthorized person. It should not be intercepted during
the transmission.
 Integrity − Information should not be altered during its
transmission over the network.
 Availability − Information should be available wherever
and whenever required within a time limit specified.
 Authenticity − There should be a mechanism to
authenticate a user before giving him/her an access to the
required information.
 Non-Repudiability − It is the protection against the denial
of order or denial of payment. Once a sender sends a
message, the sender should not be able to deny sending the
message. Similarly, the recipient of message should not be
able to deny the receipt.
 Encryption − Information should be encrypted and
decrypted only by an authorized user.
 Auditability − Data should be recorded in such a way that
it can be audited for integrity requirements.
Measures to ensure Security

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Major security measures are following −
 Encryption − It is a very effective and practical way to
safeguard the data being transmitted over the network.
Sender of the information encrypts the data using a secret
code and only the specified receiver can decrypt the data
using the same or a different secret code.
 Digital Signature − Digital signature ensures the
authenticity of the information. A digital signature is an e-
signature authenticated through encryption and password.
 Security Certificates − Security certificate is a unique
digital id used to verify the identity of an individual website
or user.
Security Protocols in Internet
We will discuss here some of the popular protocols used over
the internet to ensure secured online transactions.
Secure Socket Layer (SSL)
It is the most commonly used protocol and is widely used across
the industry. It meets following security requirements −
 Authentication
 Encryption
 Integrity
 Non-reputability
"https://" is to be used for HTTP urls with SSL, where as "http:/"
is to be used for HTTP urls without SSL.
Secure Hypertext Transfer Protocol (SHTTP)

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SHTTP extends the HTTP internet protocol with public key
encryption, authentication, and digital signature over the
internet. Secure HTTP supports multiple security mechanism,
providing security to the end-users. SHTTP works by
negotiating encryption scheme types used between the client and
the server.
Secure Electronic Transaction
It is a secure protocol developed by MasterCard and Visa in
collaboration. Theoretically, it is the best security protocol. It
has the following components −
 Card Holder's Digital Wallet Software − Digital Wallet
allows the card holder to make secure purchases online via
point and click interface.
 Merchant Software − This software helps merchants to
communicate with potential customers and financial
institutions in a secure manner.
 Payment Gateway Server Software − Payment gateway
provides automatic and standard payment process. It
supports the process for merchant's certificate request.
 Certificate Authority Software − This software is used by
financial institutions to issue digital certificates to card
holders and merchants, and to enable them to register their
account agreements for secure electronic commerce.

E-Commerce - B2B Model

A website following the B2B business model sells its products
to an intermediate buyer who then sells the products to the final
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customer. As an example, a wholesaler places an order from a
company's website and after receiving the consignment, it sells
the endproduct to the final customer who comes to buy the
product at the wholesaler's retail outlet.

B2B identifies both the seller as well as the buyer as business

entities. B2B covers a large number of applications, which
enables business to form relationships with their distributors, re-
sellers, suppliers, etc. Following are the leading items in B2B
eCommerce.
 Electronics
 Shipping and Warehousing
 Motor Vehicles
 Petrochemicals
 Paper
 Office products

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  Food
 Agriculture
Key Technologies
Following are the key technologies used in B2B e-commerce −
 Electronic Data Interchange (EDI) − EDI is an inter-
organizational exchange of business documents in a
structured and machine processable format.
 Internet − Internet represents the World Wide Web or the
network of networks connecting computers across the
world.
 Intranet − Intranet represents a dedicated network of
computers within a single organization.
 Extranet − Extranet represents a network where the
outside business partners, suppliers, or customers can have
a limited access to a portion of enterprise intranet/network.
 Back-End Information System Integration − Back-end
information systems are database management systems
used to manage the business data.
Architectural Models
Following are the architectural models in B2B e-commerce −
 Supplier Oriented marketplace − In this type of model, a
common marketplace provided by supplier is used by both
individual customers as well as business users. A supplier
offers an e-stores for sales promotion.
 Buyer Oriented marketplace − In this type of model,
buyer has his/her own market place or e-market. He invites

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 suppliers to bid on product's catalog. A Buyer company
opens a bidding site.
 Intermediary Oriented marketplace − In this type of
model, an intermediary company runs a market place where
business buyers and sellers can transact with each other.
E-Commerce - B2C Model
In B2C model, a business website is a place where all the
transactions take place directly between a business organization
and a consumer.

In the B2C model, a consumer goes to the website, selects a

catalog, orders the catalog, and an email is sent to the business
organization. After receiving the order, goods are dispatched to
the customer. Following are the key features of the B2C model
−
 Heavy advertising required to attract customers.
 High investments in terms of hardware/software.
 Support or good customer care service.

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Consumer Shopping Procedure
Following are the steps used in B2C e-commerce −
A consumer −
 determines the requirement.
 searches available items on the website meeting the
requirment.
 compares similar items for price, delivery date or any other
terms.
 places the order.
 pays the bill.
 receives the delivered item and review/inspect them.
 consults the vendor to get after service support or returns
the product if not satisfied with the delivered product.
Disintermediation and Re-intermediation
In traditional commerce, there are intermediating agents like
wholesalers, distributors, and retailers between the manufacturer
and the consumer. In B2C websites, a manufacturer can sell its
products directly to potential consumers. This process of
removal of business layers responsible for intermediary
functions is called disintermediation.

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Nowadays, new electronic intermediary breeds such as e-mall
and product selection agents are emerging. This process of
shifting of business layers responsible for intermediary functions
from traditional to electronic mediums is called re-
intermediation.

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E-Commerce - EDI
EDI stands for Electronic Data Interchange. EDI is an electronic
way of transferring business documents in an organization
internally, between its various departments or externally with
suppliers, customers, or any subsidiaries. In EDI, paper
documents are replaced with electronic documents such as word
documents, spreadsheets, etc.

EDI Documents
Following are the few important documents used in EDI −
 Invoices
 Purchase orders
 Shipping Requests
 Acknowledgement
 Business Correspondence letters

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  Financial information letters
Steps in an EDI System
Following are the steps in an EDI System.
 A program generates a file that contains the processed
document.
 The document is converted into an agreed standard format.
 The file containing the document is sent electronically on
the network.
 The trading partner receives the file.
 An acknowledgement document is generated and sent to
the originating organization.
Advantages of an EDI System
Following are the advantages of having an EDI system.
 Reduction in data entry errors. − Chances of errors are
much less while using a computer for data entry.
 Shorter processing life cycle − Orders can be processed as
soon as they are entered into the system. It reduces the
processing time of the transfer documents.
 Electronic form of data − It is quite easy to transfer or
share the data, as it is present in electronic format.
 Reduction in paperwork − As a lot of paper documents
are replaced with electronic documents, there is a huge
reduction in paperwork.
 Cost Effective − As time is saved and orders are processed
very effectively, EDI proves to be highly cost effective.

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 Standard Means of communication − EDI enforces
standards on the content of data and its format which leads
to clearer communication.

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