E-Commerce-munotes

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INTRODUCTION TO ELECTRONIC
COMMERCE
Unit Structure
1.1 Introduction to Electronic Comm erce: Meaning, nature and scope
1.2 Channels of e - commerce
1.3 Busin ess applications of e -commerce
1.4 Global trading environ ment and adoption of e -commerce
1.5 Business Models of E -commerce and Infrastructure; B2B, B 2C, B2G
and other models of e -commerce
1.6 Applications of e -commerce to supply chain management; p roduct
and service digitization
1.7 Remote servicing, procurement, and online marketing and adve rtising
1.8 E- commerce resources and infrastructure planning
1.9 Questions
1.0 LEARNING OUTCOMES 1. To understand basic concepts of online business
2. To know insides of Ecommerce
3. To know how technology helps bridging gaps in business
1.1 INTRODUCTION TO ELECTRONIC COMM ERC E: MEANING, NATURE AND SCOPE E-commerce or business done electronically has changed the way business
is done. The growth of internet and smartphones has led to the growth of
online commerce/e -commerce. From UD $46.2 billion in the year 2020, e -
commerce in India is slated to grow to a whopping US $ 111.40 billion
dollars in 2025 and US$ 350 billion by the year 2030. Apart from smart
phones and internet other factors that have boosted the growth of e -
commerce are, the government of India’s Digital India camp aign that aims
to ‘transform India into a digitally empowered society and knowledge
economy.’
The COVID 19 pandemic and the lockdown also helped consumers shift
to online shopping and online payment modes. According to NASSCOM,
‘despite COVID -19 challenges /disruptions, India's e -commerce market
continues to grow at 5%, with expected sales of US$ 56.6 billion in
2021.’(E-Commerce in India: Industry Overview, Market Size & Growth|
IBEF , n.d.) munotes.in

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2 Introduction to Electronic Commerce Dictionary meaning of E -commerce is: Transactions conducted
electronically on the internet. It includes the act of buying and selling of
products, shipping of goods and producing financial statements, all
without human intervention.
ISO defines e -commerce as: it is the general term for exchange of
information among enterprise and between enterprise and cust omers.
The Global Information Infrastructure Committee defines it as the
economic activities using electrical communications, with which people
can purchase products, advertise goods and settle.

Components of E -commerce include the following:
(1) Netwo rk: It includes Internet, Intranet, and Extranet.
Internet is the foundation of e -commerce and the carrier of
commercial business information. Intranet is the network of
computers which help carry out the internal work of an organization.
Extranet is the link between enterprises and users to carry out
commercial activities.
(2) E -commerce user: Individual consumers and business consumers.
The business consumer scientifically manages staff, wealth, goods,
production, supply and sales by Intranet, Extranet and MIS. Personal
consumer has access to information and purchases goods by
connecting Internet with browsers, set -top boxes, PDA (the personal
digital assistant), Visual TV etc.
(3) Authentication Authority: The authentication Authority (CA), the
authori ty recognized by law, is responsible for issuing, managing
digital certificates and facilitating parties involved in online sales to
identify each other.
(4) Distribution center: It is in charge of sending goods that cannot be
delivered online to consumer s and keeping track of goods flow. munotes.in

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3 M.M.S. - E- commerce (5) Online bank: It provides the sellers and buyers the traditional bank
business, such as settlement, and round -the-clock service.
(6) The administration of the commercial activity : It consists mainly of
departments of industry, customs, tax and trade. (Qin, 2009)
E-commerce performs the following functions:
a. Delivery of communication between the transacting parties
b. Process Management Function - it includes order processing,
exchange of business transaction between two computers
c. Servi ce Management Function - Application of technology to improve
quality of service. (Place order, track consignment, payment options)
d. Transaction function - buy and sell, trade over the internet.
1.2 CHANNELS OF E – COMMERCE Online marketplaces provide the customer with a list of options available
from various sellers in the market to choose from. Similarly, it provides
the seller with an option to list their products and make them visible to the
audience searching for these products. Customers get to l ook through
categories and competition and select the best offer made to them. They
have the choice of saving products to their ‘wish -list’, which they may
refer to. A t a later point to complete the transaction.
The means deployed to reach the target audie nce is know as the channel.
On the e -commerce platform there are multiple options available to any
firm for example, using the right key words (SEO - search engine
optimization) or paid ads on search engines (SEM - Search engine
marketing). Firms also have t he option of reaching their customer by
sending out an email, or putting an advertise ment on the social media, etc.
A company may decide to use a multiple channel option, also known as
Omni -channel strategy to reach the right customer at the right time.
The decision on which channel to choose depends on the marketing
objectives that the company may deploy. These could be any or all of the
following:
a- Attract prospective customers .
b- Re-engage past customers .
c- Reach out to completely new customers .
d- Increase quantity or quality of traffic to the site.
Today a customer has many media options and therefore a company too
has to cater to many media touch points of the customers in order to make
a sale. Not all channels cater to all customers and to a ll objective of a
company’s marketing plan. While some channels can create interest in an munotes.in

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4 Introduction to Electronic Commerce unsuspecting customer, another channel can re -engage an existing
customer. There are different channel options available for any business.
Some of the popular chann els are:
1. Search Engines:
Any customer looking for a product online will be using a search engine to
look for available options. Search Engines like Google and Bing are the
commonly used search engines. They provide options for promotion via
paid ads, ba nner ads, display ads and search engine optimization. These
also generate quick conversions as consumers coming on this search
engines are already looking for products and hence the advertisements on
these pages leading to quick sales. Search Engine Optim ization like key -
word based backlinks can boost ecommerce sales.
2. Online Marketplace:
Selling your products on online market places like Amazon and eBay is
another method of generating sales. These market places offer a varied
range of products from var ied sellers under one roof. These marketplaces
provide the delivery and promotion for the seller.
3. Email Marketing:
Email marketing is targeted at customers who have already interacted with
your company and shared their email addresses. This channel can be used
as reminder promotion for an ‘abandoned cart’ or providing incentive to
shop on an occasion.
4. Retargeting Networks:
It’s common in online shopping for customers to leave their shopping in
the midst of searching for options. This could be becaus e of other
attractions or technical glitches or payment issues. Retargeting - going
back to the customer in order to persuade them to complete their
transaction can help close sales and generate revenue. Retargeting is done
by promoting the products that th e customer was shortlisting on other
media touch points l ike Facebook, Google, Instagram, Etc.
5. Social Networks:
Social networking sites like Facebook, Instagram, YouTube, Twitter,
Snapchat provide numerous opportunities for retargeting and advertising.
The social networking sites provide targeted opportunities to advertisers
based on precision data analytics.
6. Affiliate networks:
Affiliate networks are like intermediaries that provide the opportunities for
sellers to interact with probable customers. The affiliate network partners
like the price comparison engine or shopping directory to a blog or
reward website, is working on a similar area of interest as the customers munotes.in

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5 M.M.S. - E- commerce who could be a possible customer for the company. It is like a referral
system whe re the affiliate gets paid for each conversion. When a company
is looking to diversify its traffic source increase traffic to its site or
increase quality of traffic to its store, then a company looks at affiliate
networks. (W)
7. E-commerce content marketing:
It is a process of creati ng high quality content providing information to the
audience and keeping them engaged through different content formats like
blogs, videos, infographics, guides, articl es, etc. The rich information can
attract prospective customers to the sites through ba cklinks provided in the
content.
8. E-commerce PPC Strategy:
Pay Per Click strategy (Search Engine ) Marketing refers to the paid search
advertising where a company pays for the ecommerce landing page to
appear in the paid advertising sections of relevant search engines results
pages. PPC gives a good return on investment as it includes website traffic
that arrives on the company’s page from accessing paid ads on search
engines.
9. Ecommerce Influencer Marketing:
Influencers are like opinion leaders who ar e known for their authority,
knowledge, position or relationship with their audience. They specialize in
a particular niche area have the power to influence the buying behavior of
their followers. For example, @beastoftraal know for his marketing
reviews, @komalpandey is fashion influencer and @yasminkarachiwala
for fitness are some of the top influencer in India with over a million
followers.
10. Social media Stories:
Stories on social media are emerging ecommerce channel and are gaining
popularity over a ctual posts. They have disappearing message and are an
interesting way to engage the customers. These are also a good platform to
induce viral marketing. Stories last for 24 hours and then they are off the
Instagram account. They provide a good channel to connect with the
audience, they can be used as a causal connect with the audience. Stories
also have the option to provide links to posts and websites.
11. Chat -bots:
Software programs that interact with the customer directly without the
need for human i ntervention. They solve help resolve issues arising during
the transaction and also help close a sale. Chat bots are a good way to
manage customer service.

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6 Introduction to Electronic Commerce 1.3 BUSINESS APPLICATIONS OF E – COMMERCE E-commerce is applied in many areas of business ranging f rom marketing,
retailing, wholesale, e -banking, bookings, etc.,
Marketing:
Marketing decisions for any organization revolve around the 4Ps of
marketing mix -product, price, promotion and place. Information
generated from e -commerce can be used for making strategic decisions
related to marketing.
In traditional business the market intelligence is gathered and analysed
once a month, where as in e -commerce the data is available on real time
basis. Which product is selling more, which variant is selling more, which
item is being returned, what kind of complaints are been registered, what
are the reviews of the customer and many more related information is
available on the click of a button. This information can be used by the
organization to make changes to the ir products, pricing, place, and
distribution systems in real time basis.
Promotion:
Data analyzed from e -commerce transactions can help trace customers
from various un -explored sources. For example, a customer who has
clicked on the like button of your advertisement or a customer who is
reading a blog which talks about a product that features in your product
portfolio or a customer who is following a certain influencer who
promotes products and services similar to your business. These customers
can be ta pped to promote your product using machine learning technology
which is used in e -commerce. Using technology, communication can be
customized allowing a company to send out right message to the right user
at the right time.
Manufacturing:
E-ecommerce help s in exchange of information between the different
departments of an organization, like sales, marketing, production, logistics
etc., this sharing of information helps to keep track of inventory, market
share, sales, purchase and enables companies to flui dly carry out their
operations. E -commerce helps relay live sales figures to the company’s
manufacturing department which can plan its production process by
checking on the inventory and the stocks available in real time.
Finance:
E-commerce and online pay ments are synonymous. Banks are connected
online like never before. All banking operations are available online like,
bill payments, money transfers etc., online stock trading is done using
information available through EDI (electronic data interchange). R eports,
analysis, performance analysis are all made available in real time. munotes.in

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7 M.M.S. - E- commerce Retail and Wholesale:
E-commerce stores work with virtual inventories, the stocks are stored at
various retail and wholesale outlets. When a customer access an online
store and mak es a purchase, the information is shared with the closest
store available which services the demand in the shortest time possible.
Mobile commerce or M -commerce:
E-commerce activities carried out on the mobile using smart phones is
known as M -commerce. Cu stomers can use Mobile based web
applications (Mobile Applications) or simply use the websites on their
mobile phones to carry out their transactions. M -commerce has increased
the scope and opportunity for customers to shop. It provides the shopping
opport unity on the go, a customer is no longer tied down to the desk or
home to shop, they can use their phone to do transactions 24/7.
Mobile Applications or Apps are software applications or computer
programs that are designed to run on the smart phone, watch or a tablet. A
customer can access a company’s product offering or a virtual store
through these apps and make purchases. This is similar to shopping on the
online marketplace like Amazon and eBay. The only difference is that an
App confines the customers search to the companies’ products and does
not show any competitive product offering whereas on an online
marketplace a customer has access to competitive offerings from various
sellers. Therefore, the instance on downloading the Apps by the individual
sellers.
Online Booking:
Bookings of services like for the purpose of travel and tourism has been
made easy by online booking options. Consumers can book hotels, flight,
trains, transportation etc., and using e-commerce options. The ease of
booking and also cancelling provided by the online services has led to an
increase in travel and tourism business.
Customer Service:
E-commerce provides real time customer service. Customer queries and
complaints can be handled spontaneously. Use of Chat -bots help
custome rs streamline their queries and complaints too by use of data
analytics and artificial Intelligence.
1.4 GLOBAL TRADING ENVIRONMENT AND ADOPTION OF E -COMMERCE Trade negotiations between nations for a common mutually beneficial
goal is known as global Tr ading environment. Principles of economic
cooperation between nations is of prime importance.
E-commerce has expanded the scope of global trade. Customers can buy
goods and services from any country. Sitting in Mumbai, an Indian munotes.in

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8 Introduction to Electronic Commerce consumer can easily avail t he US based ‘black Friday’ sale on Amazon
and get the goods delivered to them right at home. E -commerce sites are
offering products from all over the globe. The ease of virtual store and
inventory management provided by e -commerce sites have merged the
borders between marketplaces across the world.
Consumers get to savor goods and services not available locally. E -
commerce has boosted global trade by expanding the consumer base. It
has become an imperative to sustain in the market as of today. The
COVID 19 pandemic, brought this to the forefront, where online markets
survived and continued to grow, while brick -and-mortar stores had to shut
down business. According to a research global e -commerce revenue grew
by 80% in the second half of the year 2020. Direc t to consumer (D2C)
brands are connecting directly with consumers, retailers are doing away
with distributers and middlemen by partnering with delivery service
providers to cater directly to consumer demand. E -commerce platforms
are changing the way people shop. Sellers are able to customize products
as per the local culture of the customers and are providing enhanced
consumer experiences.
Factors boosting global E -commerce trade are:
Advancement in technology - consumers have access to latest technology
and smart phones and good internet. This enables e -commerce and online
shopping.
Consumers are aware of the options available to them from across the
world. They are no longer restricted in their demand and options.
Consumers are also becoming environment co nscious and are looking for
information about the production and labor involved in making of a
product. Ethical buying is impacting global trade.
E-commerce is providing safe and reliable transactions for the consumers
and the sellers. This is enhanced by the availability of delivery and
payment options which makes global trade easy and as effortless as local
store purchase.
E-commerce platform is a great equalizer. It provides equal opportunity to
big and small players in the market by providing integrate d services and
deep consumer insights.
Ease of payment across countries via online payment options:



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9 M.M.S. - E- commerce 1.5 BUSINESS MODELS OF E -COMMERCE AND INFRASTRUCTURE; B2B, B2C, B2G AND OTHER
MODELS OF E -COMMERCE

Source: https://magnetoitsolutions.com/blog/top -ecommerce -business -
models
Business model refers to the way in which a business is planned out. It
includes the process of managing customers and revenue. (Admin, 2019) .
Based on the way in which transactions are done between two parties,
there are various business models of E -commerce. These are:
a. B2B (Business to Business)
b. B2C (Business to Consumer)
c. B2G (Business to Government)
d. C2B (Consumer to Business)
e. C2C (Consumer to Consumer)
f. C2G (Consumer to Government)
g. G2B (Government to Business)
h. G2C (Government to Citizen)
a. B2B (Business to Business):
Exchange of goods takes place between two business enterprises. For
example, data security services offered by one company to another. Office
furnitur e, raw material providers, etc. munotes.in

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10 Introduction to Electronic Commerce

Source: https://www.globaltranz.com/b2b -e-commerce/
b. B2C (Business to Consumer) :

The most common and most popular form of e -commerce is business to
consumer. The buying and selling that happens in traditional retail outlet is
transacted online. This helps in saving time for transaction and cost of
transaction too. The delivery time has also reduced drastically over the
years from a waiting time of a few days to a few hours as by end of 2021.
The COVID 19 pandemic has tu rned most of the customers to shop online.
Examples of B2C are Amazon, Big Basket, Myntra.
c. B2G (Business to Government) :
When a business sell s its products or services to the government either
locally or on a larger platform is known as Business to Government model
of e-commerce.
d. C2B (Consumer to Business) :
This is the opposite of B2C model. Here the consumers offer products and
services on their websites, which bring in interested buyers to the munotes.in

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11 M.M.S. - E- commerce transaction space. For example, media content writers, bloggers, and
influencers .
e. C2C (Consumer to Consumer) :
In this model, the consumers sell their products and services to other
consumers throu gh a third -party website or an independent online
platform that is created for this very purpose. Example, OLX, eBay
f. C2G (Consumer to Government) :
Consumers offering services to the government via online platform is
known as consumer to government model . Example, Filing of Income Tax
returns by citizens.
g. G2B (Government to Business) :
Services offered by the government to business, online. These could be in
the form of submission of application, IT returns, rebates, tenders etc.
h. G2C (Government to C itizen) :
Online services provided by the government for the citizens on the online
platform. Objective is to maximize reach and reduce cost. Example,
Issuing birth certificate, registration of marriage, property etc.
1.6 APPLICATIONS OF E -COMMERCE TO SUPPL Y CHAIN MANAGEMENT; PRODUCT AND SERVICE
DIGITIZATION Supply chain involves the entire process starting from accepting a
customer’s order and the processes that go on till the product is delivered
to the customer. This broadly involves, procurement, transpo rtation,
production and inventory management.
Step I nclude:
Order generation
Order taking
Order fulfillment

Source: https://insights.sap.com/what -is-supply -chain -management -
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12 Introduction to Electronic Commerce SCM includes management of the flow of goods and services right from
procurement of raw material to the final product delivered to the
customer.
It involves the active streamlining of a business's supply -side activities to
maximize customer value and gain a competitive advantage in the
marketplace.
 SCM helps control costs, lim iting inventory shortage and making
faster delivery.
1. Increased productivity: Use of technology and knowledge
management helps run the system more efficiently. Productivity
can be made more efficient by reducing order processing,
reducing bottlenecks. Autom ated processes help make faster
shipping and delivery.
2. Reduced supply chain costs: Efficient data management using e -
commerce help reduce wasteful stockpiles, avoids material shortages,
ensures effective forecasting and reducing transportation cost.
3. Grea ter supply chain agility and resiliency: Real time data
provided by e -commerce can help organize better workflow
systems. Virtual inventories and smart warehouse processes keep
supply and demand aligned. Customer feedback can be acted upon in
real time.
4. Improved product quality: Machine learning and analytics
provide real time feedback to the manufacturing team, thereby
streamlining the production process and aligning the product as
per customer requirement and market trends.
5. Better customer service: SCM en sures constant and real time
customer feedback thereby allowing companies to implement
customer feedback and trends all the way from the design and
manufacturing stage through to last -mile logistics, delivery, and
returns.
New supply chain technologies :
New and emerging technologies are driving the digital supply chain
transformation. Artificial Intelligence (AI) and machine learning are being
used in supply chain management to process customer requests faster and
to do target marketing. Other emerging tech nologies like the Internet of
Things (IOT), cloud and edge computing, predictive analytics, robots and
drones, 3D printing, augmented reality (AR), virtual reality (VR),
and Blockchain are bringing in a new era of industrial revolution.
Trends In Scm:
Businesses that incorporate artificial intelligence, machine learning, and
predictive analytics into their SCM systems can make smart decisions,
adapting quickly when the unexpected happens – and improve resiliency. munotes.in

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13 M.M.S. - E- commerce The Amazon Effect :
The impact created by online, e -commerce or digital marketplace on the
traditional brick and mortar business model in terms of shopping patterns,
customer experience and business environment is known as the Amazon
Effect, after the biggest e -commerce enterprise. Maximum disrup tion in
SCM has been felt by the conventional physical retail stores and has led to
major restructurings – from wider warehouse networks to outsourced, last -
mile delivery.
Green supply chains :
More so than ever, businesses are looking at creating a favour able carbon
footprint. Trend in recycling and circular supply chains are promoting
repurposing of all kinds of discarded waste. This is also impacting the
product design and material sourcing and manufacturing.
Supply chain transparency :
Ethical business p ractices are gaining importance in current times. Since
the pandemic, customers are becoming concerned about the ethical
business practices. From sourcing of raw material to use of labour the new
supply chain is providing links to every component involved in the
process and consumers are paying heed.
Omni channel supply chains :
As the name suggests, channels present everywhere, from physical store to
website, to an app or a messaging service. There should be a fluid
movement of information between the chan nels and the customer should
be able to access and pick up the transaction from any channel at any time.
SCM systems are integrating customer service and shopping experiences
across all customer contact points.
Trade and political shifts :
The world today is seeing unprecedented shifts in business policies and
trade partnerships. Companies like Apple whose iPhone went out of stock
during pandemic because their manufacturing units were concentrated in
China are now realizing the need for decentralization and the need for
diverse options and risks. Technology focused on data management and
demand manufacturing solutions like 3D printing are making virtual
inventories and domestic manufacturing solutions an increasingly realistic
option.
1.7 REMOTE SERVICING , PROCUREMENT, AND ONLINE MARKETING AND ADVERTISING E-commerce requires a huge IT based set up that needs monitoring and
servicing. It is the backend on which the e -commerce is built. Remote
servicing refers to outsourcing the IT requirements of running a n e-
commerce site. Remote service providers are generally third -party service munotes.in

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14 Introduction to Electronic Commerce providers that maintenance and service e -commerce sites while the e -
commerce firm concentrates on the front end of the business with SEO,
SEM, product listing and delivery etc., Remote servicing helps build
efficiency and cut down lost revenue due to technical glitches by
providing 24/7 service. By providing remote services, the cost of
maintaining is cut down.
Procurement refers to sourcing supplies or raw material at the
compet itive price to maximize value. It involves all activities starting at
sourcing raw material, negotiating terms, purchasing items, receiving
goods, inspecting, payments and keeping track of the steps involved in the
process. Helps in reducing cost of procur ement, increases speed of
transaction, brings in transparency as all data is available at all check
points, it drastically reduces chances of errors and paperwork.
Procurement is a part of the supply chain management. SCM, besides
procurement also handles shipping, warehousing, production management
and distribution to channel partners and ultimately to consumers.
Online Marketing and Advertising:
Marketing using internet is known as online marketing. It makes use of
channels like emails, search engines, we bsite, social media, blog posts
etc., to find and connect with current and prospective customers. Different
types of digital marketing options have been explained in 1.2 above.
Online marketing objectives include, reaching out to new customers,
engaging cu stomers to interact with the company website, converting
casual visitors to customers and customers to loyal customers and ensuring
good reviews and word of mouth publicity.
Digital advertising is a part of digital marketing, it is more focused on
ensuring that promotional messages reach the right customers. An
advertisement on the internet is digital advertising. Compared to online
marketing, online advertising has a narrow focus and objective. PPC or
pay per click, display ads are examples of online adver tising. Online
advertising is based on the online marketing objectives of the firm.
1.8 E-COMMERCE RESOURCES AND INFRASTRUCTURE PLANNING E-commerce infrastructure refers to the hardware and software
requirements needed to cater to the service level requir ements of the site,
including the requirements for managing and servicing the site.
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15 M.M.S. - E- commerce

Source: https://tech -talk.org/2015/02/10/e -commerce -infrastructure -
planning -and-management/
 Software comp onents used: Content management systems, Web
analytics, Text analytics, Application Programming Interface (API),
Database server, Middleware’s etc. Object oriented (e.g., CORBA),
Transaction processing, communication (https, messaging), data base
(e.g., OD BC), application middleware (CGI)
 Hardware components used: Servers, proxy servers, load balancing
systems. Firewalls, encryption devices and interactive voice response
units etc.

Source: https://tech -talk.org/2015/02/10/e -commerce -infrastructure -
plannin g-and-management/
A few factors to be considered while evaluating infrastructure for e -
commerce setup:
 Flexibility: The ability to respond quickly to changing requirements,
and scale up based on the need of the customer. Resource
virtualization can be an important factor in such a scenario.
 Costs: The CapEx & WorkEx, like acquisition and maintenance
costs for servers, licenses and other hardware and software. License munotes.in

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16 Introduction to Electronic Commerce cost and its renewal policy would also play a significant part of the
evaluation.
 Scope & performance: Factors include degree of fulfilment of
specific requirement, knowledge about service and performance
quality. Service uptime could be another sub -criterion.
 IT security & compliance: Factors like government, industry and
firm specific needs in the areas of security, compliance and privacy
are covered. How the information assets are protected could be a
regulatory issue.
 Reliability & trustworthiness: Factors like service availability,
consistency of delivery and fulfilment of the Service Leve l
Agreements. Whether the consumer can get the same uniformity of
service every time, is the evaluation parameter.
 Service & cloud management: Factors like offered support and
functions for controlling, monitoring and individualization of the
web interfac e.
1.9 QUESTIONS 1. What is e -commerce? What is the scope of e -commerce?
2. What are the components of an e -commerce setup?
3. Describe the various e -commerce channel options available to a firm.
4. What areas of business does e -commerce impact?
5. How does e -commerce impact global trade?
6. State and explain the various models of e -commerce.
7. Explain the role and impact of e -commerce in supply chain
management.
8. Write short notes on the following:
- Remote servicing
- Procurement using e -comm erce
- Online marketing
- Online advertising
9. What are the components of e -commerce infrastructure?
10. What are the factors influencing e -commerce infrastructure decision?
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2
BUSINESS TO CONSUMER E -
COMMERCE APPLICATIONS
Unit Structure
2.0 Objectives
2.1 Introduction
2.2 Cataloguing
2.3 Order Planning and Order Generation
2.4 Cost estimation and Pricing
2.5 Order Receipt and Accounting
2.6 Order Selection and Prioritizing
2.6.1 Order Scheduling
2.6.2 Fulfilling and Delivery
2.6.3 Order Billing & Payment Management
2.6.4 Post Sales Service
2.7 Exercise Questions
2.0 OBJECTIVES After studying this unit students will be able to :
 Understand the concepts of E -commerce applicati on such as Order
planning, scheduling, prioritizing .
 Identify methods involved in billings & payments.
2.1 INTRODUCTION Electronic commerce draws on technologies such as mobile commerce,
electronic funds transfer, supply chain management, Internet marketi ng,
online transaction processing, electronic data interchange (EDI), inventory
management systems, and automated data collection systems. Modern
electronic commerce typically uses the World Wide Web at least at one
point in the transaction's life -cycle, a lthough it may encompass a wider
range of technologies such as e -mail, mobile devices, social media, and
telephones as well.
The term business -to-consumer (B2C) refers to the process of selling
products and services directly between a business and consumer s who are
the end -users of its products or services. Most companies that sell directly
to consumers can be referred to as B2C companies.
B2C was introduced in the late 90s which revolutionized the
retail system from then. Now the B2C market comprises all s orts
of consumer goods including many virtual stores and online munotes.in

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18 Business to Consumer E-Commerce Applications shopping platforms where Amazon or Flipkart leading the
markets with domination and valuable customers.
E-commerce applications leads to two possible perceptions: one, where it
refers to the u se of e -commerce as a medium of marketing; retail and
wholesale; auctioning; e -banking; booking and so on. The second idea one
gets is that of a software application like Amazon, eBay, Groupon, etc. It
may be a web application or mobile application (now po pularly known as
m-commerce applications). Mobile e -commerce applications are nothing
but an extension of e -commerce. Mobile app ideas are the driving force
behind every successful business app, be it an Uber -like taxi app or
Zomato/Swiggy like a food delivery app .
2.2 CATALOGUING Catalog marketing is a sales technique used by businesses to group
many items together in a printed piece or an online store, hoping to sell
at least one item to the recipient. Consumers buy directly from the catalog
sender by phone, return envelope or online using information in the
catalog.
Catalog processing is the process of organizing all the products along
with their specific brands, features, prices, offers, discounts, etc .
Moreover, it is one of the most favourable ways to promote the product in
the market and to fascinate the customers.
Different Types of Catalogs:
The three major categories of catalogs are business -to-business catalogs,
consumer catalogs, and catalog showrooms.
Business -to-business catalogs are those that provide merchandise to be
used in the course of business, including everything from office supplies
to computers. In industrial settings business -to-business catalogs are used
to sell everything from heavy machinery to hand tools. Business -to-
business catalogs are mailed to individuals at their place of business, with
most purchases being made on behalf of the business rather than the
indiv idual.
Consumer catalog is the manufacturer -supported catalog. These may be
designed to generate mail -order sales, build store traffic, or simply create
an image. Incentive catalogs offer consumers discounted name -brand
merchandise with some type of proof of purchase of a particular product
or use of a particular credit card. Consumer catalogs issued by nonprofit
organizations represent yet another type of consumer catalog. Museums
have successfully used catalogs to increase sales of gift -shop items. Co -op
catalogs are used to highlight merchandise from a variety of companies.
Co-op catalogs are relatively cheap to produce and are often found in
nontraditional channels of distribution such as bookstores and
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19 M.M.S. - E- commerce Syndicated consumer catalogs carry the name of a particular company,
usually one that is well known and prestigious. The company whose name
is on the catalog, however, is not involved in its p roduction and does not
carry the merchandise listed in the catalog. The syndicator pays a
commission to the company for use of its name and handles all of the
aspects of the catalog business.
Catalog showrooms are a category of consumer catalogers who comb ine
retail marketing with catalog marketing. A catalog showroom is
essentially a retail outlet. The catalog, usually quite large, serves primarily
to build traffic in the showroom. The trend in catalog showrooms has been
to de -emphasize the mail -order aspe ct of the catalog and present the
showroom as a retail outlet with the added benefit of being able to place
catalog orders from the showroom.
Elements of Catalog Marketing:
A successful catalog operation is built on several key elements, including
the righ t personnel, merchandise, catalog design and format, sales
promotion, mailing lists, and order processing and fulfillment.
1) Catalog Personnel :
Many of the functions necessary to maintain a catalog operation can be
fulfilled either by employees or outside se rvices. Within the company
individual employees can be assigned to handle more than one function.
Key functional areas include merchandising, catalog design, marketing
and production, office services and data processing, warehouse
operations, customer rela tions, and administrative areas covering office
operations, personnel, legal affairs, and finance. In addition, most
operations require some type of administrative support personnel.
2) Merchandise :
Merchandising involves selecting the appropriate items for t he catalog. In
the case of unaffiliated catalogers, merchandise is selected by buyers from
a variety of trade shows and from merchandise centers such as New York
City, Chicago, Dallas, and Atlanta where there are many showrooms to
choose from. A wide range of publications also offer merchandise that is
selected by catalog buyers.
Catalogs affiliated with retailers or manufacturers typically include
merchandise that is also sold by the retailer or manufacturer through a
store or other channels. Affiliated bu yers, however, may be able to select
additional merchandise for inclusion in the catalog. Catalog sales of such
merchandise are then monitored to see if the items should also be offered
through other channels.
3) Catalog Design And Format :
Once the merchandis e has been selected, it is necessary to determine how
it will be presented in the catalog. Catalogs come in a variety of sizes,
shapes, and overall general appearances. A cataloger must select a design munotes.in

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20 Business to Consumer E-Commerce Applications concept for its catalog that is appropriate for its co mpany. A catalog
carrying discounted merchandise should look like a sale catalog. A catalog
carrying high -end merchandise should have a quality look and feel about
it. In the hands of a consumer it is the catalog that presents the image of
the company.
Keys areas that catalog marketers focus their attention on when designing
a catalog include page layout and design, space allocation for various
products, the front cover, the back cover, sales copy, headlines, and
the sales letter. The inside and outside of both covers as well as the center
of a catalog are considered "hot spots" that have a disproportionally large
influence on sales generation and how the prospect responds to the
catalog.
4) Sales Promotion :
The order device is also an important "hot spot" in a ny catalog. Sales can
be won or lost with the order form, so most catalog marketers regard it as
an important sales tool. The key to a successful order form is making it
easy to use. Whether the order is placed by mail or a toll free telephone
call, a well -designed order form can facilitate the sale.
In addition the order form usually carries other information that is
designed to overcome any reservations that prospects might have about
ordering merchandise through the mail or over the telephone. Customers
usually look to the order device or pages surrounding the order form to
include information about warranties and guarantees, customer service,
and any promotional incentives that might be offered.
5) Mailing Lists And Databases :
As with all types of direct ma rketing, a key factor in a successful catalog
marketing campaign is being able to reach the right audience. Catalog
marketers acquire customers by renting mailing lists, then they build in -
house databases based on customer histories. The two basic types of lists
are response lists and compiled lists. Response lists contain the names of
prospects who have responded to the same offer. These typically contain
individuals who share a common interest. Response lists are not usually
rented; rather, they are an in -house list compiled by a particular business.
Most list rentals involve compiled lists, including mass consumer,
specialized consumer, and business lists.
Direct -marketing databases are similar to mailing lists in that they contain
names and addresses, bu t they are much more. They are the repository of a
wide range of customer information and may also contain psychographic,
demographic, and census data compiled from e xternal sources. They form
the basis of direct -marketing programs whereby companies establish
closer ties and build relationships with their customers.
As with mailing lists, there are two basic types of marketing databases,
customer databases and external databases. Customer databases are
compiled internally and contain information about a company's customers munotes.in

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21 M.M.S. - E- commerce taken from the relationship -building process. External databases are
collections of specific individuals and their characteristics. These external
databases may be mass -compiled from public data sources; they may
contain financial data based on confidential credit files; they may be
compiled from questionnaires; or they may be a combination of all three
sources.
6) Order Processing And Fulfillment :
Catalo gers who seek to build relationships with their existing customers
and acquire new customers must have an efficient system of fulfilling
orders in a timely and accurate manner. Nothing turns a customer off more
than receiving the wrong merchandise or recei ving it too late for the
purpose for which it was originally ordered. In some cases catalogers may
have their own warehousing operation that is involved in picking, packing,
and shipping orders. In other cases merchandise may be drop shipped from
another l ocation, or the entire order -fulfillment process may be handled by
an outside service bureau.
In addition to efficiently fulfilling orders, catalogers capture order
information to build their in -house customer databases. Such databases
typically contain in formation concerning the amount of the purchase, what
items have been purchased, and the dates purchases were made. Armed
with this data, catalog marketers can more effectively target future
mailings to customers based on when, what, and how much they have
ordered in the past.
The success of a catalog -marketing program depends on the same factors
that determine a successful direct -marketing program. The catalog must
deliver the right offer at the right time to the right person in the right way.
The target a udience must be correctly identified. The offer must be made
in the best possible way, and the catalog must employ the most effective
creative execution to present the merchandise offered for sale. At its most
effective, catalog marketing is an ongoing pro cess of communication to
maintain relationships with existing customers and build relationships with
new ones.
2.3 ORDER PLANNING & ORDER GENERATION Order based Planning: Order -based planning is the functionality that
plans planned orders to cover componen ts and end items. This
functionality largely corresponds to Materials Requirement Planning
(MRP) and uses BOMs
(Bill of Materials) to explode material requirements and the routings to
calculate. When production is planned in order -based planning, all
necessary components and required production capacity is taken into
account. This information is retrieved from the item’s BOM and routing,
respectively lead -time of planned production orders. Order -based planning
is for short -term supply planning where planni ng data is recorded on a
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22 Business to Consumer E-Commerce Applications

Procedure for Order based Planning :
1) Time phased overview: This functionality is used to get a time -
phased overview of order planning, which lists overview values for
demand and forecasted consumption on th e one hand, and scheduled
receipts and planned supply on the other hand. It is possible to
simulate the above values under various scenarios to see resultant
projected inventory.
2) Rolling and updating of actual scenario: A rolling plan is a scenario
of whic h the planning horizon and plan period division is regularly
shifted in time. The goods flow transactions are updated here for all
components of the plan items.
3) Order Simulation: This functionality is used to carry out an order -
based -planning run to genera te orders of the following order types.
Planned supply orders are created within planned items order horizon
for both main and component level items if the top down option is
selected. In case of adoption of bottom up option, the item selection is
extended to parent items.
a) Planned production order.
b) Planned procurement order.
c) Planned distribution order.
4) Review and analyzing order plan: Orders are reviewed and
analyzed particularly in respect of goods flow mismatch between
demand and supply, which can be furt her drilled down to various
regions and sales channel. The system provides various graphical
tools and planning board for this purpose. After taking corrective
measure regarding materials availability and capacity constrain,
planned orders are transferred to execution modules.
Order Generation/Processing:
Order processing is the process of identification, sorting, picking,
packaging, movement and delivery of the packed items to a shipping munotes.in

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23 M.M.S. - E- commerce carrier after the customer has placed the order successfully. It is g enerally
conducted at distribution centers. It is generally conducted at distribution
centers. Order processing consists of all the activities that have to be
completed from the point customer has placed the order to the point the
customer receives it.

Steps in the Order Processing :
Order processing involves the following steps:
Step 1 Order Placement :
This is the step where the order is placed by the customer successfully. It
typically includes the order and item details like the customer details,
addres s, items ordered with quantity, order number, instructions etc. It also
includes the inventory lookup to identify the optimized delivery of the
products.
Step 2 Picking :
It refers to the collection of articles in a specified quantity before
shipment, to f ulfil the customer’s orders. Picking could be of three types:
a. Piece picking : When the orders are picked one piece at a time, it is
known as piece picking. This is generally done in repair part
distributors or mail order catalogue companies.
b. Case pi cking : A case as a whole is picked instead of a single item.
c. Pallet picking : Here, the whole order is picked in one go and is
shipped to the customer.
Step 3 Sorting
This stage refers to the sorting of the picked articles according to their
destination , type size etc. depending on the customer’s orders.
Step 4 Pre -consolidation or package formation :
In this the pricing, labelling weighting of the package is done. munotes.in

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24 Business to Consumer E-Commerce Applications Step -5 Consolidation
This is the final step. Here, the final packets are consolidated and f illed in
to the container. Ready to be transported to the customer.
Factors in Order Processing :
The factors that need to be considered while designing an order processing
are:
i) Nature of the product : Shipping of vegetable and those of clothes
needs two different processes.
ii) Nature of the order : Some orders are very huge and some are rather
small. Shipping few kilograms and shipping huge tons of products are
two different things.
iii) Nature of shipping package : Shipping of boxes of biscuits and can s
of milk require different processes.
iv) Costs : Depends on time required, products weight that is to be
shipped etc.
v) Availability of work : force and labor also affects the processes. If
labour is not available, the processes need to be automated.
vi) Seasonality : Demand of some products varies according to seasons.
The order processing changes with the seasonality.
To keep a business going, it is very necessary to fulfil the orders in time. It
is also necessary to maintain the quality in order to ke ep the customer
happy.
2.4 COST ESTIMATION AND PRICING (A) Cost estimation in project management is the process of
forecasting the financial and other resources needed to complete a project
within a defined scope. Cost estimation accounts for each element
required for the project —from materials to labour —and calculates a total
amount that determines a project’s budget. An initial cost estimate can
determine whether an organization greenlights a project, and if the project
moves forward, the estimate can be a fa ctor in defining the project’s
scope. If the cost estimation comes in too high, an organization may
decide to pare down the project to fit what they can afford (it is also
required to begin securing funding for the project). Once the project is in
motion, the cost estimate is used to manage all of its affiliated costs in
order to keep the project on budget.
Elements of Cost Estimation In Project:
There are two key types of costs addressed by the cost estimation process: munotes.in

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25 M.M.S. - E- commerce 1) Direct costs: Costs associated with a single area, such as a
department or the project itself. Examples of direct costs include fixed
labor, materials, and equipment.
2) Indirect costs: Costs incurred by the organization at large, such as
utilities and quality control.
Within these two categories, here are some typical elements that a
cost estimation will take into account:
a) Labor: The cost of team members working on the project, both in
terms of wages and tim e
b) Materials and equipment: The cost of resources required for the
project, from physical tools to software to legal permits
c) Facilities: The cost of using any working spaces not owned by the
organization.
d) Vendors: The cost of hiring third -party vendors or c ontractors.
e) Risk: The cost of any contingency plans implemented to reduce risk.
(B) E-Commerce Pricing:
Pricing is a challenging project for most companies. It's possibly even
more complicated for online businesses. E-Commerce , online marketing
and selling to consumers, creates some challenges for companies to
determine prices. The retail model is based on manufacturers suggesting a
manufacturer's suggested retail price (MSRP). Some retailers may
discount that price, but the MSRP is a standard price that is re commended
for the sales amount offered to consumers. However, online retailers have
been more aggressive in discounting and offering specials.
A pricing strategy takes several factors into consideration :
1. Your unique characteristics: What makes your pro ducts and
business different? Consumers want to do business with companies
they trust and are connected with.
2. Ratings from other consumers : If other customers are satisfied with
their purchases from your company, especially specific products that
new c ustomers are looking at, others are more likely to purchase those
items. In fact, if two online retailers are offering the same product, the
retailer with positive comments will likely win the sale even if the
company's prices are higher. Consumers are tak ing a risk buying a
product sight unseen. Reading a positive review from other shoppers
builds their confidence and encourages them to make a purchase.
Feeling confident about a purchase is more important than having the
lowest price.
3. Excellent Service : Just because your customer is buying online, he
may still may have questions or need assistance. Set up a process to
respond quickly and politely to your customers. The faster your munotes.in

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26 Business to Consumer E-Commerce Applications response time, the more trust you build with the consumer. Shoppers
will pay a higher price to buy from a company they trust. Service is
often more important than low price.
2.5 ORDER RECEIPT AND ACCOUNTING An order receipt is a document that provides information about the details
of an order and confirms it has been received b y the company responsible
for fulfilling it. It may come by email or fax confirmation, and sometimes
arrives in the mail when the lead time on an order is considerable. It offers
notice to th e buyer about the specifics of the order and usually has
information on how to cancel or change it, if necessary, often by using a
return slip included with the receipt for convenience.
A typical order receipt should list the name and contact information f or the
shipper and seller, and specify the items in the order. It will include an
estimated ship and delivery date, if appropriate, and the amount of the
order, including tax, shipping, handling charges, and any other expenses.
If the buyer finds an error, she can correct it before the order is actually
filled.
The order receipt should also discuss the terms and conditions of the
order. It includes information on changing orders, returning or exchanging
items after they are received, and paying for the orde r. Payment terms can
vary from a note indicating the order is paid in full to a note that it comes
with net 90 delivery, allowing the buyer 90 days to pay it. Online
shopping cart and payment systems typically come with an order receipt
generator that can send an email as soon as an order is placed and
confirmed. The buyer will receive the email for review and usually has a
narrow time window to make any changes, unless items are backordered
or not yet released.
It is important to review an order receipt ca refully to check for errors. If
there are any problems, the shipper should be notified immediately so any
necessary changes can be made. It is also advisable to review the terms
and conditions to get familiar with the process for returns, complaints, and
other issues that may arise during the process.
2.6 ORDER SELECTION AND PRIORITIZING 2.6.1 Order Scheduling:
Scheduling is a communication tool that helps balance customer
demands with your ability to fulfill that demand .
With Scheduling Across Orders, user s can schedule, unschedule, reserve,
unreserve and perform ATP checks on lines across orders.
i) Ship Set: A set of lines which will be shipped together from the same
warehouse to the same location.
ii) Sourcing: Selecting the warehouse for the order lines. munotes.in

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27 M.M.S. - E- commerce iii) Supply: Incoming inventory.
Perhaps most importantly, scheduled deliveries save you money . At the
most basic level, a scheduled delivery costs less than an urgent, on
demand one. You'll reap the savings when you can plan ahead. But
scheduled deliveries also save you money by mitigating the need to
purchase and maintain your own fleet
2.6.2 Order Fulfilling & Delivery:
Order fulfillment is the process of receiving, packaging, shipping, and
delivering a product to the customer. The fulfillment also covers exch ange
and returns processing. In simple words, fulfillment of any order happens
when the interaction between the business and the customer gets closed
for the ordered product.
Order fulfillment is often measured based on the time it takes to complete
an ord er completely — which can also be considered one of the essential
order fulfillment metrics.
6 Steps In Order Fulfillment Process:
1. Receiving Inventory: Receiving inventory refers to the process of
gathering the products directly from manufacturers or supp liers at
local fulfillment centers .
The primary tasks involved at this stage include:
a) Ensuring items count
b) A thorough inspection of products for any damage
c) Creating Stock -keeping Unit (SKUs — scann able bar codes) for
products
d) Ensuring product entry to ware house management software
2. Organizing Inventory: Organizing the inventory category -wise on
shelves is the second stage that helps ensure fast order fulfilment . It is
always easier to organize items SKU -wise as it gets easy to pick,
pack, and ship t hem.
It is similar to organizing products in a brick -and-mortar store so that
the shopkeeper can quickly locate the item the buyer is asking for. In
case the items are scattered all over the shop — more will be the time
to find it, and more are the cha nces of a customer buying from another
nearby store.
3. Picking : When an order is placed on the app/website, it needs to be
tracked across existing inventories for pick and pack. You can easily
do this with an inventory management system that acts as a central
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28 Business to Consumer E-Commerce Applications Digital transformation is also helping in effective and timely picking.
For example, e-commerce giants such as Walmart h ave deployed
automated bots called “Alphabots” to facilitate errorless and fast
picking and packaging.
4. Packaging : Packaging involves choosing the right type of packaging
box for the ordered product and packing it to ensure safe delivery. If
you have yo ur own inventory, you’ll have to upkeep all kinds of
packaging materials such as bubble wrap, carton boxes of all sizes, air
fills, packaging tapes, and more. Safe packaging is one of the
ingredients that ensure fulfillment as it equates to a better custom er
experience (it shows that you care).
5. Shipping: Once the order is collected from the fulfillment center and
is packed securely, you can ship it. You can choose from third -party
shipping, merchant shipping, or drop shipping as your mode of
shipping orders .
6. Exchange/Return: Returns and exchanges should also be treated as a
part of order fulfilment . Whenever the customer makes an
exchange/return request, the order processing should begin
spontaneously.
An E -Commerce business should not conside r order fulfilment as order
generation to doorstep delivery process. Instead, it should be order
generation to a successful return/exchange process.

Types of Order Fulfillment:
The most popular online order fulfillment methods include — third -party
fulfillment, merchant fulfillment, and drop shipping.
1) Third -Party Fulfillment : Third -party fulfillment refers to the
outsourcing order fulfillment process. Third -party fulfillment
manages everything from receiving inventory from merchants to order
fulfillmen t. Third -party Order fulfillment Example: Amazon has its
self-run fulfillment service called “Fulfillment by Amazon” (FBA) munotes.in

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29 M.M.S. - E- commerce that encourages e-commerce startups to partner with them to enable
effective order fulfillment.
2. Merchant Fulfillment: Merchant fu lfillment is also known as self -
fulfillment or in -house fulfillment and refers to handling order
fulfillment on your own without any third -party involvement.
3. Drop Shipping : Drop shipping is an order fulfillment method where
the order received is forwar ded to the manufacturer, who then handles
the shipment and logistics process. This option balances the order
fulfillment load between the manufacturer and the e-commerce
business.
Drop shipping is a suitable option when :
 You have a minimal budget for inves ting in fulfillment services .
 Your business is new in the market.
Delivery Order:
A delivery order is a document that can be issued by the owner of freight,
consignee, shipper or a carrier to deliver the goods to another party .
Delivery services are essent ial in aiding the country to adapt to the new
normal . ... In particular, they've been able to make use of cashless
transactions, effectively minimizing physical touch, as they continue to
service their customers. Delivery order must involve the following:
i) The name and contact details of the seller.
ii) The name and contact details of the customer.
iii) The date of issue.
iv) The date of delivery.
v) A description of the goods contained in the order.
vi) The quantity of each product included in the shipment.
2.6.3. Order Billin g & Payment Management:
Meaning:
Also called invoicing, billing is the process of requesting a payment
from a customer , by generating an invoice to recover the money resulted
from the sale.
Billing is defined as the step -by-step process of requesting paym ent
from customers by issuing invoices . An invoice is the commercial
document businesses use to request payment and record sales. Billing
is the process of compiling charges in a customer's balance and
creating a bill . The amount due in the bill is sent to the customer as a
payment request. During the time between bills, a customer's charges are
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30 Business to Consumer E-Commerce Applications Order Management:
Order management is the term used to describe the set of processes a
company uses to track, handle and fulfil an order from the time it’s made
by a customer to when it’s safely delivered.
Nowadays, order management even goes beyond delivery as well.
Payment Management:
An e -commerce payment system (or an electronic payment
system) facilitates the acceptance of elec tronic payment for online
transactions . ... Credit cards remain the most common forms of payment
for e-commerce transactions.
Types of Payment Methods In E -Commerce :
1) Credit/Debit card payments :
Payments via cards are one of the most widely used and popula r methods
not only in India but on the international level. Credit cards are simple to
use and secure. The customer just has to enter the card number, expiry
date, and CVV, which has been introduced as a precautionary measure.
Debit cards, they can be cons idered the next popular method for e-
commerce payments.
Debit cards are usually preferred by customers who shop online within
their financial limits.
2) Prepaid card payments :
As an alternative for credit/debit cards, prepaid cards are introduced.
They usuall y come in different stored values and the customer has to
choose from them. Prepaid cards have virtual currency stored in them.
Though the adoption rate of prepaid cards is low, they are gradually
becoming popular for certain niche categories.
3) Bank transfe rs:
Though not popular nowadays but still bank transfer is considered as an
essential payment method for E -Commerce. Customers enrolled in
internet banking can do bank transfers for their online purchases. Bank
transfer is the most secure method as the tra nsactions need to be approved
and authenticated by the customers.
4) E-Wallets :
E-wallet is one of the upcoming trends which gives a new shopping
experience altogether. The use of e -wallets is becoming popular at an
alarming rate.
E-Wallets require a sign up from merchants as well as customers. After
creating an e -wallet account and linking it to the bank account they can munotes.in

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31 M.M.S. - E- commerce withdraw or deposit funds. Prepaid e -wallet accounts store customer
information and multiple credit/ debit cards and bank accounts
5) Cash:
In India cash is the king. For E -Commerce, it comes in the form of the
cash-on-delivery option. Cash is often used for physical goods and cash -
on-delivery transactions. It does come with several risks, such as no
guarantee of an actual sale during delivery, a nd theft. Though nowadays,
cash on delivery does not necessarily mean customers pay with cash (they
can use cards, mobile payments as payment terminals are often available
with delivery agents), missing out on this is a strict NO.
6) Mobile payments:
This dig ital payment solution offers a quick solution for customers. To set
up a mobile payment method, the customer just has to download software
and link it to the credit card. As E -Commerce is becoming mobile
mainstreamed, customers are finding it more convenie nt to use mobile
payment options
2.6.4 Post Sales Service :
Meaning :
Post Sales Service /After -sales service is any support provided to a
customer after the product or service has already been purchased .
Companies use after -sales support as a business strategy as it typically
leads to higher customer satisfaction, brand loyalty, and even word -of-
mouth -marketing.
After sales service plays an important role in customer satisfaction and
customer retention . It generates loyal customers and increase a brand
value. A satisfied and happy customer brings more individuals and
eventually more revenues for the organization for long time.
Importance of After -sales Service :
Why is after -sales service so important that businesses are including it in
their overall mar keting strategy? Well, here is why:
 For starters, a good quality after -sales service is a mandatory part of
the “customer satisfaction” motto.
 It defiantly improves the brand image of a business and increases
brand loyalty.
 After -sales service boosts the r elation of trust between the seller and
the buyer. Of course, trust wins long term clients.
 Good after -sales service can promote “word of mouth” marketing. A
happy customer itself is a walking -marketer of the company. Positive
feedback on social media plat forms will definitely attract more
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32 Business to Consumer E-Commerce Applications  After -sales service, if handled effectively, can work as a secondary
income generator. A company good with after -sales service can
convince its customers to buy other products from the same company.
Types of Af ter-Sale Services :
1) Pre-installation Services :
All the products in the market come with some sort of manual with them.
These manuals contain basic information for using the product for the first
time. It is very easy to use some devices for the first time. Some devices
demand expert advice. Providing pre -installation services for items such as
a copier machine or an air conditioner will greatly facilitate the customer.
Some companies do it for free, while some charge a bit for it.
2) Initial Training :
Most of t he household items are easy to use. They demand no training or
expertise. Proper training is mandatory before the usage of industrial
machinery. The medical equipment provided to the doctors demands
technical expertise. This is essential that the user is h aving complete
information about the usage of a machine. Most of the time, the companies
arranging these machines provide the initial training.
3) Warranty :
This is one of the most common types of after -sale service. This is
provided by almost all multination al companies for all their products. The
duration and warranty of specific items may vary. Some companies allow
their customers to replace their products if found faulty. The companies
encourage the repair of the dysfunctional part. Companies also offer
variable warranty policies to their customers.
4) Online Support :
This is the latest type of after -sale service. It is mostly provided by e -
commerce companies. But this is not a hard -core principle. Almost all
multinational companies have dedicated a helpline f or their customers.
The company helplines can be accessed conveniently round the clock. The
company representative listens to the query of the customer and provides
proper guidance for convenience.
5) Replacement/Return :
Companies provide free replacement or even return of their product. This
service comes with proper terms and conditions are associated with it.
After the sale of the product, this service lasts only a few months.
Replacement can be either of the entire product or one part only. The
return of t he product is facilitated with a refund or another product from
the same company. However, every company has a different policy. munotes.in

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33 M.M.S. - E- commerce After -Sales Service Examples :
Few prime examples of after -sales service. These companies are acing this
section with uniqueness .
1) After -Sales Support - Lenovo Vantage :
Lenovo is a famous name in the electronics industry, especially the laptops
and computers. Although Lenovo’s offer fine quality products, their after -
sales service is quite unique. Lenovo’s laptops or computers have a
preinstalled app (Lenovo Vantage) for after -sales service. This app helps
the customer run diagnostics, update drivers, discover new apps, and
contact customer support. Customers find it easier to diagnose any
problem in their systems and can easily conta ct customer support if
needed.
2) Product Warranty - Smart Phone Companies :
Smartphone companies can be taken as a good example of after -sales
service in terms of the warranty. Apple, Samsung, Huawei, and many
other famous brands offer a one -to-two-year warran ty on their
Smartphones. Different brands offer warranties in different terms, such as
software, mobile battery, and hardware. Of course, terms and conditions
apply to the warranties given.
3) User Training – Get Response Courses :
It is an online platform of fering solutions related to webinar hosting, email
marketing, landing pages, and similar services. The company not only
provides high -quality services, but it also offers free specialized courses to
its customers as a part of their after -sales service. The se courses help the
customers to understand the complexities of online marketing and how
they can do it effectively.
4) Return & Replacement – Amazon :
World’s biggest retailer, Amazon, has not only conquered the global
markets with its high quality, cost -friendly products, but it offers
impeccable after -sales service as well. The company offers free return and
replacement options to its customers. This way, customers can replace or
return a product if it is not according to their expectations. No wonder
Amazon is bossing the e-commerce industry.
5) Upgrades – Apple iOS :
Apple Inc. provides software upgrades as a part of the after -sales service.
An Apple user can get those upgrades for four to five years. After that, the
device will still be functional, but it will not be eligible for upgrades.
6) Free Installation - Air Conditioner Retailers :
Companies dealing in air conditioners are a good example of free
installation services. That’s not it; there are a lot of companies that offer
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34 Business to Consumer E-Commerce Applications 7) Online Customer Support - Telecommunication Companies :
Telecommunication companies are a fine example of 24/7 online customer
support. In fact, these companies have dedicated helplines where
customers can call anytime for their queries or issu es, and that too free of
cost. Moreover, these companies provide free customer support online
through dedicated online customer service agents or chat bots.
Tips for Effective Aft er-Sales Service:
Good after -sales service not only ensure the customer -retention but also
attracts new customers. Customer retention is important for businesses
from different aspects. Most importantly, the cost of customer retention is
five to six times lesser than winning a new customer.
1. Seek Customer Feedback : Feedback from customers allows the
entrepreneurs to find flaws in their products. Moreover, it helps them
in improving the product quality with the help of suggestions from the
customer. Last b ut not least, asking for recommendations from
customers boost their confidence and brand loyalty.
2. Give Discounts to Your Customers : Discounts and promotions are a
great way to keep your customers interested in your offerings. You
can offer them promoti onal discounts or even customized discounts.
3. Remember Your Customers on Special Occasions : We love it
when somebody remembers us on our special occasions. Similarly,
customers love it when you remember them on their birthdays,
wedding anniversaries, et c. You can send them wishes through
messages, gift cards, etc., or you can also offer special discounts on
your products.
4. Send Them Helping Content : The basic purpose of a product is to
solve the problems of your customers. Well, of course, you can do
that by selling your product. But, you can be more empathetic by
educating them about their problems.
5. Reward Them with “Commission” : A happy customer brings new
customers through word -of-mouth marketing. But, what if you can
reward them in monetary te rms for bringing new customers? You can
give them a commission for every customer they bring to you.
2.7 QUESTIONS (A) Fill in the Blanks :
i) The term business -to-consumer (B2C) refers to the process of selling
products and services directly between a busines s and consumers
who are the end -users of its products or services.
ii) Catalog marketing is a sales technique used by businesses to group
many items together in a printed piece or an online store, hoping to
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35 M.M.S. - E- commerce iii) Scheduling is a communication tool that helps balance customer
demands with your ability to fulfill that demand .
iv) Order processing is the process of identification, sorting, picking,
packaging, movement and delivery of the packed items to a shipping
carrier after the c ustomer has placed the order successfully.
v) Order management is the term used to describe the set of processes a
company uses to track, handle and fulfil an order from the time it’s
made by a customer to when it’s safely delivered
vi) Post Sales Ser vice /After -sales service is any support provided to a
customer after the product or service has already been purchased.
vii) Feedback from customers allows the entrepreneurs to find flaws in
their products.
viii) Discounts and promotions are a great way to keep your customers
interested in your offerings.
ix) Though not popular nowadays but still bank transfer is considered as
an essential payment method for E -Commerce.
x) World’s biggest retailer, Amazon , has not only conquered the global
markets with its high quality, cost-friendly products, but it offers
impeccable after -sales service as well.
(B) Write Short Notes :
i) Cost Estimation and Pricing ii) Cataloguing
iii) Order Billing and Payment management
ii) Order Delivery


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36
3
BUSINESS TO BUSINESS
E-COMMERCE
Unit Structure
3.0 Objective
3.1 Introduction
3.2 Business to Business E -Commerce
3.3 Need and alternat ive models of B2B e - commerce
3.4 Using Public and private co mputer networks for B2B trading
3.5 EDI and paperless t rading: characteristic features of EDI service
arrangement
3.6 Internet based EDI
3.7 EDI architecture and standards
3.8 Costs of EDI infrastructure
3.9 Reasons for slow acceptability of EDI for trading
3.10 E-marketing
3.11 Traditional web Promotion: We b counters
3.12 Web advertisements.
3.13 Summ ary
3.14 Questions
3.0 OBJECTIVES After studying this unit the student will be able to :
 Understand the functioning of B2B E -Commerce.
 Know about uses Electronic Data Interchange (EDI) .
 Explain various concept of E-Marketing .
3.1 INTRODUCTION Electronic commerce is an emerging concept that describes the process of
buying and selling or exchanging products, services and information via
computer networks including the Internet. E -Commerce can be mainly
divided into Business -to-Business (B2B) electronic commerce and
Business -to-Consumer (B2C) electronic commerce. Business -to-business
ecommerce may be defined as the buying and selling of goods and
services between companies through online. Therefore, B2B electronic
commerce implies that both sellers (suppliers) and buyers are business
corporations, while B2C electronic commerce implies that the buyers are
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37 M.M.S. - E- commerce of commerce. This type of e -commerce is the electronic exchange of
business documents among businesses for the purpose of conducting
commerce. This began with the Electronic Data Interchange (EDI), which
started in the 1960s. In the past, EDI was conducted on a direct link of
some form between the t wo businesses whereas today the most popular
connection is the internet. The two business firms pass information
electronically to each other. Business to Business electronic commerce has
been in use for quite a few years and is more commonly known as
Electronic Data Interchange (EDI). Typically in the B2B environment, e -
commerce can be used in the following processes:
 Procurement
 Order fulfilment
 Managin g trading -partner relationships
3.2 BUSINESS TO BUSINESS E -COMMERCE When a business sells goods and s ervices to another business online, it is
called B2B transaction.
In simple, one company will sell products or services to other companies.
(i.e.,) wholesale distributors will sell products or services to retailers.
Normally this field includes the sellin g of goods that are not used by
customers. For instance, businesses that manufacture products sold in
Walmart stores are operating under a business to business e -commerce
model because they are a business selling products to another business.
Examples:
 Walmart: Walmart India is based on the B2B process as it sells its
products only to traders. Walmart India, a B2B website, landed on
many states in India and any vendors can easily sell their products on
Walmart’s B2C marketplaces.
 Alibaba: Alibaba is a Chinese world -leading e -commerce, retail,
internet and technology company. It has supplying partners
worldwide. Those suppliers are business companies.
 Amazon: Besides B2C ecommerce, Amazon plays a major role in
B2B ecommerce businesses as in the name of Amazon Business .
 Indiamart: IndiaMart connects buyers and sellers with their high -
quality B2B products like Apparels, Industry Machinery, electrical &
electronics, etc.,
 Slack: For communication, and sharing of files and documents, many
B2B companies use slack.
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38 Business To Business E-Commerce 3.3 NEED AND ALTERNATIVE MODELS OF B2B E - COMMERCE Need of Business To Business (B2b):
1) Custom pricing features: With a B2C e -commerce website, pricing
is usually simple as every customer gets the same price. B2B e -
commerce websites, there might be different pricing for different
customers. It could be because of the volume of business they do with
them, the frequency of orders, or the type of products they buy.
2) Custom Bulk Discount: Bulk discounts are a common feature of
B2B businesses. They are a way of encouraging higher order values
and building customer loyalty. They can be based on the quantity or
purchase amount.
3) Minimum order quantities: In addition to policies like discounts for
buying in bulk, many B2B stores also operate a minimum order value
for all or some of their products. Minimum orde r quantities are often
essential for managing margins and ensuring that B2B e -commerce
company remain profitable.
4) Flexible Payments: Having flexible payment options is an advisable
feature for any ecommerce store, but it is particularly important for
B2B businesses. B2B E -commerce company can offer flexible
payment option along with selected days credit facility.
5) Omni -Channel Presence: Scalable, responsive, and fully customized
e-Commerce platform solutions including mobile app and website for
B2B e -Commer ce gives comfort and ease to customer at online store.
6) More business opportunities: A web store can help strengthen
online presence, letting potential clients and resellers find B2B e -
commerce Company through search engines.
This is especially effective th e company chooses to make its catalog
pages public. However, even if it decides to keep catalog private,
company can use targeted marketing content (Customers to whom a
company wants to direct its marketing efforts and o sell its products
and services) in web store to grab the attention of new clients.
7) Fewer customers: In the B2B e -commerce, there are fewer number
of customers. Although the market is small with fewer buyers and
sellers, but their orders are big.
8) Stability and Loyalty: In B2B e -commerce, the re is a very stable
relationship between buyer and seller that goes for years. Before
signing any contract, buyers and sellers both plan their budget,
revenues, and rates. When both parties close the deal, then they rely
on one another in terms of supplies and payments. So parties are loyal
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39 M.M.S. - E- commerce 9) Lower cost: In B2B e -commerce, both parties spend a lot of time
planning and working on the details. In most cases, the work is done
through automation (including order entry, client information
provision and customer service) that eradicates the chances of errors
and undue expenditure. Therefore, it leaves no room for mistakes and
errors. As a result, everything works out as plan without costing any
extra expenses. This especially true with ERP-integrated B2B e -
commerce .
10) Design easy order system: B2B companies selling online need to put
much effort into designing a website and ordering sys tem that buyers
find easy to use. This means presenting product and service
information clearly, offering online demos or consultations and using
order forms with appropriate options for quantities and any special
customization needed.
11) Reduces Distribution Costs: B2B transactions reduce marketing and
sales costs of the sellers. Eg. A seller need not to advertise heavily to
attract customers. Also, the seller need not maintain a large number of
sales force and support staff.
12) Reduces Inventory Levels: A selle r need not maintain large
inventory levels in anticipation of demand. The seller can maintain
the level of inventory based on the orders received online. Therefore,
the cost of maintaining inventory is less.
Also, the buyer need not keep a large amount of inventory. He can
order for inventory as and when required. The seller can supply the
inventory under the just -in-time model. Therefore the cost of
maintaining inventory is also less for the buyer.
13) Benefit of Negotiation: B2B permits negotiation between b uyer and
seller relating to price quantity and other terms and conditions of sale.
However, negotiation is not possible in case of B2C model.
Negotiation benefits both the parties and therefore, there is higher
conversion of sales as compared to B2C model.
14) Lower Rejection Rate: Under B2B model, there is lower rejection
rate as compared to B2C model. B2B model permits negotiation
between the buyer and the seller. Also the sales representatives of the
seller meet the buyer with samples and also provide clarif ications,
whenever required. Therefore, the return of goods is lower in the case
of B2B model, which in turn reduces the cost for the seller
Alternative Models of B2b E – Commerce:
1) Customer -Centric Model: In this model the company prefers to
establish a lo ng term profitable relationship with the customers even
after the sale. The value of the customer remains the same; it doesn’t
change after the transaction. When customers are the main focus of
the business, then they would have a great influence over the branding
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40 Business To Business E-Commerce Amazon and Flipkart are the two major examples of e -commerce
businesses, and they follow the customer -centric model. It took them
years to develop reliable and trustworthy relations with their
customers, and th ey are also loyal to their brand.
2) Buyer Centric Model: In this model, there are few buyers and many
suppliers . The buyer has his/her own online marketplace.
This model is mainly used among the big corporate companies as they
have a higher rate of purcha ses. Here the buyer sets a portal where the
sellers quote their price. The sellers approach the buyer with different
quotations. It is the buyer’s call to choose the most suited company
regarding its specifications and budget.
Walmart is the best example o f the buyer -centric model because it has
a shopping mall across the world. Every branch of Walmart has
different and multiple suppliers. However, different suppliers
approach the company and bid, and the best bidder becomes the
supplier of the company.
3) Supplier centric Model: In this type of model, there are many buyers
and few suppliers . The supplier provides a common marketplace. This
market is used by both individual customers as well as businesses. For
the success of this model, goodwill in the market a nd a group of loyal
customers is very important.
A successful example of this business model is Cisco. Cisco owns
an online marketplace which goes by the name of Cisco Connection
Online. In 1997 Cisco sold US$1 billion worth of network products
such as routers and switches to business customers.
4) Intermediary Centric Model: In this type of model, there are many
buyers and many suppliers . This model provides a commo n platform
for both the sellers and buyers to interact and transact with one
another. This common platform is formed by the intermediaries. In
return, the intermediaries get their fair share as commission from the
parties that are involved.
Customers can’ t check out all the products in the digital market. But
this intermediary provided platform is a great place to check out all
the products.
For instance, eBay and OLX provides a platform where seller can
connect over with potential buyers for product or se rvice. They agree
to the terms of the commission that these third -party vendors would
charge. For every transaction made or sale happened, the intermediate
earns a certain sum of money.
5) Managed B2B Model: This model is a platform where the company
outsour ces its entire B2B process requirements to an outside service
provider and benefits by lowering the resource needs. This also cuts
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41 M.M.S. - E- commerce model works on a system that lets the Service Provider receiv e the
business documents through a direct medium of your ERP system.
The service provider would perform activities like translation,
mapping, tech support, document tracking, and data center operations.
3.4 USING PUBLIC AND PRIVATE COMPUTER NETWORKS FOR B2 B TRADING: Organizations might use private exchanges to tap into the positives the
Web has to offer, but in a secure environment. Public B2B exchanges
have also had their share of the headlines. Once the inevitable shake -out
comes, the select few that surv ive will offer an efficient means of realizing
cost savings in areas of procurement where decisions are based purely on
commodity pricing.
But not every corporate relationship boils down to carrying out
transactions at the lowest possible price. When it co mes to maintaining
long-standing relationships with valued business partners it can pay to go
private. By drawing together your intranet and extranet into a co -ordinated
hub spanning key suppliers, customers and collaborators, you can create a
secure tradi ng environment that you alone control.
In practical terms, public B2B exchanges hinge on the transactional side of
business. Transactional functionality can be built into a private exchange,
but the real value -add comes in the areas of content and collabor ation.
Private exchanges reflect the dynamics of human interactions and business
relationships. If e -mail has automated communication, then private
exchanges will automate collaboration. How do you securely share
information with trading partners? How do y ou communicate inside and
outside the enterprise? As ever, it's a question of automating existing
processes to increase efficiencies - of doing the same things, only better.
If one of the benefits of a private exchange is that you own it, then one of
the d rawbacks is that you have to manage it. The challenge for the IT
department is to learn to let go. It's rare for an IT manager to happily
devolve responsibility for IT applications to the lines of business. On the
other hand, private exchanges have to be l iving, dynamic environments, in
which business managers can, as Darmohray puts it, "click and build" as
the corporate landscape changes.
On a private exchange, e -mail is a notification mechanism, not a delivery
mechanism. All data sits on the exchange, mea ning varying the levels of
access is essential. You need to establish and maintain a watertight
security policy so the business can proactively add elements to the
exchange, but only according to set parameters. Do that, and you are
empowering, not devolvi ng.
Choosing which business partners to embrace in your private exchange
should be simple: if you have a complex, ongoing relationship with an
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42 Business To Business E-Commerce Edi and Paperless Trading:
Electronic Data Interchange (E DI) is the computer -to-computer exchange
of business documents in a standard electronic format between business
partners. By moving from a paper -based exchange of business document
to one that is electronic, businesses enjoy major benefits such as reduced
cost, increased processing speed, reduced errors and improved relationship
with business partners.
Computer -to-Computer: Computer -to-computer EDI replaces postal
mail, fax and email. While email is also an electronic approach, the
documents exchanged via e mail must still be handled by people rather
than computers. Having people involved slows down the processing of the
documents also introduce errors. Instead, EDI documents can flow straight
through to the appropriate application on the receiver’s computer and
processing can begin immediately. A typical manual process looks like
this, with lots of paper and people involvement:
Business Documents: These are any of the documents that are typically
exchanged between businesses. The most common documents exchang ed
via EDI are purchase orders, invoices and advance ship notices. But there
are many, many others such as bill of lading, customs documents,
inventory documents, shipping status documents and payment documents.
3.5 EDI AND PAPERLESS TRADING: CHARACTERISTI C FEATURES OF EDI SERVICE
ARRANGEMENT 1) Cost effective: EDI make it possible to cut down on paper waste and
all paper processing becomes quick. Therefore there are reduction
expenses of printing, storing, processing, papers, reproduction and
documents retrie val.
2) Efficiency: EDI enables cloud -computing and machine learning. This
enables to eliminate computational repetition, redundancies, and
errors that would be more common among human.
3) Speed: The electronic transfer of data ensures more consistency and
accuracy without sacrificing pace (speed). The data can be transferred
from one person to another in a shorter time period as compared to
physical transferring of data.
4) Prompt and reliable service: Faster processing means better
customer service, over all, in turn, helps to expand customer base
5) Costly: EDI is costly software. Therefore, small business enterprise
may not afford it.
6) Accuracy: Errors are a part of human nature. That is why the manual
data interchange process is vulnerable to errors. But, with ED I, you
can attain maximum accuracy, and that’s why it is preferred over
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43 M.M.S. - E- commerce and rekeying errors, illegible handwriting, and incorrect document
handling.
7) Staff training cost: Staff needs train ing in order to run EDI enabled
software. Investment has to be done in training.
8) Proper backup: Proper backup of data should be maintained as the
whole data depends on EDI. In case of any crash of EDI system,
proper backup has to be maintained and extra co st is required for it.
9) Limit your trading partners: Some organization stops doing
business which don’t use EDI. For instance, Wal -Mart prefers to do
business only with those organization which uses EDI.
10) Reduces Data entry efforts: Data is entered automatic ally by EDI
software. For instance, when purchase order (PO) from one company
is received by another company. Sales order (SO) is automatically
generated at other company’s system with the help of EDI software
3.6 INTERNET BASED EDI When considered as a ch annel for EDI, the Internet appears to be the most
feasible alternative for putting online B2B trading within reach of virtually
any organization, large or small. Firms should use Internet based EDI for
several reasons:
 The Internet is a publicly accessibl e network with few geographical
constraints. Its largest attribute, large -scale connectivity (without the
need for any special company networking architecture), is a seedbed
for growth of a vast range of business applications.
 The Internet’s global network connections offer the potential to reach
the widest possible number of trading partners of any viable
alternative currently available.
 Using the Internet instead of a VAN can cut communication costs.
 Using the Internet to exchange EDI transactions is co nsistent with the
growing interest in delivering an ever -increasing variety of products
and services electronically, particularly via the Web.
 Internet -based EDI can complement or replace many current EDI
applications.
 Internet tools such as browsers and s earch engines are very user -
friendly, and most employees today know how to use them.
 Internet -based EDI has several functionalities not provided by
traditional EDI.
Types of Internet -Based EDI :
 Internet e -mail can be used to transport EDI messages in plac e of a munotes.in

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44 Business To Business E-Commerce VAN. To this end, standards for encapsulating the messages within
Secure Internet Mail Extension (S/MIME) have been established.
 A company can create an extranet that enables its trading partners to
enter information into a Web form, the fields of which correspond to
the fields in an EDI message or document.
 Companies can use a Web -based EDI hosting service in much the
same way that companies rely on third parties to host their EC sites.
Netscape Enterprise is an example of the type of Web -based ED I
software that enables a company to provide its own EDI services over
the I
The Prospects of Internet -Based EDI:
Companies that used traditional EDI in the past have had a positive
response to Internet -based EDI. With traditional EDI, companies have to
pay for network transport, translation, and routing of EDI messages into
their legacy processing systems. The Internet simply serves as a cheaper
alternative transport mechanism. The combination of the Web, XML, and
Java makes EDI worthwhile even for small, infrequent transactions.
Whereas EDI is not interactive, the Web and Java were designed
specifically for interactivity as well as ease of use. The following
examples demonstrate the benefits of Internet -based EDI.
 CompuCom Systems was averaging 5,000 tran sactions per month
with traditional EDI. In just a short time after the transition to Web -
based EDI, the company was able to average 35,000 transactions. The
system helped the company to grow rapidly.
 Tradelink of Hong Kong was successful in recruiting onl y several
hundred of the potential 70,000 companies to a traditional EDI that
communicated with government agencies regarding export/import
transactions. In 2001, Tradelink’s Internet -based system had
thousands of companies registered, and hundreds were be ing added
monthly.
 Atkins Carlyle Corp., which buys from 6,000 suppliers and has
12,000 customers in Australia, is a wholesaler of industrial, electrical,
and automotive parts. The large suppliers were using three different
EDI platforms. By moving to an Internet -based EDI, the company is
able to collaborate with many more business partners, reducing
transaction costs by about $2 per message.
 Procter & Gamble replaced a traditional EDI system that had 4,000
business partners with an Internet -based system that has tens of
thousands of suppliers

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45 M.M.S. - E- commerce 3.7 EDI ARCHITECTURE AND STANDARDS EDI architecture provides a framework that enables you to standardize
the information which can be easily exchanged between and within
business organizations and government entitie s using electronic channels.
EDI architecture specifies 4 layers:
1) Semantic (application layer)
2) Standard transaction layer
3) Packing (transport) layer
4) Physical n/w infrastructure layer.
1) Semantic layer: It describes the business application that is driving
EDI. For a procurement application, this translates into requests for
quotes, price quotes, purchases orders, acknowledgements &
involves.
The information seen at this layer must be translated from a company
specific from to a more generic form so that it can be send to various
trading partners, who could be using a variety of software applications
at this end.
When a trading partner sends a document, the EDI translation
software converts the proprietary format into a standard mutually
agreed on by the processing system. When a company receivers the
document, their EDI translation software automatically changes the
standard format into proprie tary format of their document processing
software so that company can manipulate the information in whatever
way it chooses to.
2) EDI stand ards: It specify business form structure and it also
influence the content at application layer. The most two important
standards are: -
 EDIFACT – developed by United Nations Economic Commission
 ANSI X12 – developed by American National Standards Institute
3) EDI transport layer: It corresponds closely with the non -electronic
activity of sending a business form from one company A to company
B. The business form could be sent via regular postal service,
registered mail, certified mail or private carrier such as united parcel
service (UPS) or simply faxed between the companies.
4) Physical layer: The physical infrastructure layer consisting of Dial up
lines, Internet etc. enable for the transmission of the message..

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46 Business To Business E-Commerce Edi Standards:
To exchange documents with trading partners, you must convert the data
to and from EDI Standard formats. EDI standards are the requirements for
the format and content of EDI business documents. EDI standards
determine the correct order and location of the units of data in an EDI
document. All EDI transactions are defined by EDI standards.
EDI standards developers design and publish EDI Standard formats for
various kinds of documents, such as purchase orders or invoices that you
might exchange with your trading partners.
EDI Standard forma t is comparable to the language that you speak. For
instance, an element of the EDI Standard can be compared to a word. A
segment in the EDI Standard is comparable to a sentence. A transaction
set in the EDI Standard is comparable to a paragraph or a document. In the
EDI Standard, just as in the language that you speak, elements (or words)
are combined to form a segment (or a sentence). Segments (or sentences)
are combined to create a Transaction set (or paragraph or document). Two
commonly used EDI st andards are:
 EDI for Administration, Commerce, and Transport ( EDIFACT ) -
generic international. EDIFACT was based on TRADECOMS
developed by the UK Department of Customs and Excise. It is
becoming widely accepted as the EDI standard.
 American Nationa l Standards Institute/Accredited Standards
Committee X12 (ANSI ASC X12). ANSI X.12 committee develops
standards to facilitate EDI relating to such business transactions as
order placement and processing for products and services. The
transaction sets gene rally map a traditional paper document to an
electronic format that can move easily over a telecommunication
network .
3.8 COSTS OF EDI INFRASTRUCTURE Calculating the cost of EDI implementations is very important in order to
ensure that it will deliver rea l financial and business benefits to your
company. But first you must decide the approach you are going to take
with EDI: In -house or working with a third party EDI provider (sometimes
referred to as a value -added network, or VAN).
In-house EDI:
A few very large organisations have created their own EDI networks. This
has the advantages of internal management, control and security but it is
not something to be undertaken lightly.

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47 M.M.S. - E- commerce The cost of EDI could be the following:

There a re many soft benefits too, arising from most efficient operation,
direct link with customers, and better management controls. These cannot
be called as saving but a decision could be arrived from this to decide
whether to adopt EDI or not.
The investment w ill get the firm to the start point. It will have an internal
EDI system. It is likely that it will have to assist each of its trading
partners to implement the system at their end, maybe even build it for
them. Firm will need to do this with each trading partner that it wants to
do EDI with and it will be an ongoing requirement as its trading
community evolves, grows and changes.
EDI Provider/VAN:
There are different pricing models available from third -party providers.
The provider’s charge is usually base d on the volume of data transmitted
over the network. This is often measured in the number of kilo -characters
(KCs) contained within EDI document. Based on this, providers offer a
variety of subscription models that can be selected from, such as:
 Pay-as-you-go
 Monthly
 Annual subscription
Often these models operate within price bands based on anticipated
volumes of KCs or documents. Firm should also be aware of hidden
charges such as minimum record lengths.
It is important to understand the volume and natur e of business
transactions before selecting a provider. That way firm can select the
pricing model that best meets to the business needs.


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48 Business To Business E-Commerce 3.9 REASONS FOR SLOW ACCEPTABILITY OF EDI FOR TRADING 1) Cost of Implementation: It is true that EDI provides massive cost
savings benefits but for small businesses re -designing and
implementing software applications to fit in EDI into current
applications can be quite costly.
2) Electronic System Safety: EDI also necessitates substantial
investment in computer networks and security systems for maximum
security. Any EDI system installed would require protection from
hacking, malware, viruses, and other cyber security threats.
3) Preliminary Setup Consumes Time: Not only is the implementation
of EDI system expensive to install, but it also consumes a
considerable amount of time to set up the essential parts. Thus, such
limitations of EDI can hinder fast -tracking of services if urgently
required.
4) Several Standards to Maintain: Numerous businesses looking to
implement EDI also cons ider the several standards involved. These
limitations of EDI do not allow small businesses to exchange data
with larger establishments that make use of latest edition of a
document standard. Some known measures include ANSI ASC X12,
GS1 EDI, HL7, TRADACOM S, and UN/EDIFACT
5) Suitable Backup System: EDI implementation also requires regular
maintenance as the business functionality is highly dependent on it.
Some robust data backup system is needed in case of system crash or
for statistical purpose. Such limita tions of EDI can cost some
substantial amount to implement.
6) Staff training cost : Staff needs training in order to run EDI enabled
software. Investment has to be done in training.
7) Limit your trading partners: Some organization stops doing
business which don ’t use EDI. For instance, Wal -Mart prefers to do
business only with those organization which uses EDI.
3.10 E -MARKETING E-marketing is a process of planning and executing the conception,
distribution, promotion, and pricing of products and services in a
computerized, networked environment, such as the Internet and the World
Wide Web, to facilitate exchanges and satisfy customer demands.
Marketing (also referred to as web marketing or internet marketing) uses
electronic communication technologies including t he Internet, mobile
phones and digital media

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49 M.M.S. - E- commerce Definition:
According to Kotler and Keller , E-Marketing portrays company efforts
to inform and communicate with buyers, and promote and sell its products
and services over the Internet.
Scope of E -Marketing:
1) Promotions: E-Marketing can be used for promotions of either an
existing product or a new product. With the help of emerging
technology marketers can make use of creativity and promote their
products in a better manner which was not possible in traditional
method
2) Market Analysis: Market analysis forms a very important and one of
the primary activities of any business activity. It helps the business to
understand the market standing. It helps the organization to identify
its competitors and form a combat fo rce to fight the same. This
basically forms a source of primary first -hand information for the
business. E -Marketing can be used for gathering this crucial
information.
3) Strategic Web activities: To be in constant touch with the customers
and prospects, it is very important for the business to be in news and
do things differently. It is often said ‘Out of Sight is Out of Mind’.
Hence, companies must keep engaging themselves in strategic
activities over different platform to be visible. This can be done
through E -Marketing.
4) Business expansion: After survival and Growth, Expansion is an
inevitable part of any business organization. For expansion, it is not
just enough to escalate the R & D process but also to communicate it
efficiently in the market. Unless a better communication is done, even
the best of products cannot pick up sales. E -Marketing, can be seen as
a platform for launch of new products as well business expansion.
5) Customer response: Business and marketing are a continuous
activity. Its continuit y is largely based on the feedback that is received
from the customer. In today’s era, it is difficult to pay attention to
individual responses and letters/ Grievances/ Satisfaction, but much
easier when E -Marketing tools are used. It helps the organizatio n to
gauge the exact summary of customer feedback.
3.11 TRADITIONAL WEB PROMOTION: WEB COUNTERS Traditional Web Promotion :
Despite ongoing changes in the web, traditional online marketing is still an
important part of a successful online strategy, and shou ld not be neglected.
Classic banner advertising still draws the attention of many potential
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50 Business To Business E-Commerce implemented properly. Offline marketing can also be effectively linked to
online marketing in or der to significantly increase traffic.
Web Counters:
A web counter or hit counter once set up, these counters will be
incremented by one every time the web page is accessed in a web browser.
The number is usually displayed as an inline digital image or in plain text.
Image rendering of digits may use a variety of fonts and styles; the classic
example is the wheels of an odometer. The counter is often accompanied
by the date it was set up or last reset, without which it becomes impossible
to estimate within what time the number of page loads counted occurred.
Some web counters were simply web bugs used by webmasters to track
hits and included no visible on -page elements.
Counters were popular in the 1990s, but were later replaced by other web
traffic measur es such as self -hosted scripts like Analog, and later on by
remote systems that used JavaScript, like Google Analytics. These
systems typically do not include on -page elements displaying the count.
Thus, seeing a web counter on a modern web page is one exa mple of retro
computing on the Internet.
3.12 WEB ADVERTISEMENTS Web Advertisement is important not just because it helps you to get found
online, but also because it can change the way your business is perceived
by potential customers. For example, ranki ng high in search engine results
pages, along with respected industry authorities, instantly boosts your
business' credibility.
Types of Web Advertisements :
1) Display Advertising : Display advertising is a kind of online exhibit
that typically uses images an d text. The most popular forms of these
kinds of ads are banner ads, landing pages (LP’s) & popups. Display
ads are found on websites and publisher web pages and redirect a
user’s attention to the brand’s product.
2) Search Engine Marketing & Optimization (SE M) & (SEO): SEM
and SEO promote content & increases visibility through online
searches. In SEM, instead of paying for the ad, advertisers pay each
time users to click on their ad to their website. In SEO, they use
various tactics like linking, targeting ke ywords and creating high -
level content that other sites will link to in order to drive traffic.
3) Social Media Ads: Placing online ads, promoted posts and sponsored
stories on social media are a popular way to reach a target
demographic without paying a hef ty amount. Facebook and Twitter
are the most popular social media platforms for companies to reach
potential new customers with LinkedIn a popular avenue for B2B
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51 M.M.S. - E- commerce 4) Pay Per Click (PPC): Ads Pay per click (PPC) ads are
advertisements where the promot ers pay every time a user clicks on
an ad. That means, even if the ad was seen by hundreds of
personalities but only 1 person clicked on the ad, the cost of the ad
would be calculated on the one click.
5) Remarketing: Remarketing is a kind of online advertis ing that uses
online cookies to track followers around the internet, in order to target
them again. These users are targeted once they leave the website by
then seeing subtle hints (ads), reminding them about their previous
interest.
6) Affiliate Marketing: Affiliate marketing promotes a brand’s product
while earning a commission for each successful transaction. This is
widely used by publishers and bloggers who have massive
followership and are looking to gain passive income.
7) Video Ads: Video ads are rapidl y gaining popularity, especially
among millennial and Gen Z consumers. YouTube is undoubtedly the
No. 1 platform for online videos, and it uses a PPC method, i.e.,
brands pay when someone engages with an ad.
3.13 SUMM ARY When a business sells goods and ser vices to another business online, it is
called B2B transaction.
In simple, one company will sell products or services to other companies.
(i.e.,) wholesale distributors will sell products or services to retailers.
Electronic Data Interchange (EDI) is the computer -to-computer exchange
of business documents in a standard electronic format between business
partners. By moving from a paper -based exchange of business document
to one that is electronic, businesses enjoy major benefits such as reduced
cost, incre ased processing speed, reduced errors and improved relationship
with business partners.
3.14 QUESTIONS Fill In The Blanks:
1) Wholesale distributors will sell products or services to retailers, is an
example of ________ type of e -commerce. (B2C, B2B, C2B)
2) _________ is an example of B2B E -commerce. ( Indiamart , Dmart,
Reliance Fresh)
3) In __________ model, there are few buyers and many supplier and
the buyer has his/her own online marketplace. (Customer -Centric
Model, Buyer Centric Model , Supplier centric Model)
4) ________ is one of the characteristic of EDI. ( Speed , Slow, Cheaper) munotes.in

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52 Business To Business E-Commerce 5) ______________ is a computer software program that indicates the
number of visitors, or hits, a particular webpage has received. (Spy,
Hardware, Web counters )
True or False:
1) Cinema adverti sing is a type of web advertisement. FALSE
2) Alibaba.com is an example of B2B e -commerce. TRUE
3) EDI does not require staff training. FALSE
4) EDI transport layer corresponds closely with the non -electronic
activity of sending a business form from company A to co mpany B.
TRUE
5) One of the reasons for slow acceptability of EDI for trading is due to
cost factor. TRUE
Match the Pairs: Group - A Group – B 1) EDI a) Walmart 2) B2B e-commerce b) Search Engine Marketing 3) Customer-Centric Model c) Paperless Trading 4) EDI architecture d) Alternative models of B2B
e-commerce 5) Web Advertisement e) Semantic layer
(1-c, 2 -a, 3 -d, 4 -e, 5 -b)
Answer in Brief :
1) Explain the need of B2B e -commerce model.
2) What alternative models of B2B e – commerce?
3) Write a note on Using Public and pr ivate computer networks for B2B
trading
4) Discuss what is EDI and characteristic features of EDI service
arrangement
5) Briefly explain Internet based EDI with examples.
6) Write a note on EDI architecture
7) Write a note on EDI standards
8) Describe the Costs of EDI i nfrastructure
9) What are the reasons for slow acceptability of EDI for trading?
10) Discuss the concept of E -marketing.
11) Explain Traditional web Promotion :
 Web counters
 Web advertisements.
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53
4
ELECTRONIC PAYMENT SYSTEMS AND
ORDER FULFILLMENT
Electronic Payment Systems and Order Fulfillment: Types of payment
systems - e-cash and currency servers, e -cheques, credit cards, smart
cards, electronic purses and debit cards; Operational, credit and legal risks
of e - payment, Risk management options for e - payment systems; Order
fulfillment for e –commerce.
Unit Structure
4.0 Objective
4.1 Introduction
4.2 Types of payment systems -e cash and currency services, E cheques,
Credit Cards, Smart cards, Electronic purses and Debit cards.
4.3 Operational, Credit and legal risks of e payment.
4.4 Risk management options for e payment systems.
4.5 Order fulfilment for e commerce
4.6 Summary
4.7 Exercise
4.0 OBJECTIVE After studying this u nit student will be able to understand:
 Understand the concept of Electronic payment system.
 Know about various types of electronic payment system.
 Explain risk associated with e payment systems.
 Know about order fulfilment.
4.1 INTRODUCTION An e -commerce payment system facilitates the acceptance of electronic
payment for online transactions. Also known as a sample of Electronic
Data Interchange (EDI), e -commerce payment systems have become
increasingly popular due to the widespread use of the internet -based
shopping and banking.
Overview :
Definition: Electronic Payment is a financial exchange that takes place
online between buyers and sellers. The content of this exchange is usually
some form of digital financial instrument (such as encrypted credit card
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54 Electronic Payment Systems And Order Fulfillment intermediary, or by a legal tender. The various factors that have leaded the
financial institutions to make use of electronic payments are:
Decreasing technology cost:
The technolo gy used in the networks is decreasing day by day, which is
evident from the fact that computers are now dirt -cheap and Internet is
becoming free almost everywhere in the world.
Reduced operational and processing cost:
Due to reduced technology cost the pr ocessing cost of various commerce
activities becomes very less. A very simple reason to prove this is the fact
that in electronic transactions we save both paper and time.
Increasing online commerce:
The above two factors have lead many institutions to go online and many
others are following them. E -Commerce was began with EDI, primarily,
for large business houses and not for the common man. Many new
technologies, innovations have led to use of E -Commerce for the common
man also. Some applications are:
Cons umers: Credit cards, Debit Cards, ATMs (Automated Teller
Machines), stored value cards, E -Banking.
Online commerce: Digital Cash, E -Cash, Smart cards (or Electronic
Purse) and encrypted Credit cards.
Companies: The payment mechanisms that a bank provides to a company
have changed drastically. The Company can now directly deposit money
into its employee‘s bank account. These transfers are done through
Automated Transfer Houses.
How does electronic payment system works ?
Electronic payments are instant and t herefore convenient, saving a lot of
time. How simply, with a click of a button, you successfully pay for your
favourite dress, or order groceries or make an online booking. Even
though all of this happens in a span of seconds, the process behind this is
quite comprehensive.

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55 M.M.S. - E- commerce Customer Action: The journey of an electronic payment begins with a
customer visit a merchant’s site, add products or services they want to the
cart and clicks on the checkout button. Post this, the customer chooses his
preferred form of payment option and proceeds towards filling in the
banking or card details. The customer then, is redirected to the bank’s
page to proceed with the payment.
Payment Authenticatio n and Authorization by the Operator : Once the
customer proceeds with the payment, the payment gateway along with
various parties involved, authenticates if the payment information entered
is valid. Upon entering valid information, a successful transaction message
is reported back by the payment gateway, informing the customer about
the payment confirmation on real -time basis.
Payment Settlement in Merchant’s Account: On fulfilling the
transaction, the Online payment provider receives payment from the
custom er’s bank account and transfers the same into the Merchant’s
account.
Problems with the traditional payment systems :
1. Lack of Convenience: Traditional payment systems require the
consumer to either send paper cheques by snail -mail or require
him/her to physically come over and sign papers before performing a
transaction. This may lead to annoying circumstances sometimes.
2. Lack of Security: This is because the consumer has to send all
confidential data on a paper, which is not encrypted, that too by po st
where it may be read by anyone.
3. Lack of Coverage: When we talk in terms of current businesses, they
span many countries or states. These business houses need faster
transactions everywhere. This is not possible without the bank having
branch near al l of the company‘s offices.
4. Lack of Eligibility: Not all potential buyers may have a bank
account.
5. Lack of support for micro -transactions: Many transactions done
through the Internet are of very low cost though they involve data
flow between two e ntities in two countries. The same if done on paper
may not be feasible at all.
Advantages of Electronic payment system:
E-payment system has stunned the financial market in a way people could
have never thought of. With the growing popularity of online sh opping,
electronic payments have become a need of the hour for the customers
who buy online, making shopping and banking services more convenient
than ever.
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56 Electronic Payment Systems And Order Fulfillment Here are some of the key benefits for merchants adopting e -payment:
1. When retailers or online shopp ers promotes/supports e -payments
system on their website, they can reach out to more prospects from all
over the globe, therefore resulting in increased sales and revenue
growth.
2. The e -payments system is a channelized and systematic structure of
money coll ection where transactions and payment transfers happen
within minutes, topped with high speed and accuracy.
3. Convenience is yet another feather to its hat. Customers today can
indulge in shopping and banking services at any time of the day or
hour, simply w ith an internet connection.
4. Lower transaction cost and decreased technology costs only adds
more profits to the business and encourages regular discounts on
products which leads to bulk purchase by consumers.
5. E-Payment gateways providers offer high securit y and anti -fraud to
make transactions more reliable, safe and secure for both - the
merchants and the consumers!
E-payments are considered as one of the fastest and most secured
alternative to traditional payment methods like cash & cheques. Accepting
elect ronic payments comes with lots of benefits for both merchants and
consumers as it is highly effective for international transaction and is
comparatively cheaper.
With e -commerce and m -commerce getting bigger year after year, make
sure your website does not miss out on customers simply because it is not
integrated with an electronic payment system. Atom’s payment gateway
lets you accept electronic or online payments through multiple modes,
helping you to translate more sales.
4.2 TYPES OF E -PAYMENT SYSTEM Electronic payment systems are proliferating in bankin g, retail, health
care, online markets, and even government —in fact, anywhere money
needs to change hands. Organizations are motivated by the need to deliver
products and services more cost effectively an d to provide a higher quality
of service to customers. The emerging electronic payment technology
labelled Electronic Funds Transfer (EFT)
EFT is defined as ―any transfer of funds initiated through an electronic
terminal, telephonic instrument, or computer or magnetic tape so as to
order, instruct, or authorize a financial institution. EFT can be segmented
into three broad categories:
1. Banking and financial payments:
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57 M.M.S. - E- commerce  Small -scale or Retail p ayments (e.g., automated teller machines)
 Home banking (e.g., bill payment)
2. Retailing payments :
 Credit Cards (e.g., VISA or MasterCard)
 Private label credit/debit cards (e.g., J.C. Penney Card)
 Charge Cards (e.g., American Express)
3. On-Line Elec tronic Commerce payments:
 Token -based payment systems
• Electronic cash (e.g., Digi Cash)
• Electronic checks (e.g., Net Cheque)
• Smart cards or debit cards (e.g., Mondex Electronic Currency
Card))
 Credit card -based payments systems:
• Encrypted Cred it Cards (e.g., World Wide Web form -based
encryption)
• Third-party authorization numbers (e.g., First Virtual)
4.2.1 E Cash and Currency Services:
Since the explosion of the Internet, more and more people are being
hooked to the convenience Internet has to offer. Internet has connected
people around the world and subsequently enables businesses to offer
products and services around the globe without being physically present in
front of the consumers or potential consumers. As time goes by, Internet
has be come a part of the daily life, which demands more and more
applications being created and services being made available to make full
use of the infrastructure. In line with the online business transaction, E -
cash is one of the services that attract people attention for doing business
transaction electronically. It is a replacement for traditional coins and
paper notes, which is not viable for e -commerce. Another alternative for
online payment scheme is the credit cards, however notational schemes
such as cr edit cards require recording of transactions to be made into some
individual accounts. This method requires a trust from the merchant site,
which usually facilitated by verification authority such as credit -card
issuer or payment gateway. Because of the "t rust" requirement, this
method normally eliminates user -merchant transactional anonymity. On
the other hand token -based payment schemes such as E -cash does not
require transactions to be recorded since the token itself allows
straightforward verification b y the merchant. Even though E -cash can
achieve anonymity in its implementation, it can also be implemented as
traceable for higher security reason. E -cash can be implemented in two munotes.in

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58 Electronic Payment Systems And Order Fulfillment ways, on -line and off -line. On -line means E -cash is stored by the bank or
issuer and consumer needs to request for it when a consumer makes
payment. Different from online, off -line e -cash is kept by consumer in a
devise such as smart card or other type of token. Each of this
implementation can be classified as identified (traceab le) or anonymous
(untraceable). By identified implementation, it means each transaction
needs verification and validation from third party such as bank. This
implementation offers better security because it uses encryption and
digital signature to secure a nd authenticate the E -cash message
respectively. Identified implementation enables banks to track down
individuals who actually use the E -cash to avoid double spending. This
type of implementation is suitable for larger amount of transactions and
especiall y for system that is available on the Internet. This method
however, gives consumers less freedom compare to traditional cash
transaction where consumers can spent money anywhere and anytime they
want without the need of having a third party for verificati on.
Anonymous implementation is more close to traditional coins and paper
notes payment system. The implementation is made possible by using
blind/digital signature. Blind/ digital signature is used for encrypting
messages and also signing for authenticati on purposes. When a digitally
sign (blind) document is sent to a bank, the bank could ensure the
authenticity of the document but does not know who sent it; therefore the
consumer’s identity is not revealed. The bank then signs the document
making the docu ment a certified document or in case of E -cash, the
signing process produces certified E -cash. This implementation is highly
suitable for micro payment. However, this type of implementation may
introduce the problem of double spending and even if the banks discover
the problem, it is difficult for the bank to trace the culprit who is double
spending the E -cash.
4.2.2 General E -Cash Implementation :
So, how does E -cash work? There are many E -cash system being
introduced and developed but the basic idea of E -cash is as follow. It
involves at least three parties, issuer not necessarily financial institutions,
consumer as the end -user who use the E -cash and merchant who accept E -
cash in exchange with products or services provided.
1. Consumer needs to open an accou nt with a bank. Merchant who wants
to participate in E -cash transaction need to have accounts with various
banks in order to support consumer’s transaction who might use any
bank account. The banks on the other hand will handle both
consumers’ and merchant s’ accounts.
2. When consumer decides to purchase, he or she will transfers the E -
cash from his/her bank account to his/her electronic purse (on -line
system) or E -cash token (off -line system). The E -cash can then be
transferred to the merchant in exchang e with the merchant’s products
or services. The E -cash payment can be in term of softcopy (via munotes.in

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59 M.M.S. - E- commerce software) or token based. Transactions via Internet are normally
encrypted.
3. Upon receiving E -cash payment from consumer, merchant will get
confirmation from the bank. The bank will then authenticate the E -
cash transaction. At the same time the bank will debit consumer’s
account based on the agreed amount. The merchant will then delivers
the products or services and instructs the bank to deposit the agreed
amount to the merchant’s bank account.
The diagram below represent E -cash processes in general:

4.2.3 Properties of E -Cash :
To be able to replace coins and paper notes, E -cash should be as good as
coins and paper notes in term of features. Some of the impo rtant features
of coins and paper notes are: transferable, acceptable, dividable,
untraceable and anonymous. Listed below are some of the important
properties for E -cash implementation. Later discussions on E -cash
implementations will be based on these few properties.
1. Security :
For any E -cash system to be accepted, security is one of the prime
concerns that need to be considered. The originality of the message being
transferred among consumers, merchants and banks need to be secured to
avoid any unauthor ized individual intercepting or changing the content of
the messages. In order to protect E -cash from such illegal activity, E -cash
system must possess quality such as integrity, nonrepudiation and able to
authenticate. All parties must know to whom they a re dealing with, before
engaging or committing in any transaction. Integrity comes in place where
the message sent by consumers, merchants and banks must be intact when
it reaches respective recipients. Once the integrity and authentication are
achieved, c onsumers, merchants or banks could no longer deny the
transaction.

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60 Electronic Payment Systems And Order Fulfillment 2. Privacy :
Privacy in E -cash means the existence of anonymity for the consumers
who made the payment. Similar to coins and paper notes there should not
be any link or trace to individu al who uses the E -cash for any transaction.
This feature is needed in order to protect consumers’ privacy from being
monitored for the purpose of financial surveillance. However, anonymity
does impose certain danger such as counterfeiting, money laundering and
blackmailing. Consumers should be aware that the more anonymity
offered the less security achieved by the E -cash.
3. Portability :
E-cash should be portable, similar to the conventional money where it
does not depends on physical location. E -cash shou ld be transferable via
network to portable storage devices.
4. Transferability :
Transferability features allow consumers to transfer E -cash from one
person to another without a need to refer to the bank. Similar to
conventional cash where coins or paper n otes can be transferred easily, E -
cash should be able to do the same. However, this feature imposes
problem where double spending could not be trace since it might have
been transferred to different entities too many times. The below diagram
illustrates th e transferability process of E -cash Bank Consumer A C1 C2 C3 Consumer B 5. Divisibility :
By divisible, it means E -cash should possess the ability to make change
where E -cash can be divided into small denomi nations to allow small
value transaction possible (this is known as micropayment). The challenge
for divisible system is to be able to divide the E -cash value to small values
where the total of the small E -cash value is equal to the original value.
There a re many systems being developed to solve divisible problem such
as proposed by Eng, and Okamoto’s scheme, Okamoto’s scheme and
Okamoto and Ohta’s scheme, to name the few.
3.0 Some of The E -Cash Implementations This section discusses some of
the famous impl ementations of E -cash. Some companies presented might
no long in operation or change name, the objective of the paper is get the munotes.in

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61 M.M.S. - E- commerce understanding of E -cash implementation. The discussion will be focused
on the methodology used and the properties presented ear lier.
4.2.4 First Virtual :
First Virtual Holdings founded by Lee Stein in the late 1994 is one of the
first companies who offer E -cash transferable via Internet. The system
depends on electronic mail as the meant of communication among
consumers, merchants and First Virtual. Consumers have to give away
their credit card numbers as an exchange to First Virtual E -cash.
Consumers and merchants will be charge with extra charges for billing
process. In summary, the First Virtual E -cash system works as follow:
1. Consumer opens account with First Virtual. Consumer must have an
email account and credit card. First Virtual will give consumer an ID
number as an exchange to consumer credit card number.
2. When consumer wants to purchase something from merchant who
accepts First Virtual ID numbers, consumer will negotiate the price
with merchant. Once agreed, consumer will give the merchant his or
her First Virtual ID number.
3. The merchant then send an email to First Virtual’s Internet Payment
System server togethe r with merchant’s ID, consumer’s IDs and
description of the transaction such as the agreed price.
4. Upon receiving the merchant’s email, the payment server will send an
email to consumer for confirmation.
5. Consumers must reply to the email with any of these three answers:
 YES, means consumer agrees with the transaction and allows First
Virtual to instruct the bank to debit the stated amount from
consumer’s credit card.
 NO, means consumer disagrees with the transaction and therefore no
payment will be m ade. First Virtual however, will record all the
refused transactions. This is done in order to avoid consumers from
taking advantage of the merchants.
 Consumers who refuse transactions too often will then face the
possibility of account termination.
 FRAUD means consumer do not initiate the transaction. First Virtual
will conduct an investigation to determine the truth.
6. Once First Virtual acknowledges that the consumer has paid the credit
card company,
First Virtual will credit the amount to merchant’s a ccount.
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62 Electronic Payment Systems And Order Fulfillment Below diagram illustrates the flow of First Virtual system.

From the description given above, First Virtual system can be categorized
as identified on -line implementation where every transaction is being
recorded and traceable with the need of a third party for verification. It
also means the system does not provide privacy to consumers. In addition
to consumer -to-merchant transaction, First Virtual also offers person -to-
person E -cash transfer; therefore the E -cash introduced is transferable.
This system has shown that the used of email makes it more portable since
consumers could make the transaction anytime and anywhere, as long as
there is a place for accessing email. Since the Internet infrastructure is
getting better by the hour, consumers sh ould not have any problem
accessing email to initiate or verify transactions.
However, this system does not use neither encryption nor digital signature
when sending email from consumers -to-merchants, merchants -to-First
Virtual, First Virtual -to consumers and vice versa. Although the system
claims that the security achieved by not having credit card numbers
transfer on the Internet but the transfer of First Virtual ID from consumers
to merchants is not secured and can be intercepted. The system also
emphasi ze that consumers verification via email is enough to secure the
transaction, but then again the email message is transfer on the open
network in the plain text where the email can be intercepted and sabotaged
by others.
Even though First Virtual implement ation does not employs encryption, it
is possible for the parties involve to secured their emails and their
transactions. Meaning, consumers can encrypt their emails (could use non -
commercial PGP) before submitting, merchants can development secure
communi cation applications for consumers by utilizing secure protocol
such as SSL to transfer the First Virtual ID and merchants can also use
secured email to send details to the bank. munotes.in

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63 M.M.S. - E- commerce 4.2.5 CyberCash :
CyberCash is an U.S.A based company, founded by Bill Melton and
Daniel Lynch in 1994. CyberCash system is using what they called
“Wallet” as a medium to handle credit cards, currencies, checks and
CyberCoin. CyberCoin is a system to handle micropayment less than $10.
CyberCash supports not only consumer -to-merchant but also consumer -to
consumer services. Below is the description of how the implementation
works:
1. Consumer request “Wallet” by downloading the free software from
CyberCash Internet server. The software will establish links among
consumer, merchant, C yberCash and consumer’s bank. Consumer
then will received a 768 -bit RSA key and use a password to secure the
key.
2. Once consumer decides to purchase, he or she will sends his or her
“Wallet” via the communication software by pressing the “PAY”
button. The system will then activate merchant’s CyberCash software
on merchant’s storefront. The merchant sends consumer an electronic
invoice with the detail information of the transaction.
3. Upon receiving the invoice, consumer will sign the invoice by adding
his or her credit card number, name as appeared on the card and the
credit card expiration date. The Wallet” will encrypt the signed
document with CyberCash’s public key and send the document to
both CyberCash and merchant.
4. Merchant who received the signed document will then add merchant’s
identification information and price before signing it and forward it to
CyberCash.
5. CyberCash who received signed documents from both consumer and
merchant will unbind the document and compare the stated price. If
the stated price is the same, CyberCash will instruct the bank to
deduct the agree amount from consumer’s credit card, credit the same
amount to merchant’s account. Details of the transaction are then send
to the merchant.
1. Merchant will finally deliver the purchased product or service.
The below diagram summarizes CyberCash processes

SOURCE : https://www.researchgate.net/figure/An -Online -Payment -
Using -Cybercash -Software -13_fig2_261712275 munotes.in

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64 Electronic Payment Systems And Order Fulfillment The implementation of CyberCash is based on on -line identified E -cash.
Every transaction is recorded, traceable and needs third party verification.
The use of encryption enables the documents to be authentic ated. The
system does support divisible property with the introduction of
CyberCoin.
However, CyberCash does not protect consumer’s privacy where
consumer and merchant’s identities are revealed before any transaction
can be completed. In term of portabili ty,
“Wallet” can only be installed on consumer’s computer; therefore
consumer could only make transactions from a computer where the
“Wallet” is installed. This system support both transfers but from
consumer -to-consumer and consumer -to-merchant transfer
4.2.6 DigiCash :
Found ed by David Chaum in 1994, DigiC ash is located in Amsterdam.
The system was designed based on Chaum’s digital cash system. DigiCash
system uses digital signature for encryption and “blind” signature for
authentication to ensure the sec urity of transactions and to protect
consumers, merchants and banks from illegal activities
DigiCash was designed to provide payment from one computer to another
computer through Internet. DigiCash offers both anonymity and identified
for both of its on -line and off -line services. The E -cash product introduced
by DigiCash is called “e -cash” where it uses RSA encryption algorithm.
The system works as follow:
1. Consumer who wants to use DigiCash must open an account with
bank that provides on -line DigiCas h system.
2. Ecash software will generate a pair of keys, private and public keys
when it is first executed on consumer’s computer. The consumer will
keep the private key, which is use to sign E -cash transactions
originated from consumer. Public key will be made available for
banks, merchants and other people to verify any messages or E -cash
transferred from consumer.
3. When consumer decides to purchase, consumer’s computer will
determine the denominations based on the amount needed and
generate matchin g random serial numbers acting as “notes” for each
denomination. The consumer’s computer will also generate a selected
random factor use to blind the denominations/random serial numbers.
The blinded random serial numbers or the blinded “notes” are then
encrypted with the bank’s public key before sending it to bank for
certifying.
4. The bank decrypts the message using it’s private key. Once the
message is decrypted, the bank will debit the amount found from the
message from consumer’s account. In exchange with the debited munotes.in

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65 M.M.S. - E- commerce amount, the bank then certified the blinded “notes” found in the
message with it’s private key. The signed blinded “notes” is then send
back to consumer who will take out the blinding factor before using
the “notes” in payment. Both the r andom serial numbers (the “notes”)
and the signatures (consumer’s and bank’s) are the certified E -cash.
5. Upon payment, the certified E -cash is sent to merchant who will send
it to the bank for verification. The bank will verify whether E -cash is
valid and have not been used before.
The diagram shown below is the visualization of the above process:

SOURCE https://www.giac.org/paper/gsec/1799/ overview -e-cash -
implementation -security -issues/103204
DigiCash system offers both anonymity for on -line and off -line services
and the system allows transfers from consumer -to-consumer in additional
to consumer -to-merchant. The certified E -cash is portable since it is a
softcopy based, where it can be stored and transferred to other devices,
making it easy and convenient to use. It also protects consumer’s privacy
via blind signature. The bank cannot make any connection as to who
signed the document because only consumer know the random factor use
in the blind signature.
Another property is the divisible feature that comes from the introduction
of CyberCoin to handle micropayment. In term of security, DigiCash
provides better security by using digital signa ture to authenticate the
message send and received. Using this approach, bank’s public key is
available for both consumer and merchant, making it possible for both
parties to authenticate the message.
However, both parties are unable to forge bank’s signa ture since only the
bank has the matching private key to sign (certified) the E -cash. Consumer
is also being protected against illegal merchant activities and mistreated
attempts by bank.
4.2.7 Mondex :
The development of Mondex started in the early 1990s. The concern on
security has brought Mondex (E -cash application) and Multos (E -cash
smart card based operating system) to the highest achievement in security munotes.in

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66 Electronic Payment Systems And Order Fulfillment recognition; level E6 was awarded in 1999 by UK IT security Evaluation
and Certification (ITSEC). R ecognition has proved that Mondex is one of
the most secured E -cash applications available today.
Mondex is an E -cash application, based on smart card where the E -cash is
stored in the chip located in the smart card. The concept of Mondex is
similar to Di giCash. Consumer requests E -cash from bank.
When consumer decides to purchase, consumer’s E -cash will be
transferred to the merchant who will then send it to the bank for
verification and cashing. Upon receiving the E -cash, bank will verify and
certify th e E-cash, at the same time consumer’s accounts will be debited
and the same amount will be credited to the merchant’s account.
Finally, the merchant will deliver the products or services to the consumer.
Mondex is offering anonymity on both of its on -line and off -line services.
For off -line transactions, merchant can do verification after the transaction
completed (This might expose merchant to double spending that is
difficult to trace).
Besides consumer -to-merchant transaction, Mondex also allows
consum er-to-consumer E -cash transfer. In short Mondex had fulfilled
almost all the desirable properties of E -cash mentioned earlier. It has
security, which is based on digital signature where each message transfer
among bank, merchant and consumer can be authent icated. The system is
portable with the use of smart card. Mondex system also protects
consumer’s privacy by using blind signature. In term of divisibility,
Mondex declares that the system is able to handle micropayment as small
as one cent.
4.2.8 Advantag es of E -Cash to consumer :
E-cash is more than a convenient way of carrying cash, since it also opens
avenue for e -commerce to take place. Consumer only needs to have smart
card like devices to initiate transaction, either on -line or off -line. For some
implementations, E -cash can be stored in a computer for easy transfer over
the Internet for on -line transaction. Anonymity implementation gives
consumer a privacy to use E -cash just like the conventional coins and
paper notes. Consumers are also able to make t ransactions without the
need of third party verification. E -cash environment enables consumers to
purchase small item over the Internet, which is cumbersome in other
implementations such as credit cards. To merchant, E -cash provides an
opportunity to expan d their businesses across the globe without the barrier
of different currencies. By using identified approach, merchant can be
protected against fraud, since each transaction needs verification from
financial institutions or banks. For the banks, E -cash im plementation does
reduce cost in maintaining cash in the bank and therefore increase bank
management efficiency. Furthermore with E -cash, banks are now able to
provide their services to the world via the Internet more easily.
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67 M.M.S. - E- commerce 4.2.9 Disadvantages of E -Cash :
One of the disadvantages of E -cash is the existence of counterfeiters who
are able to recreate E -cash either stored in smart card or softcopy based.
All parties involve, consumers, merchants and banks/issuers, are affected
by this counterfeit activity. L iability of the loss E -cash on damage smart
card or crashed computer where the E -cash is installed is also in question.
Although the number of Internet users is increasing in number, there are
many others who do not have the opportunity to own computers an d get
connected to the Internet. These are the people who will be left behind
even further with the introduction of the E -cash. Not to mention that
consumer needs to learn new things such as installing software on the
computer and understand how E -cash sof tware operates. Furthermore, the
numbers of participating companies are still low and it seems companies
are not willing to accept e -cash system in order to attract more consumers.
This phenomena might relate to the fact that additional fee is incur as
processing charges by banks to merchant and consumer. These additional
charges are non -issue in conventional payment system but can mounting
to a huge sum in E -cash implementation. Other issue of E -cash is money
monitoring by the government. With the convent ional coins and paper
notes, government can monitor money flow to stabilized economy, but
with E -cash, there is no foreseeable way for the government to control the
flow of E -cash in and out of a country. Even more mind -boggling is how a
government can cal culates or collects taxation from untraceable E -cash
asset.
4.2.10 E-Cheques:
Electronic cheques are designed to accommodate the many individuals
and entities that might prefer to pay on credit or through some mechanism
other than cash. Electronic cheques are modelled on paper cheques, except
that they are initiated electronically, use digital signatures for signing and
endorsing, and require the use of digital certificates to authenticate the
payer, the payer’s bank, and bank account. The security/authent ication
aspects of digital cheques are supported via digital signatures using public -
key cryptography. Ideally, electronic cheques will facilitate new online
services by: allowing new payment flows (the payee can verify funds
availability at the payer’s ba nk); enhancing security at each step of the
transaction through automatic validation of the electronic signature by
each party (payee and banks); and facilitating payment integration with
widely used EDI -based electronic ordering and billing processes.
Electronic cheques are delivered either by direct transmission using
telephone lines, or by public networks such as the Internet. Electronic
cheques payments (deposits) are gathered by banks and cleared through
existing banking channels, such as automated cle aring houses (ACH)
networks.
Electronic cheques address the electronic needs of millions of businesses,
which today exchange traditional paper cheques with the other vendors,
consumers and government. munotes.in

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68 Electronic Payment Systems And Order Fulfillment

Source: https://www.semanticscholar.org/paper/Trust -in-E-Cheque -
in-Electronic -Payments -Shahbahrami -
Nobakht/41cd963100de3bb1aa3d375055141f7754e128e4
Electronic cheque system has many advantages:
1. They do not require consumers to reveal account information to other
individuals when setting an auction.
2. They do not require consumers to continually send sensitive financial
information over the web.
3. They are less expensive than credit cards and
4. They are much faster than paper based traditional cheque.
But, this system of payment also has several disadvanta ges. The
disadvantage of electronic cheque system includes their relatively high
fixed costs, their limited use only in virtual world and the fact that they
can protect the users €Ÿ anonymity. Therefore, it is not very suitable for
the retail transaction s by consumers, although useful for the government
and B2B operations because the latter transactions do not require
anonymity, and the amount of transactions is generally large enough to
cover fixed processing cost. The process of electronic chequing system
can be described using the following steps:
 Step 1: a purchaser fills a purchase order form, attaches a payment
advice (electronic cheque), signs it with his private key (using his
signature hardware), attac hes his public key certificate, encrypts it
using his private key and sends it to the vendor.
 Step 2: the vendor decrypts the information using his private
key, checks the purchaser’s certificates, signature and cheque,
attaches his deposit s lip, and endorses the deposit attaching his public
key certificates. This is encrypted and sent to his bank. munotes.in

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69 M.M.S. - E- commerce  Step 3: the vendor’s bank checks the signatures and certificates and
sends the cheque for clearance. The banks and clearing houses
normally have a private secure data network.
 Step 4: when the cheque is cleared, the amount is credited to the
vendor’s Account and a credit advice are sent to him.
 Step 5: the purchaser gets a consolidated debit advice periodically.

E-cheque provide a security rich Internet payment option for businesses
and offer an easy entry into electronic commerce without a significant
investment in new technologies or legal systems.
4.2.11 . Credit cards:
Credit Card :
Payment using credit card is one of most common mode of elect ronic
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 the credit
card bill. It is usually credit card monthly payment cycle. Following are
the actors in the credit card system.
 The card holder – Custo mer
 The merchant – seller of product who can accept credit card
payments.
 The card issuer bank – card holder’s bank munotes.in

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70 Electronic Payment Systems And Order Fulfillment  The acquirer bank – the merchant's bank
 The card brand − for example , visa or Mastercard.
Credit Card Payment Process :
Step Description Step 1 Bank issues and activates a credit card to the customer on his/her request. Step 2 The customer presents the credit card information to
the merchant site or to the merchant from whom
he/she wants to purchase a product/service. Step 3 Merchant valida tes the customer's identity by asking
for approval from the card brand company. Step 4 Card brand company authenticates the credit card
and pays the transaction by credit. Merchant keeps
the sales slip. Step 5 Merchant submits the sales slip to acquirer banks and gets the service charges paid to him/her. Step 6 Acquirer bank requests the card brand company to clear the credit amount and gets the payment. Step 7 Now the card brand company asks to clear the amount from the issuer bank and the amount gets transferred to the card brand company.

Source: https://shannonlangan.medium.com/anatomy -of-e-commerce -
credit -card -input -3c6288bef623
4.2.12 Debit Card :
Debit card, like credit card, is a small plastic card with a unique number
mapped with the bank acco unt 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 munotes.in

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71 M.M.S. - E- commerce 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

Source: https://www.shutterstock.com/image -vector/debit -card -sign-
online -shopping -ecommerce -1490900183















munotes.in

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72 Electronic Payment Systems And Order Fulfillment Difference b etween Credit Cards And Debit Cards:


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73 M.M.S. - E- commerce 4.2.13 Smart Card :
Smart card is again similar to a credit c ard 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 faster processing.
Mondex and Visa Cash cards are examples of smart cards.
How Smart Cards are made :
Construction of smart cards include four major steps
1) Designing :

Source: https://www.schoolsmartcards.com/blog/smart -cards/
This is the foremo st step that requires a programmer or a designer to set
the clock speed, the memory size of the chip, volatile memory types,
operating system, etc.
The programmer should create an application software for the card based
on the card type. He/she should also add the required features
2) Fabrication of the chip :

Source: https://www.schoolsmartcards.com/blog/smart -cards/ munotes.in

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74 Electronic Payment Systems And Order Fulfillment During this second stage, the silicon chip is being fixed into it. This s ilicon
chip is connected to wires by bounding or soldering them together. Then,
the chip on board substrate is being sealed with epoxy resin and glued to
the substrate of the card. The substrate is often made of any synthetic
plastic or using PVC.
3) Codin g:
By using the special commands, codes are being entered into the chip
memory. This is an integral and vital part of card making.
4) Loading Data :
Personal details of the users are being entered in this final stage.
Smart Card working process:
 Step -1: Smart card is inserted into the card reader which reads the
information from the smart card.
 Step -2: After the card reader reads information from the card it
passes the information to the payment system or authentication
system.
 Step -3: There after the paymen t system or authentication system
authenticated the user that whether the provided data matches with
the database.
 Step -4: In last step the payment system or the authentication system
does the required task.
Types of Smart Cards:
1. Contact Smart Card:
This t ype of smart cards are embedded with electrical contacts which are
used to connect to the card reader where the card is inserted. The
electrical contacts are deployed on a conductive gold plated coating on
the card surface.
2. Contact less Smart Card:
This ty pe of smart card establishes connection with the card reader
without any physical contact. It consists of an antenna by means of
which it is used to communicate using radio frequency band with the
antenna on the reader. It receives power from the reader vi a the
electromagnetic signal.
3. Dual -interface cards:
This type of smart card is equipped with both contact less and contact
interfaces. This type of card enables secure access to the smart card’s
chip with either the contact less or contact smart card inter faces. munotes.in

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75 M.M.S. - E- commerce 4. Memory based smart card:
This type of smart cards are embedded with memory circuits. It stores,
reads and writes data to a particular location. It is straight memory card
which is only used to store data or a protected memory card with a
restricted access to the memory and which can be used to write data. It
can also be a rechargeable or a disposable card which contains memory
units which can be used only once.
5. Microprocessor based smart card:
This type of smart cards consist of microprocessor embedd ed onto the
chip in addition to the memory blocks. It also consists of specific
sections of files related with a particular function. It allows for data
processing and manipulations and can be used for multi functioning.
6. Hybrid smart card:
Hybrid smart car d embedded with both memory and microprocessor.
Two different chips are used for different applications connected to a
single smart card based on the different functionality as the proximity
chip is used for physical access to prohibited areas while the co ntact
smart card chip is used for sign in authentication.
Applications of Smart Card:
Smart Card is widely used in the following fields:
1. Telecommunications
2. E-commerce
3. Banking applications
4. Government applications
4.2.14 Electronic purses:
Electronic purse or e-purse is a type of smart card, with an embedded
microchip , provides multiple options such as payment by debit card or
credit card. It is a state -of-the-art cash on card which facilitates purchase
of goods and payment for services. In othe r words , cash is s tored
electronically on a microchip. I t can place cash for small payments.
Features of e -purse:
 It is issued by banks to their customers
 Money is transferred from the customer’s account to the e -purse
using a load device
 The transaction i s protected by PIN
 Payment of e -purse may be online or offline munotes.in

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76 Electronic Payment Systems And Order Fulfillment  The money in the e -purse can be used by the card holder for making
payments
Advantages:
 Bankers can reduce cash and cheque handling cost
 Customers need not keep cash to make payments
 It provide s privacy
 It is more flexible and more accessible
 It is useful than debit and credit cards
Disadvantages :
 The banker may charge for using e -purse
 Merchants do not favour this form of payments
 Technical limitations
 It may be misused
4.3 OPERATIONAL, CREDIT AND LEGAL RISKS OF E -PAYMENT Operational Risk:
Operational risk Operational risk arises from the potential for loss due to
significant deficiencies in system reliability or integrity. Security
considerations are paramount, as banks may be subject to exter nal or
internal attacks on their systems or products. Operational risk can also
arise from customer misuse, and from inadequately designed or
implemented electronic banking and electronic money systems. Many of
the specific possible manifestations of these risks apply to both electronic
banking and electronic money.
Security risks:
Operational risk arises with respect to the controls over access to a bank’s
critical accounting and risk management systems, information that it
communicates with other parties and, in the case of electronic money,
measures the bank uses to deter and detect counterfeiting. Controlling
access to bank systems has become increasingly complex due to expanded
computer capabilities, geographical dispersal of access points, and the use
of various communications paths, including public networks such as the
Internet. It is important to note that with electronic money, a breach of
security could result in fraudulently created liabilities of the bank. For
other forms of electronic banking, unauthorized access could lead to direct
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77 M.M.S. - E- commerce A variety of specific access and authentication problems could occur. For
example, inadequate controls could result in a successful attack by hackers
operat ing via the Internet, who could access, retrieve, and use confidential
customer information. In the absence of adequate controls, an outside third
party could access a bank’s computer system and inject a virus into it. In
addition to external attacks on el ectronic money and electronic banking
systems, banks are exposed to operational risk with respect to employee
fraud: employees could surreptitiously acquire authentication data in order
to access customer accounts, or steal stored value cards. Inadvertent errors
by employees may also compromise a bank’s systems. Of direct concern
to supervisory authorities is the risk of criminals counterfeiting electronic
money, which is heightened if banks fail to incorporate adequate measures
to detect and deter counterf eiting.
A bank faces operational risk from counterfeiting, as it may be liable for
the amount of the falsified electronic money balance. In addition, there
may be costs associated with repairing a compromised system.
Systems design, implementation, and mai ntenance :
A bank faces the risk that the systems it chooses are not well designed or
implemented. For example, a bank is exposed to the risk of an interruption
or slow -down of its existing systems if the electronic banking or electronic
money system it cho oses is not compatible with user requirements.
Many banks are likely to rely on outside service providers and external
experts to implement, operate, and support portions of their electronic
money and electronic banking activities. Such reliance may be des irable
because it allows a bank to outsource aspects of the provision of electronic
banking and electronic money activities that it cannot provide
economically itself.
However, reliance on outsourcing exposes a bank to operational risks.
Service providers may not have the requisite expertise to deliver services
expected by the bank, or may fail to update their technology in a timely
manner. A service provider’s operations could be interrupted due to
system breakdowns or financial difficulties, jeopardizing a bank’s ability
to deliver products or services.
The rapid pace of change that characterizes information technology
presents banks with the risk of systems obsolescence. For example,
computer software that facilitates the use of electronic banking and
electronic money products by customers will require updating, but
channels for distributing software updates pose risks for banks in that
criminal or malicious individuals could intercept and modify the software.
In addition, rapid technological change can mean that staff may fail to
understand fully the nature of new technology employed by the bank. This
could result in operational problems with new or updated systems.
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78 Electronic Payment Systems And Order Fulfillment Customer misuse of products and services :
As with traditional banking services, custome r misuse, both intentional
and inadvertent, is another source of operational risk. Risk may be
heightened where a bank does not adequately educate its customers about
security precautions. In addition, in the absence of adequate measures to
verify transact ions, customers may be able to repudiate transactions they
previously authorized , inflicting financial losses on the bank.
Customers using personal information (e.g., authentication information,
credit card numbers or bank account numbers) in a non -secure electronic
transmission could allow criminals to gain access to customer .
Subsequently, the bank may incur financial losses because of transactions
customers did not authorize .
Legal risk :
Legal risk arises from violations of, or non -conformance with la ws, rules,
regulations, or prescribed practices, or when the legal rights and
obligations of parties to a transaction are not well established. Given the
relatively new nature of many retail electronic banking and electronic
money activities, rights and ob ligations of parties to such transactions are,
in some cases, uncertain.
For example, application of some consumer protection rules to electronic
banking and electronic money activities in some countries may not be
clear.
In addition, legal risk may arise from uncertainty about the validity of
some agreements formed via electronic media. Electronic money schemes
may be attractive to money launderers if the systems offer liberal balance
and transaction limits, and provide for limited auditability of transac tions.
Application of money laundering rules may be inappropriate for some
forms of electronic payments. Because electronic banking can be
conducted remotely, banks may face increased difficulties in applying
traditional methods to prevent and detect crim inal activity. Banks
engaging in electronic banking and electronic money activities can face
legal risks with respect to customer disclosures and privacy protection.
Customers who have not been adequately informed about their rights and
obligations may br ing suit against a bank. Failure to provide adequate
privacy protection may also subject a bank to regulatory sanctions in some
countries. Banks choosing to enhance customer service by linking their
Internet sites to other sites also can face legal risks.
A hacker may use the linked site to defraud a bank customer, and the bank
could face litigation from the customer. As electronic commerce expands,
banks may seek to play a role in electronic authentication systems, such as
those using digital certificates .
The role of a certification authority may expose a bank to legal risk. munotes.in

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79 M.M.S. - E- commerce For example, a bank acting as a certification authority may be liable for
financial losses incurred by parties relying on the certificate. In addition,
legal risk could arise if bank s participate in new authentication systems
and rights and obligations are not clearly specified in contractual
agreements.
Other risks:
Traditional banking risks such as credit risk, liquidity risk, interest rate
risk, and market risk may also arise from electronic banking and electronic
money activities, though their practical consequences may be of a
different magnitude for banks and supervisors than operational,
reputational, and legal risks. This may be particularly true for banks that
engage in a var iety of banking activities, as compared to banks or bank
subsidiaries that specialize in electronic banking and electronic money
activities.
Credit risk :
This is the risk that a counterparty will not settle an obligation for full
value, either when due or at any time thereafter. Banks engaging in
electronic banking activities may extend credit via non -traditional
channels, and expand their market beyond traditional geographic
boundaries. Inadequate procedures to determine the creditworthiness of
borrowers applying for credit via remote banking procedures could
heighten credit risk for banks. Banks engaged in electronic bill payment
programs may face credit risk if a third party intermediary fails to carry
out its obligations with respect to payment. Banks t hat purchase electronic
money from an issuer in order to resell it to customers are also exposed to
credit risk in the event the issuer defaults on its obligations to redeem the
electronic money.
Liquidity risk is the risk arising from a bank’s inability to meet its
obligations when they come due, without incurring unacceptable losses,
although the bank may ultimately be able to meet its obligations. Liquidity
risk may be significant for banks that specialize in electronic money
activities if they are unab le to ensure that funds are adequate to cover
redemption and settlement demands at any particular time. In addition,
failure to meet redemption demands in a timely manner could result in
legal action against the institution, and lead to reputational damage .
Interest rate risk refers to the exposure of a bank’s financial condition to
adverse movements in interest rates. Banks specializing in the provision of
electronic money may face significant interest rate risk to the extent
adverse movements in interest rates decrease the value of assets relative to
electronic money liabilities outstanding. 2.4.4 Market risk is the risk of
losses in on - and off -balance sheet positions arising from movements in
market prices, including foreign exchange rates. Banks accepti ng foreign
currencies in payment for electronic money are subject to this type of risk.
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80 Electronic Payment Systems And Order Fulfillment VARIOUS TYPES OF RISKS IN ELECTRONIC PAYMENT SYSTEM Credit risk: There is risk to a transaction if a party cannot provide the necessary funds for a settlement to take place. This can occur if an originator goes bankrupt or returns come in after settlement. Weaknesses such as a lack of appropriate exposure thresholds or limits, and inadequate originator credit analysis, elevate the potential for credit risk. Fraud risk: There is the potential that a new transaction will be added to the processing stream for illicit reasons, or an existing transaction will be intentionally altered in an attempt to misdirect or misappropriate funds, NCUA wrote. Inadequate internal controls over physical security, data security, change controls and operational controls increase the potential for fraud and possible losses to a credit union. Compliance risk: There is the possibility a credit union will fail to comply with regulatory requirements, including—but not limited to—the Electronic Funds Transfer Act, the Bank Secrecy Act, and requirements of the Office of Foreign Assets Control. Liquidity risk: There is a possibility a credit union will be unable to settle an obligation for full value when it is due, cautioned the agency. This can occur when the credit union chooses not to warehouse ACH items (making funds available prior to effective date of the transaction), there are ineffective controls over overdrafts or management lacks a risk assessment on high-risk activities. Systemic risk: There is the potential one or more participants in the clearing and settlement network will be unable or unwilling to settle its commitments. This could cause other participants to be unable to settle their commitments on one or more other payment networks. Operational and transaction risk: There is a possibility that a credit union will have inadequate or failed internal processes, people and systems, stated NCUA. The potential for a non-posting or erroneous posting to a member account is something a credit union’s management must be prepared for. Many financial institutions process payments across different retail and wholesale payment systems. The industry has identified this additional complexity as “cross-channel risk.” In cross-channel risk, fraud can take place across multiple channels or access points a member does business through, such as the branch, call center, debit card, ATM, voice response unit or mobile banking site or application. Strategic risk: There is the potential for risk when a credit union grows its payment services without adequate planning or offers new payment services without proper vendor due diligence. Reputation risk: There is a possibility that a credit union will be unable to meet customer expectations with the delivery of retail payment services. Accounting for and mitigating these potential risks can be munotes.in

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81 M.M.S. - E- commerce difficult for even the most seasoned of managers, NCUA explained. Those who are considering providing one or all of these services to their members for the first time face even greater challenges.
4.4 RISK MANAGEMEN T OPTIONS FOR E PAYMENT SYSTEMS Risks from electronic banking and electronic money activities should also
be evaluated in the context of other risks the bank faces. Ev en though
electronic banking and electronic money activities may represent a
relatively small portion of the overall activities of banks currently,
supervisors may still require senior management’s assurance that critical
systems are not threatened by the risk exposures banks take.
The rapid pace of technological innovation is likely to change the nature
and scope of risks banks face in electronic money and electronic banking.
Supervisors expect banks to have processes that enable bank management
to respond to current risks, and to adjust to new risks.
A risk management process that includes the three basic elements of
assessing risks, controlling risk exposure, and monitoring risks will help
banks and supervisors attain these goals. Banks may employ such a
process when committing to new electronic banking and electronic money
activities, and as they evaluate existing commitments to these activities. It
is essential that banks have a comprehensive risk management process in
place that is subject to appropria te oversight by the board of directors and
senior management.
As new risks in electronic banking and electronic money activities are
identified and assessed, the board and senior management must be kept
informed of these changes. Prior to any new activity being commenced, a
comprehensive review should be conducted so that senior management
can ensure that the risk management process is adequate to assess, control
and monitor any risks arising from the proposed new activity
Listed below are fifteen concrete steps that merchants operating in a card -
not-present environment should incorporate into their e-commerce risk
management systems. If implemented correctly and co nsistently, these
suggestions will help you process card -not-present transactions securely
and will substantially reduce customer disputes and fraud -
related chargebacks .
Educate and train your staff on e-commerce risk. The extent of your
risk exposure largely depends on your business policies, operational
practices, the fraud detection and prevention tools you have implemented,
security controls, and the types of produc ts and services that you provide.
Everyone in your organization should understand the risks associated with
online transactions and be able to follow your established risk
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82 Electronic Payment Systems And Order Fulfillment 1. Find the right payment processor : The right credit card proce ssing
company will provide effective risk management support and help
you understand the specific e-commerce fraud risk and liability.
Adequate customer data p rotection capabilities are also something
you will want to consider when making your selection.
2. Create essential website content : Your website must include and
prominently display your privacy, shipping, return and refund
policies . It must be reliable and to provide customers with easy and
simple navigation. Placing links to these policies in the footer of your
website will make them present on every page.
3. Focus on risk reduction : A well designed sales order process will
help you address a number of risk co ncerns. You should indicate or
highlight required transaction fields in your online payment
acceptance form and verify card and cardholder information that you
receive from your customers over the internet.
4. Develop internal fraud prevention structure : The profitability of
your e -commerce organization depends on your internal strategies and
controls for minimizing fraud. A risk management structure,
combined with adequate transaction controls, will help you avoid
fraud -related losses.
5. Use fraud prevention tools: There are a number of fraud prevention
tools to help reduce your risk exposure. The most widely used among
them are the Address Verification Service (AVS) , the Card Security
Codes ( CVV2 , CVC 2 and CID), Verified by Visa and MasterCard
Secure Code.
6. Build a fraud screening process : When adequately implemented, the
screening of online card transactions can help you minimize fraud for
large -ticket items and for high -risk transactions.
7. Protect your merchant account from intrusion : Implementing
proactive measures can minimize the risk of criminals gaining access
to your s hopping cart or payment gateway and making fraudulent
fund deposits.
8. Participate in Verified by Visa and MasterCard Secure Code: The
two fraud prevention tools enhance security by requiring cardholders
to authenticate themselves by entering a password during
the checkout . The password is verified by the card issuer and, if
correct, the transaction is allowed to be completed.
Implementing Verified by Visa and MasterCard Secure Code protects
merchants from fraud -related chargebacks.
9. Secure the process of routing your authorizations : You must
ensure that your authorization requests are submitted in a secure and
efficient manner, before you can start accepting card payments over
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83 M.M.S. - E- commerce 10. Establish a process for handling transaction post-
authoriz ations : You need to set up an effective process for dealing
with approved and declined authorizations before fulfilling an order.
11. Ensur e PCI compliance : The Payment Card Industry (PCI) Data
Security Standards (DSS) provide web -based merchants with
standards, procedures and tools for pr otecting sensitive account
information. You will need reliable encryption capabilities for data
transmission and effective internal controls for protecting stored card
and cardholder information. You will also need to review your
security measures on a reg ular basis.
12. Minimize unnecessary chargebacks : Chargebacks result in extra
processing time and costs, while hurting your profits and may result i n
a loss of revenue. By carefully tracking and managing chargebacks ,
you will be able t o set up concrete procedures for avoiding
future chargebacks . You will also need to know your re-presentment
rights .
13. Monitor chargebacks : Effective chargeback monitoring mechanisms
will help you detect excessive chargeback activity, identify the
causes, and apply corrective measures to bring chargeback levels
down. You can develop your own monitoring process or implement a
third -party solution.
14. Use collection efforts to minimize losses : You can utilize a third -
party collec tion service or build your own to help recover
unwarranted chargeback losses.
4.5 ORDER FULFILMENT FOR E COMMERCE E-commerce in India has evolved tremendously over the past few years.
From selling to a small group of people actively using the internet, e -
Commerce has reached a vast consumer pool ac ross the country. With the
government taking initiatives to help online sellers, many are even
beginning to sell their products abroad. People’s expectations from e -
Commerce businesses have also increased.
What seemed like an option to go for when you coul dn’t find something in
the store, has now become a preference for many. So much so, that about
38% of sellers now say that they will abandon their cart if they do not
receive their order within a week. But when we get to the bottom of it,
what drives e -Commerce? It is not just a single process; it’s a combination
of different procedures and units that work in synchronization to deliver to
you your desired product. Let’s find ou t what these procedures are and
how they function.
What is Order Fulfilment?
Order fulfilment refers to the entire process starting from the sale, up until
the post -delivery experience of the customer. It covers all the essential
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84 Electronic Payment Systems And Order Fulfillment Most e -Commerce sellers carry out order fulfilment themselves or
outsource some of the operations.
Let’s take a closer look at these steps to learn more about how e -
Commerce fulfilment functions.
Steps Involved in Order Fulfilment :

Source: https://www.shiprocket.in/blog/order -fulfillment/
 Inventory management :
It is an ongoing process that runs simultaneously with storage and you can
place it on the first or second position. For us, inventory management
comes first because you need to have a good idea of your stock before you
can begin processing any order. An updated inventory with SKU s marked
for each product is non -negotiable.
Regular audits should be carried out to ensure its correct implementation.
Deploy an Inventory Management System for better management of your
products. Add SKUs and tally them with your products to avoid any
confusion. Also, check if the items are in shape, if found defective, discard
them and make arrangements to purchase new ones.
 Inventory Storage & Warehousing :
Inventory management also includes storing inventory. This step is one of
the most crucial as it determines the speed of your fulfilment operations. If
not done appropriately, you can spend time finding products that can lead
to a delay in processing. Furthermore, you can also lose out on the stock if
you don’t store it correctly. Therefore, arrange y our inventory in proper
shelves and bins along with the correct labels to avoid any hassles during
picking. Optimize your warehouse space to accommodate all items.
 Receiv ing:
This step runs parallel to inventory management. You can accept orders
manually or integrate your cart or marketplace with software to directly
fetch orders from your store. Once you have set your preferences for
receiving requests, begin by sorting them by delivery dates. For example, munotes.in

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85 M.M.S. - E- commerce if a person has chosen one -day delivery, keep those orders on top priority.
Send your customer an email confirming that you have received the order
and esti mated delivery date, if applicable. If you cannot provide a fixed
delivery date, give a time frame as to when they can expect the delivery of
their order.
 Picking :
Picking constitutes scanning through your warehouse and finding the
product required by the customer. This order can include one product from
one location or two products from two corners of your warehouse. Again,
an uncomplicated picking is only possible with a sorted warehouse. If your
business receives many orders, hire dedicated staff for war ehouse
logistics. This measure will help you accelerate your fulfilment process
and also save costs by streamlining the procedure.
Also, one of the best order picking methods is batch picking in which
multiple orders are grouped into smaller batches – typically including 10 -
20 orders. It increases the efficiency in the warehouse multi -folds. Invest
in automation and technology to speed up the picking process.
 Packaging :
Packaging forms an essential part of the chain as it is a tangible
representation of your brand. Therefore, you need to focus on different
types of packaging and what works best for your business. You can invest
in sturdy but straightforward packaging if you feel the packaging is not
your primary focus or you can go for customized packaging if you can
afford it. In whichever case, make sure your package is adequately packed,
labelled, and matches the standards set by courier companies. The packing
should be able to bear the friction caused due to transportation.
 Shipping :
Without shipping, your customer cannot transform into a buyer. Therefore,
it is the most vital component of your order fulfilment process. Make sure
you carry out a thorough check before signing up with any courier
company or aggregator . As shipping determines the final impression of
your brand in your customers’ mind, try to provide them with a seamless
experience. Give them varied options for payment such as cash on
delivery and p repaid fees. This step ensures they have variety and you do
not restrict them to just one mode. Also, make sure you partner with a
courier that provides you a broad reach across India and the world.
 Return order processing :
Mostly, the order fulfilment c hain ends at the delivery of the product. But
with changing times, return orders are something added to your process.
With increasing competition, return orders are unavoidable. Thus,
handling them effectively is what counts. Therefore, opt for a method th at
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86 Electronic Payment Systems And Order Fulfillment This way, you can also reduce your returns and save on return orders by a
large margin.
Order Fulfilment Challenges :
Inventory Stock Out:
There are chances that you might run out o f inventory while carrying out
order fulfilment operations. Therefore, it is mandatory to have
sophisticated inventory management systems in place to notify you about
an approaching stock out.
Seamless Distribution :
If you do not have a strong distribution network, you will not be able to
manage seamless delivery. Hence, look for 3PL providers that can
simplify the order fulfilment process for you and provide a strong logistics
distribution for hassle -free and delivery.
How to Draft a Successful Order Fulfi lment Strategy?
It can be tricky to draft a strategy that successfully takes into account all
these processes. You need to be aware of all aspects of your supply chain
and then work around them to provide a superior experience to your
customer.
Here are a few tips to get started for drafting an order fulfilment strategy
that can help you deliver products on time and also improve customer
satisfaction.
Keep Regular Track of Inventory :
It can be extremely disheartening for customers when they find out that
the product that they ordered is out of stock. Either the customer will
never shop from your store again, or lash out on social media to express
their anger. Both ways, your brand will suffer. Instances like these make it
imperative to streamline your fulfilment process to deliver orders quickly
to your customers.
Inventory is the most critical area when it comes to order fulfilment. Your
whole chain depends on it. Hence, you need to be focused on your
inventory. Get into place an inventory management system that can help
you get real -time cycle counts so that you’re always aware when a product
is out of stock or unavailable.
Without real -time inventory management, you cannot k eep your
warehouse organized or accurate. Integrate your inventory warehouse and
water management system to stay up to date with all incoming, outgoing,
and sourced orders.
Adopt Product Kitting :
Product Kitting can be extremely helpful for reducing proc essing time as
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87 M.M.S. - E- commerce but related items are grouped, packaged, and supplied together as one
unit.
Kitting has many advantages . You can improve productivity and reduce
labour costs by storing products in separate kits. You can also reduce the
inventory and improve cash flow.
Automate your Warehouse :
Technology has taken over every aspect of the fulfilment chain. Your
warehouse sh ould not be left behind. You must adopt a smart warehouse
system and put in to use data driven technology to manage your inventory,
warehouse organization, and logistics .
You can choose to automate your warehouse with technologies that
include RFID identification, internet of things, or IoT for easier tracking,
and barcodes.
Once you put to use a warehouse management system, you can reduce
manual errors and process orders much faster.
Maintain a Transparent Supply Chain :
Supply Chain visibility on the major aspect of your strategies. With
thorough supply Chain visibility, you can gain rich insights into your
process and improve upon the areas that are not performing well. Once
you begin tracking every step of the fulfilment chain. You will learn about
the lacking areas and you can work on them.
For instance, if you track the picking activities in your warehouse and find
out that manual picking of even lower shelved products increases time,
you can move it to an automated process.
Therefore, it is a must to continuously track your supply chain and collect
data.
It is essential that your order fulfilmen t process runs smoothly in order to
deliver products hassle -free to your customers. Keep in mind the steps and
formulate a strategy that works well for your business. Remember, it must
keep your business edgy and you must always innovate to match the
trends.
4.6 SUMMARY The emergence of e -commerce has created new financial needs that in
many cases cannot be effectively fulfilled by the traditional payment
systems. The advent of t he Electronic commerce has prompted the
invention of several payment tools to facilitate the completion of business
transactions over the Internet. There are different methods to pay
electronically. Recognizing this, virtually all interested parties are
exploring various types of electronic payment system and issues
surrounding electronic payment system and digital currency. Broadly
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88 Electronic Payment Systems And Order Fulfillment Credit Card Payment System, Online Electronic Cash S ystem, Electronic
Cheque System and Smart Cards based Electronic Payment System. Each
payment system has its advantages and disadvantages for the customers
and merchants.
4.7 EXERCISES 1. In credit card
i. No immediate payment is required
ii. EMI is ap plicable
iii. Customers spend unnecessarily
iv. Payment can be made on emergencies only with the money
available in the account
a. i, ii b. i, ii, iii c. iii, iv d. all of these
2. Advantages of smart card is/are……….
i. Huge storage of in formation
ii. Proper identification
iii. Comes with cash back rewards
iv. All of these
a. i, ii b. iv c. ii, iii d. i, iii
3. E-money system is/are………
i. Faster
ii. Convenient
iii. Involvement of middle men
iv. User friendly
a. i, ii, iii b. i, ii, iii, iv c. i, ii, iv d. ii, iv
4. E-wallet is/are……..
i. Secured with password
ii. Authenticates the holder’s credentials
iii. Stores personal information
iv. Allows price comparison shopping
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89 M.M.S. - E- commerce 5. Example of Electronic Fund Transfer (EFT) are……
i. Various bill payments
ii. Wire transfer
iii. Direct deposit
iv. automated ledger posting
a. i, ii, iii, iv b. i, ii, iii c. i, iii, iv d. ii, iv
6. The featu re of digital signature are…….
i. Authentication
ii. Confidentiality
iii. Repudiation
iv. Integrity
a. i, ii, iii, iv b. i, ii, iv c. i, ii, iii d. none of these
7. Debit card is……
i. Store value card
ii. Prepaid card
iii. An alternative cash or cheque
iv. E -money
a. i, ii, iii b. i, iii c. all of these d. none of these
8. The advantages of smart card is/are…..
i. Biometric security
ii. Proper identification
iii. Fairly cheap and re -useable
iv. Come with cashback rewards
a. i, ii, iii b. i, ii, iii, iv c. i, iii d. none of these
9. E-money……
i. Acts as a prepaid bearer instrument
ii. Regulated by the RBI
iii. Transfer of money necessarily involve bank account
iv. No involvement of middlemen
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90 Electronic Payment Systems And Order Fulfillment 10. Areas where ACH systems are used…….
i. Payment of electronic bills, insurance premiums, rents etc.,
through direct debit from bank
ii. Transfer funds at deferred date between payer and payee
iii. Credit transfer s includes direct deposit
iv. Automated ledger posting
a. i, ii, iii b. i, ii c. iii, iv d. all of these
11. Section ……of IT act, 2000 equates electronic signature as traditional
hand writing signatures.
a. 5 b. 15 c. 2 d. 3
12. Section …..of IT act, 2000 provide certain provision for secure digital
signature.
a. 5 b. 15 c. 2 d. 3
13. Mismanagement or inadequate strategic decision taken by senior
management for developing a strategy to provide information on how
to use the services to the customer by using internet leads to…..
a. Operational risk c. credit risk
b. Strategic risk d. reputation risk
14. Lack of proper management of funding and investment -related risk of
the bank leads to…..
a. Liquidity risk b. Strategic risk c. reputation risk
d. none of these
ANSWERS :
1.B 2. A 3.C 4.A 5.B 6.B 7.A 8.A 9.A 10.A 11.A [5]
12. B[15] 13.B [STRATEGIC RISK] 14.A [LIQUIDITY RISK]
Short Notes :
1. Write short note e payment sy stem.
2. Short note on operational risk of e -payment system.
3. Write in short about smart card.
4. Short note on Digicash.
5. Short note on order fulfilment.
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91 M.M.S. - E- commerce Answer in brief:
1. Explain at least 4 types of e -payment system in brief.
2. Write in brief about order fulfilment process.
3. What are various risks associated with electronic payment system?
Explain in brief.
4. Differentiate between credit card and debit card payment system.
5. Define smart card and its working process. Write in short about
various smart card system.

*****



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92

5
SECURITY ISSUES IN
E-COMMERCE
Unit Structure
5.1 Introduction
5.2 Security Risks Of E -Commerce
5.3 Protecting Electronic Commerce Assets And Intellectual Property
5.4 Firewalls
5.5 Other E -Commerce Security Tools
5.6 Management Of It Risk
5.7 Salient Provisions For Security And Privacy
5.8 Legal And Regulatory Environment For E -Commerce
5.9 Cyber laws In India
5.10 Summary
5.11 Questions
5.1 INTRODUCTION Businesses today are open to ample opportunities to generate revenue with
the digitalization of bu sinesses. The internet offers ample opportunities
along with tremendous savings on cost with increased productivity.
However, as it opens door for opportunities it also makes it vulnerable for
the business to cyber -attacks or vulnerable to loss of valuable data or
information that can be lost or stolen or corrupted or hacked by
competitors or misused.
The availability of information on the internet with and available
networked computers make thousands of private networks vulnerable to
threats from anyone in the public network. Thus, safeguarding oneself
from these threats is one of the most important aspect in the virtual world.
In any form of physical crime, evidence could me mapped using
footprints, fingerprints or any physical or electronic evidence, howe ver it
is difficult to map the evidence in case of a cybercrime until and unless
one has a very strong security tools used. Thus safeguarding your system
and network from any kind of malware, threats, ransom ware is utmost
important for each organization, especially e -business as it is difficult to
track the source of a cybercrime . Such website attacks in e -business can
not only lead to network disruption but also can lead to loss of assets.
The other very important aspect to have strong security network in any e -
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93 M.M.S. - E- commerce Several internet buyers today fear loss of personal information when they
buy products and services and have to share their personal and bank
details. It is still a cause of co ncern for many and if this customer
perceived risks is not addressed with company measures for secured
networks than it would have a manifold impact on the company’s sales,
brand and image. This customer perception can be a real cause of concern
and can be come a threat, challenging the existence of the company’s e -
business going forward.
Any business cannot have a perfect security network that can be obtained
for its website or online business portal. But they can definitely plan to
have a secured system t o protect its assets and revenue streams, customer
privacy and its brand image by having an adequate system security in
place. Each organization has a different need for security networks, i.e. the
security payment gateway of an online business is more cri tical section to
be concentrated by e -business portals while a bank would have to have an
entire online banking secured through stronger system in place. The need
and type of security systems to be placed should be defined by the type of
business and the v ulnerability of processes to threats.
A number of top companies like Amazon, eBay, NASA, FBI, CNN and
Baba Atomic Research Center (BARC) have all witnessed cyber -attacks at
one point of time and safeguarding business and transaction information is
of utmos t importance. Thus internet based business need to address
security at three levels :
1. Site security : This is also known as security of host computer. This
security action or application is implemented to ensure website data is
not exposed to cyber intrud ers.
2. Services security : The same is also known as security of information
distribution services that support businesses to disseminate the
product content to different channels. HTTPS servers, SMTPS servers
and FTPS servers are examples of safe informat ion distribution
services available.
3. Transaction security : This is the most crucial security as it provides
the customer privacy while performing buy sell transactions and
safeguards the client -server network from attacks and breakdowns.
Each business t ype needs to understand their requirement and decide what
all they intend to secure in order to understand the resource cost. Higher
the security required higher will be the resource cost due to the
requirement for a larger and more secured tools. An organ ization can map
this requirement by doing a risk analysis audit for its assets and track the
ones which require maximum protection, like the network, traffic
volumes, number of transactions, in order to safeguard the most vulnerable
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94 Security Issues In E-Commerce 5.2 SECURITY RISKS OF E -COMMERCE E-Commerce involves purchase and sales of product and services through
on online mode. These commercial transactions can be conducted through
use of mobile applications, Internet push advertisements or social media
handles requiring use of online transaction processing or electronic funds
transfer. These sites would further have their supply chain management,
electronic data interchange (EDI), inventory management systems,
enterprise resource planning systems (ERP) and auto mated data collection
systems linked with the main e - business portal.
Security threat in e -commerce exists as one uses internet for purposefully
doing an unfair activity with the intention of stealing, fraud and security
breach. There are various types of e-commerce threats, some accidental,
some purposeful, and some of them are due to human error. The dynamic
environment and insecure infrastructure network protocols have make
internet attacks quick, easy, inexpensive and difficult to track the source.
As technology is changing constantly, new tools and techniques are
developed to target attacks and since most of the data on the internet is not
encrypted, confidentiality and integrity is difficult to achieve. Thus
security is compromised as attack on one si te can impact breach on
another, as an intruder may collect information about other domains. The
emergence of new products with an increase in use of internet is thus
making security risks common today.
Types of Security Threats:
Several security threats are prevalent with the most common ones listed as
under :
1. Malware :
Malware is malicious software intentionally designed to cause disruption
to a computer, server, client or computer network. The types of malwares
are adware -serves unwanted advertisemen ts, spyware – collects user
activity data, ransom ware – disables users access to data, viruses –
disguises itself as desirable code and worms – spreads through network. In
case any internet user clicks on a malicious link or attachment, it leads to
instal lation of a software which is nothing but a malware. Emotet, is one
of the most costly and dangerous malware, which is a banking Trojan that
spreads through spam emails.
2. Probe :
Probe is a program or device which is used to gain access in a network for
monitoring or collecting information about the system activity. Sending a
blank message or log in to an unused account are examples of a probe,
which is done to check if it reaches the desired destination. Probe is a
serious security lapse as they are assoc iated with curiosity or confusion.
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95 M.M.S. - E- commerce 3. Account compromise :
An account compromise is an unauthorized access to a user account or
computer by someone other than the account owner, which may led to
data theft, data loss or theft of services. This theft is con ducted without
involving a system or root level access thereby ensuring a damage that can
be contained, however a user access can open opportunities for greater
access to the entire system.
4. Root compromise :
A root compromise is broader than an account c ompromise as the intruder
can have access to the entire system and have special privileges to all
rights and permissions on the server. It is a security breach at the system
admin (root) level. Since the intruder has all the special rights, they may
run th eir own programs and try to even change how the entire system
works.
5. Denial of Service (DoS) :
This is a cyber -attack where the legitimate users face flood attack on
computer or network and are unable to respond to requests. A denial of
service is disrup tion of the “handshake” process in order to attack the
network and even launch other attacks. Some cyber attackers may even
disrupt the physical components of the network or tamper even the
encrypted data in transit. Botnet, also known as zombie systems, i s one
such example of a distributed DoS where a hacker can infect as well as
control millions of systems with malware. These botnets could be from
different geographic locations and are very difficult to trace the source and
the level of infection.
6. Phishing :
Phishing is a cyber -attacks where the user computer is attacked with fake
communication, sent via an email, instigating an action from the receiver.
The very moment the receiver of the email opens the email and follows
the instructions sent in the em ail, like sharing of KYC information, credit
card number of inserting pin in the mentioned link, malware is installed in
the users system and sensitive data is misused for committing cheating and
fraud.
7. Man in the Middle (MITM) :
This is a cyber -attack where intruders enter themselves between two -party
transactions by interrupting the traffic. The man in the middle attackers
attack the users is logged in on the unsecured public wi -fi- network, to
filter and steal personal and sensitive data. These cyber a ttackers place
themselves between the user and the network, and install malware
software for using the visitor personal data maliciously.

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96 Security Issues In E-Commerce 8. Password Attacks :
These are attacks where the intruder if cracks the right password then can
have access to huge volume of information and misuse the same for his
benefit. Such attacks include at times using human interaction to trick
people for cracking the password or gaining access to password database
or outright guessing. Brute Force Attacks is one the example o f password
attack, where a program builds a connection to company/user website and
uses possible combinations to break through the password.
9. Structured Query Language (SQL) Injections :
A SQL injection is a cyber -attack planned through a SQL code inserte d
into a server, with an intention to manipulate the backend database to gain
access to non -displayed information. The attack if successful, gives the
intruder access to sensitive information, like company data, user lists or
customers private details.
10. Cross -site scripting (XSS) :
XSS is a cyber -attack that involves malicious scripting into some web
applications. The XSS attacks are enabled by intruders by injecting the
JavaScript into another users browsers. A cross -site scripting has the
hackers target the users by sending HTML, JavaScript, VBScript,
ActiveX, Flash links of the pages which look like the legitimate website,
by infecting the original webpages with malign code. XSS attacks can also
gain access to information through account hijack, theft o f cookies,
misaligning the user settings, or false advertising.
Sources of Cyber Threats:
The explosive growth of internet has led to a dire need of understanding
the security issues and vulnerability of the system o technical failures.
Following are some of classifications which throw light on the reason for
success in intrusion and cyber -attacks in the current scenario –
a. Flaws in Software or Protocol Designs :
Protocols are the rules and conventions used by for communication by
computers through a netwo rk. A design flaw in a protocol is highly
vulnerable to exploitation, even if the same was implemented thoroughly.
In most of the cases, when the system design specifications were made
they did not have security steps mentioned initially and the same were
only added in the end of the as an additional integration to components.
Since these factors are usually overlooked, intruders target such software’s
and cause vulnerabilities. Network File System (NFS) is one such protocol
which is used for file sharing a nd the same is vulnerable to intrudes due to
lack of security tools. NFS protocol does not ask for identity of an
individual or system during file transfer or identity of a person logging in
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97 M.M.S. - E- commerce b. Weakness in Implementation of Protocols and Software :
The best of the protocols designed may malfunction or could be
vulnerable to attacks by intruders if not implemented properly. The bugs
in the system are usually detected only after the implementation of the
software on different applications. Th is opens opportunities for intruders
to revisit such software or systems for attacks and several vulnerabilities
could be caused. To name a few weakness that can increase chance of
attacks are:
 no testing for success and failure
 no testing for data content and size
 poor or no resource exhaustion adaption
 inappropriate use of system cells
 incomplete checking of operating environment
 condition in file access
 re-use of software modules than defined intend
Inappropriate implementation of Electronic mail protoco l could be one
such example of weak implementation of protocol in case an intruder gets
permit to connect to the mail port of the machine and fool the machine
into performing tasks not intended for service. The intruder may also use
the ‘To field’ and conf ide confidential information about the user and
password and might even get access to read protected files or run
programs on the systems. They can also gain unauthorized access and
weaken the entire system.
c. Weakness in System and Network Configuration :
The problems in protocol design or software programs can be a cause of
problem for weakness in the system and network configuration. The
vulnerabilities could be used due to faulty setup or the way the system is
used. Mostly all the products are delivered with default settings which
needs to be changes once the setup is over by administrators. However,
most of the users leave the setup system with default settings and
password and neglect the security issues, thereby leaving the system
exposed to attack by intruders.
File Transfer Protocol (FTP) is one of the services which was highly
misconfigured by most of the users leaving scope for attack. The security
configuration of FTP needs the administrator to setup the password file,
archives tree and ancillary software as separate files from the entire
operating system, making access of operating system difficult from the
staging area. It has been observed that the misconfiguration of the setup of
FTP archives, had intruders gain unauthorized access to confident ial
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98 Security Issues In E-Commerce 5.3 PROTECTING ELECTRONIC COMMERCE ASSETS AND INTELLECTUAL PROPERTY In today global world, internet revolution has empowered both the
consumers and sellers due to massive connectivity. Ecommerce is the
activity that can be related to buying and selling of goods and services
over the internet. Thus, protection of Intellectual Property (IP) in E -
Commerce is on the most essential and valued component however the
most neglected one. The businesses onli ne are now making sincere efforts
to ensure secured environment for activities for customers, one which are
free from IP risks that slow down or can kill their businesses as most of
them are involved in commerce activities based on IP and its licensing.
Therefore, IP laws have been made to safeguard the new creation of the
creator of works, else someone’s hard work could be stolen and
disseminated across the globe without any remuneration to the creator for
his labor on the invention.
Role of Intellectual P roperty in E -Commerce :
The role of growing use of internet and technological infrastructure, has
made the Intellectual Property norms to plays an important role in E -
Commerce in the following ways:
a. Safeguards the business interests and entities of a com pany :
The Law governing the intellectual property protects the business and
entities or an individual owner against unfair practices. Most of the times
the owner may reveal the intellectual property prior of filling for
protection of the property and get e xposed to unfair competition.
b. Safeguarding interest of Designers :
E-commerce and digitalization of economy has made proprietors exposed
to people across the globe. Thus the absence of IP laws and practices,
could lead to infringement of anything and eve rything from software,
design, or protocols. The original work of a designer or developer may be
stolen, duplicated, or distributed without him or her receiving any
remuneration for their original creation and work.
c. Safeguarding of Components :
The intel lectual property laws also safeguard the components involved for
working of E -Commerce, namely, software chips, networks, designs,
routers, etc. All forms of components require IP for their protection in
order to allow the functioning of business over the Internet.
d. Safeguarding from Imitation of Business or Products :
The E -commerce websites involve in buying and selling of products are
more vulnerable to infringement of their intellectual property as some
other business may use their product images and p ortray a same
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99 M.M.S. - E- commerce Thus, suck infringement of intellectual property can be averted through
implementation of the IP laws that clearly state the following:
 who is the owner and is this his/her own creation
 whether the creator grants permission to use his creation
 the IP granted for the creation must be under the realm of public
domain
 whether the IP is covered under fair use for business.
The current E -Commerce businesses are all based on licensing of the
product or patent lice nsing. Since creation of the web -based business
platform requires a variety of technology and thus most of the online
businesses nowadays share the technology or outsource the development
of few of the IT components using licensing agreements.
Thus, Intell ectual property is considered as the most valuable asset in the
E-Commerce business and so many companies are now also investing in
building self -owned Patent portfolios and trademarks for business value
enhancement.
Elements granted protection in Intellec tual Property :
The following are few of the elements granted protection under the
Intellectual Property Act for E -commerce business, especially vested to
protect the several parts of the online business website -
1. Patents or utility models :
The patent or utility model of the IP law is used to safeguard the E -
Commerce business systems, search engines or any other technical
Internet tools which is granted protection. The business methods deployed
for doing online business can also be filed for protection un der the Patents
Act.
2. Copyright Act :
The text -based HTML code of software’s used for creation of websites, is
protected with a safety shield under the Copyrights Act or patents law,
depending upon the IP law existing in the country. The design of the
website is also protected under Copyright Act. Whereas the content on the
website in form of written material, pictures, images/graphics, music and
videos are protected under Copyrights Act too.
3. Sui Generis Database Laws :
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100 Security Issues In E-Commerce 4. Trademarks Act :
The business websites used Business name, Product names, domain
names, or signs such as Logos, or any other signs, which can be
safeguarded using the Trademarks Act. Any symbol or mark that portrays
the name and character of the business can be registered as a trademark.
5. Industrial Design Law :
The Industrial Design Law provides protection to computer generated
Graphic Symbols, screen displays, graphic user interfaces ( GUIs) & even
webpages display, and any other computer -generated graphic symbols.
6. Trade Law Secrets :
Trade Law Secrets can be protected using the law that covers the hidden
aspect of website namely, confidential graphics, source code, object code,
algori thms, algorithms, programs or other technical descriptions, data flow
charts, logic flow charts, user manuals, data structures and database
contents.
The Intellectual Property Rights are used to protect the website from any
abusive use.
5.4 FIREWALLS Steve n Bellovin, a professor in computer science at Columbia University
and a fellow at AT&T Labs Research, coined the term firewall to describe
the process of filtering out unwanted network traffic. This name firewall
was originally referred to a wall used to keep the fire from migrating from
one part of a physical structure to another. While in the IT and networking
industry, the term was used to insert a filter of between the safe internal
network and the traffic entering or leaving home network to the wide
internet.
A firewall is the first line of defence for protection built more than 30
years ago that builds a wall between one part of network and another part.
It is gateway of network security device that monitors incoming and
outgoing network traffic and c reates a bridge to decide the amount and
level of communication that takes place within the organization network
and internet. Firewall would allow or block specific traffic based on a
defined set of security rules. Each set of rules created for specific t raffic
and information, has to pass a firewall, which may have some unique
characteristics and are carefully monitored through close doors which are
known as gateways. However, the criteria to establish the firewall through
which one could monitor which pa ckets are allowed or disallowed or
denied access through the gateways created is one of the most difficult
tasks.
The thorough implementation of firewalls and their adequate and timely
maintenance is one of the most effective tool for implementing network
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101 M.M.S. - E- commerce user machine can change the level of security of a firewall implemented.
While a few other considerations pre implementation of a firewall include
a traditional trade -off between securities , ease of use, cost and complexity.
Types of Firewall :
The firewalls are used to prevent unauthorized access of home network,
however the structure of the firewall and the operational method used can
be quite diverse. There are three types of firewal ls based on the structure,
namely, software firewalls, hardware firewalls, or both. The others types
mentioned below are types of firewalls defined by the type of firewall
techniques deployed to set up as software or hardware.
1. Software Firewalls :
A soft ware firewall is usually installed on the host device and uses a
device RAM and CPU space to work. This type of firewall is also known
as a Host Firewall. In case of multiple devices, one needs to install the
software on individual devices. The person inst alling the software also
must be careful that the software installed in each device is compatible
with the host configuration.
The main advantage of this configuration is that the firewall can
distinguish between programs while filtering incoming and outgo ing
traffic. This enables the software to allow access to one program while it
may deny access to another. However the main disadvantage is the efforts
put including the time and knowledge of the administrator to install and
manage firewalls for each devic e.
2. Hardware Firewalls :
A hardware firewall is also known as Appliance Firewall, as it uses
security devices to for network security. It includes installation of a
separate piece of hardware device, which is placed between an internal
and external networ k (the Internet) and acts as a firewall for network
security.
Since hardware firewall is a n external device it does not consume the
RAM or CPU space like the software firewall. It has its own resources to
work as a gateway for traffic passing in and out of the internal network.
A skilled team is needed to install and manage this hardware devices as
they require technical skill and expertise. Most of the large and medium
organizations use this technology as they have multiple computers
attached to their syst em for working and all use the same network. Thus,
using of hardware firewall is more preferable as it does not require
installation of firewall on each device individually.
3. Cloud/hosted firewalls :
A cloud/hosted firewall is a cloud -based network firewa ll service offered
by Managed security service providers (MSSPs). It is a cloud hosted
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102 Security Issues In E-Commerce third -party on -demand environments. This service is usually preferred by
small businesses that have highly distributed enterprises with gaps in
security resources. Since its cloud based firewall and can be entirely
managed by an MSSP it is cost effective for companies having a small
staff size with low level of technical expertise.
Following are na me of other firewall software’s defined based on the
method of operation.
4. Packet -Filtering Firewalls :
Packet -filtering firewall is the most basic type of firewall software when it
comes to understanding firewall based on the method of operation. These
firewall serves as an internal checkpoint as the same is attached to the
devices like router or switch. This firewall monitors the traffic flowing in
the network by filtering packets transmitted in the network. They don’t
route the information of the packet s but compare packets for the
established criteria and protocols set by the internal network. In case they
find anything suspicious, or troublesome, they fail to forward the same in
the internal network.
For example, the data packet which is trying to ente r the system is
screened through its header and the data it transmits. The packet is
allowed or denied access based on the information mentioned in the
header. The firewall then checks, and it inspects the protocol, source and
destination IP address and so urce and destination port. In case the packet
header matches with the access control list defined by the internal network
administrator, the packets are passed in the network, else they would be
dropped.
Its one of the most easy, efficient and inexpensive firewall and got be
easily spoofed as it does not check the payload.
5. Circuit -level gateway :
The circuit -level gateways are one of the fastest firewall to identify
malicious content. This firewall used the session layer of the OSI model,
to monitor the T CP (Transmission Control Protocol) handshakes and other
network connections and protocol sessions to check if the initiated session
is legit. These firewalls are used alongside with other software or packet
filtering gateways and are low -cost firewall that ensure safety of the
network.
This firewall does not check the packets, but the information contained in
the packet about the transaction. Additionally, circuit -level gateways are
practical, simple to set up, and has a minimal impact on end user
experienc e.
6. Application -level gateway :
The application -level gateway is usually termed as proxy firewall as it
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103 M.M.S. - E- commerce This firewall filters packets by their number of characteristics such as th e
HTTP request string and not only according to the service defined for their
specified destination port.
These firewall gateways are used by business to protect their enterprise
resources from web - based application threats. These firewalls block
access n ot only to harmful sites and but can also prevent and block
sensitive information on webpages of the link opened. Thus this leads of
delay in communications and impact the network performance, making it
challenging to manage.
7. Stateful inspection firewal l:
This firewall uses state -aware device to examine the state of connection of
whether the packet entering in the network to create a connection through
an established TCP or other network session. This firewall is
comparatively effective and add additiona l security when compared to
either packet filtering or circuit monitoring firewall performance.
The stateful inspection firewall builds a state table (database) of the data
establishing a connection and requesting data and stores the connection
information . Information about the source IP, source port, destination IP,
and destination port for each connection is saved in the state table.
A seven -layer Open Systems Interconnection (OSI) model is a new form
of stateful multi -layer inspection firewall that cons iders the flow of
transactions in process across multiple protocol layers. This firewall
devices are highly effective for most of the businesses and they have
benefitted as the same has hel ped them defending against particular
attacks, such as DoS.
8. Prox y Firewalls:
A proxy firewall is an intermediate device used for web applications to
secure the server from malicious users. This firewall acts as a bridge
between internal and external systems communicating over the Internet
masking it as its own and serv es as a substitute to the original application.
This is used by businesses to ensure network anonymity and for bypassing
online restrictions.
This firewall sends messages to the web server pretending to be the client,
through the proxy server installed, wh ich gets intersected as soon as the
client sends a request to access a web page. This action further ensures
privacy of the client’s identification and geolocation, safeguarding the
network server from any potential attacks and restrictions. Post this the
client receives the information requested by them through the web server
after the same is received from the proxy server.
9. Next -Generation Firewalls (NGFW):
A NGFW combines several functions of the other firewalls. The next -
generation firewall inspects the payload of the packet with stateful
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104 Security Issues In E-Commerce well as other network security systems, such as an IDS/IPS, malware
filtering and antivirus.
The NGFW is one of the essential software security firewalls in heavily
regulated industries like banking and healthcare and thus adequate security
software is required to safeguard the network from malware attacks,
external threats, and intrusion. As these devices are multifunctional and
are quite flexib le, they become preferred choice among such industry
participants. However, implementation of these firewall needs a very high
level of expertise and involves a huge cost as it might also require
additional configuration to integrate with existing security management.
5.5 OTHER E -COMMERCE SECURITY TOOLS Security is of vital importance is the ecommerce business and any breach
of data would make the company loose customer and business. Thus,
security of the website and network cannot be compromised. Although
firewalls play a vital role is safeguarding the system from intruders, there
are a few other security tools which could also be deployed by the
company -
1. Public key Infrastructure:
A public key infrastructure (PKI) is a set of roles, policies, hardware,
software, and procedures laid down to support distribution and
identification of public -key, for both the user and the website to exchange
information. The PKI uses the data over the internet network to manages
encryption and verify the identity of the user or third party. The same is
managed through digital certificates and facilitates electronic transfer of
information for a range of network activities such as internet banking, e -
commerce and confidential email.
2. Encryption Software:
Encryption is a generic term that refers to encoding the data to prevent the
unauthorized access to digital information. Encryption software is used to
protect data with use of cryptography on the user’s computer and on
software installed on other computers over the inte rnet. This software
encrypts and decrypts data in form of packets or in form of hard files over
the computer network. This encryptions ensures that the original data is
prevented from access to third party.
3. Digital Certificate:
Digital certificate use a pair of electronic encryption keys or PKI to bind
one user to another a user to a machine, or a machine to another machine.
The Digital ID’s help to the identity the certificate owner, (one public and
one private), and encrypt and sign information digital ly. PKI comprises of
the technology to secure ecommerce and internet transactions. The best
example for this is email services where the sender digitally signs the
communication, and the recipient verifies the signature. Client certificates
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105 M.M.S. - E- commerce 4. Digital Signature:
Digital Signatures are technique used to verify and validate the
authenticity and integrity of the technical message, software or digital
document. As in physical setup , we have handwritten signatures to bi nd
signatory, in the digital world these signatures offer inherent security to
the document. This signature binds an individual/firm to the digital data
and thus have become an integral part of the ecommerce industry. Each
business needs to ensure that the digital signature setup is unforgeable
with the support of different encryption techniques.
5.6 MANAGEMENT OF IT RISK Introduction:
The IT Risk management is the domain where in risks associate with the
IT infrastructure can be managed through application of risk management
tools. This risk can be defined broadly as risk related to the entire
enterprise resource system as it includes managing risk associated with
‘use, ownership, operation, involvement, influence and adoption of IT
within an enterprise or organization’. The management of potential IT
risks would ensure minimum negative impact on an organization.
Disaster Recovery Plans:
A disaster recovery (DR) plan is the plan or process that comprises of set
of policies, tools and procedure deployed for d etailed testing to ensure
recovery of all data, or restoration of business -critical applications and
technology affected due to a serious natural or human - induced
interruption. It is an integral part of IT infrastructure and business
continuity plan as it ensures sufficient IT recovery and the prevention of
data loss.
Risk Management Paradigm:
1. Identify the Risk:
Risk Assessment is a systematic process where one could measure and
evaluate the inherent risks in the project activity or infrastructure. Th e
following are few steps to IT Risk Management for vulnerabilities
inherent in any business, namely risk associated with the use, ownership,
operation and adoption of IT -
Use the IT risk management template to identify potential risks to your
best knowle dge and ability that may arise in the organization. It is always
better to be proactive and alert for uncovering and recognizing any risks,
then detailing them later by explaining how they might impact the project
and outcomes.
2. Analyze the Risk:
Post id entification of risk, do a thorough analysis of the same and group
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106 Security Issues In E-Commerce impacts that can be seen and study the influence of each risk on the project
in all the ways. Ensure you add these fi ndings to your risk assessment.
3. Evaluate and Rank the Risk:
Post analysis of each risk; further evaluate the likelihood of occurrence of
the risks and the magnitude of its impact on the project. Try to rank each
risks -based on the impact and prioritize them, you can begin to develop
strategies to control them too. Remember each risk must be addressed and
none should be ignored to ensure smooth working of the overall project.
Again, add these rankings to your risk assessment.
4. Respond to the Risk:
Even after taking all the necessary precautions in case any of the risks
becomes an actual issue, then take timely action. This is also known as
risk response planning as the assessor identify the potential high risks in
IT infrastructure and decide how to trea t them or modify them to
safeguard systems and make them low priority risks. Preventive and
contingency planning are the key to risk mitigation strategies that are
applied in such situations and are reported too in the risk assessment
report.
5. Monitor & Review the Risk:
Once action is taken, go back reflect and review the progress on mitigating
the risk. The risk assessment report prepared should be used to track and
monitor the team efforts to deal with identified risks and ensure all risks
get covered i n the report.
Strategies for IT Risk Management:
An IT team may use the below risk management strategies to provide a
structured approach for identify, access, and manage risks in IT. They
should also regularly update and review the risk assessment report for
understanding the impact and future plan of action.
The list of the strategies for IT Risk Management is as under :
1. Apply Safeguards:
It is an avoidance strategy, followed by companies that plan to avoid risk
at all costs and try to focus their maxim um resources to deal with the
same. If the business achieves to avoid the risk, then it is does not pose
any threat to the project going forward. However, one needs to remember
that though we avoid risks we might not be able to avoid the potential of
its return in future and hence this decision cannot be taken lightly.
2. Transfer the Risk:
This is of the simplest strategy as the company uses transference strategy,
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107 M.M.S. - E- commerce onto the company members by the IT firm, or shift the risk to some
outsource entity or buy a risk cover (insurance policy).
3. Reduce the Impact:
This strategy also known as mitigation strategy, is deployed by companies
especially for high impact risks. This strategy hel ps in reducing the impact
of the critical risk through application of methods, resources available or
team brainstorming. This may even involve smaller changes in the IT
setup or infrastructure but needs to come by process and a plan.
4. Accept the Risk:
When you know there is a risk, accept the same and find out ways to deal
with it and mitigate it. This strategy of agreeing to risk is known as an
acceptance strategy and is useful to all in future as people are aware what
action can be taken in case the r isks arouse. These risks are usually once
that cannot be avoided but can be managed if we follow the project risk
assessment template prepared by us.
5.7 SALIENT PROVISIONS FOR SECURITY AND PRIVACY Right to Privacy and Data Protection:
With the growing usa ge of internet and dearth of data in the open space,
there’s has been concerns raised on the protection of one privacy, i.e.
personal data and information. The right to privacy consists specific right
of an individual to control the collection, use and dis closure of personal
information, namely, personal email id, telephone number including
mobile number, family educational and medical records and any financial
records, etc. The advent of artificial intelligence and analytics have further
made personal data easily accessible and communicable.
The Universal Declaration of Human Rights, 1948, is the milestone
document that stresses on the basic right to protect an individual’s privacy
as follows: “Article 12: No one shall be subjected to arbitrary interference
with his privacy, family, home or correspondence, nor to attacks upon his
honour and reputation. Everyone has the right to the protection of the law
against such interference or attacks.”
The Constitution of India (“Constitution”) adopted the right to pri vacy as a
fundamental right. This decision was upheld in August 2017, by the nine -
judge constitutional bench of the Supreme Court. Mukul Rohatgi in 2015,
upheld this case in the Supreme Court stating that the constitution does not
guarantee right to privac y. The mentioned bench of the Supreme court
found that the constitution does guarantee a right to privacy. The landmark
case of Kharak Singh v. State of U.P, the Supreme court in 2017 passed a
judgement stating that the privacy falls within the scope of Ar ticle 21 of
the Constitution. Thus, any individual or state having an unauthorized
intrusion in to a person’s home and causing any disturbance is in violation
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108 Security Issues In E-Commerce The Supreme Court judgement, has the Right to Privacy been read into
two articl es of the Constitution of India:
1. Article 21 (Right to life and liberty), and
2. Part III (Chapter on Fundamental Rights) of the Constitution.
5.8 LEGAL AND REGULATORY ENVIRONMENT FOR E-COMMERCE The Information Technology Act, 2000:
The Information Technology Act, 2000 (“ITA”) is the act which was
enacted in the year 2000 to provide a comprehensive regulatory
environment for e -commerce activities in India. The Act covers legal
provisions governing exchange and interchange of any data over the
electronic mode of communication and storage of information online. The
Act also includes use of the electronic mode as an alternative to a paper -
based method of communication and information storage with the
Government agencies. The formation of this Act led to amendments in the
Indian Penal Code 1860, the Indian Evidence Act 1872, the Bankers’
Books Evidence Act 1891, and the Reserve Bank of India Act 1934
The Act emphasis that :
 all transactions done via the electronic mode i.e. electronic transf er,
exchange of information or e -commerce should receive the legal
recognition like the paper -based transactions
 the digital signatures used for any information or matters requiring
legal authentication should receive legal recognition
 the electronic filin g of document with Government agencies and
departments to be accepted as authentic and legal document
 support the storage and safety of data shared electronically
 all banking and financial transactions done via electronic mode to
receive legal sanction
 allow banks and financial institutions to maintain books of accounts in
the electronic mode and grant legal recognition to these under the
Evidence Act, 1891 and the Reserve Bank of India Act, 1934.
Applicability and Non -Applicability of the Act Applicability :
The IT Act 2000 is applicable:
To the entire country, including Jammu & Kashmir as per Section 1 (2).
The Act has used section 253 of the Constitution of India to include the
state of Jammu and Kashmir. The Act also does not only apply to people
who hold citizenship in the country but to all and thus provides extra -
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109 M.M.S. - E- commerce The Section 1 (2) along with Section 75, further states that the Act applies
to any offense or contravention conducted outside the India territory too.
The person who is found to be guilty through his conduct in the said Act
irrespective of his/her nationality, is punishable under the Act if he has a
computer or a computerized system or network located in India.
However, though the Act is strict on people from other na tionality, it
suffers from limitations due to lack of international cooperation from other
countries.
Non-Applicability:
The Section 1 (4) of the IT Act, 2000 discusses the non -applicability of the
Act as discussed below.
 The Act does not permit execution of Negotiable Instrument under
Negotiable Instruments Act, 1881, except cheques and execution of
Power of Attorney under the Powers of Attorney Act, 1882.
 No one is permitted under the IT Act to create Trust as laid down
under the Indian Trust Act, 1882.
 The Act is not applicable for execution of a Will under the Indian
Succession Act, 1925.
 It does not permit entry in any contract for the sale of conveyance of
immovable property or any interest in such property.
 It does not include any such class of docume nts or transactions as may
be notified by the Central Government in the Gazette.
5.9 CYBERLAWS IN INDIA Cyber Laws are laws that govern unlawful activity or any wrongdoing
with the usage of computers. These laws are contained in the IT Act 2000
which came into force on 17 October 2000, to grant legal recognition to
ecommerce and supporting the maintenance of electronic records with the
Government authorities and bodies. The advent of the technological arena
and the abuse of computers has given birth to seve ral criminal activities,
such as such as theft, fraud, forgery, defamation and mischief that are
addressed by the IT Act, 2000.
The use of computers, mobile devices, software, and the internet are
medium and target of such crimes and thus each cyber -crime as a different
punishment defined under the Indian Penal Code. A list of cyber -crimes
punishable under the Act are mentioned below –
1. Identity theft:
In case of this theft, one individual uses personal information of another
individual and portrays hims elf to be someone else to use their financial
resources or to take a loan or credit card in their name. This theft of munotes.in

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110 Security Issues In E-Commerce personal information of an individual is a cybercrime known as Identity
theft.
2. Cyber terrorism :
Any well -planned mischiefs and attacks planned on Government agencies
and corporate computer systems by an individual or organization, group or
state with a threat of extortion or any kind of harm is known as the crime
of Cyber Terrorism.
3. Cyber stalking /Cyberbullying:
Cyber stalking means a using internet to harass an, defame, or intimate
someone by an adult. Whereas, Cyberbullying is the same acts like cyber
stalking done by any teenager with the use of the internet, phone, chat
rooms, instant messaging or any other social network, which is considered
as cybercrime.
4. Hacking:
Hacking is gaining unauthorized access to an individual’s computer,
online account and passwords with an objective of using it for a wrongful
gain by the intruder. This is one of the most common forms of cybercrime.
5. Defamation :
In case an individual uses the internet platform to pass comments or give
statements that might hurt the modesty or reputation of any individual or
organization, this would be punishable under law even though each
individual enjoys the fundam ental right of freedom of speech. The person
involved in such a cybercrime would be punishable under the Defamation
Law.
6. Copyright:
Any individual or organization using the work of the creator without their
permission or giving him/her credit or recogni tion for being the original
creator of the content, or by not paying him or her a compensation or
remuneration maybe charged as cybercrime and will be punishable under
the Copyrights Act. Thus it is necessary for companies and individuals to
copyright the work so that the same is not freely distributed across
platform without their permission and if done so are punishable offence
under the IT Act.
7. Trade Secrets:
The theft of software’s, applications, codes, programs and tools made by
internet based organ ization without their permission or imitating the same
are punishable under the Cyber Laws as the law is developed to protect the
data and trade secrets of companies.
Thus, one cannot ever expect a crime free society, as no society which is
perfect exist. However, an attempt to minimize the crime rate should be munotes.in

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111 M.M.S. - E- commerce done constantly especially in today’s world which has high exposure of
internet and is dependent more and more on technology. Electronic law -
breaking crimes are bound to increase with the advent of n ew technology
and efforts of intruders. The law makers thus have to focus on more going
forward too by making stricter Cyber Laws in order to ensure that the
incidence by impostors, are managed to its minimum.
5.10 SUMMARY  The incidences of phishing, ident ity theft, and fraud, has skyrocketed
in recent years with the surge in the use of technology and so
company needs to ensure safety of its digital assets using some
security measure and tools.
 Different sources of cyber threats should be identified, and ri sk
management activities should be used by the company to manage the
security risks for their IT infrastructure.
 Firewalls provide a safe environment to people working and dealing
with the e -commerce platforms and thus safety of customer’s personal
data an d their privacy should be maintained by the company.
 Each organization should identity their internal and external IT risks
and rank them for understanding the level of impact it may have on
the overall safety of the organization and consumers. They should
formulate risk management strategies and try to mitigate or minimize
the level of risks.
 Technology is used for both good or bad purposes and if fallen into
the wrong hands can illicit intent to exploit or misuse the same,
making these acts fall under the array of cyber -crime that are
punishable offences under Law.
 The Right of Privacy Act safeguards individual and organization from
misuse of their personal information without their intent and acts
punishable under Law.
 The Information Technology Act 2000, built a legal environment for
safe and secure ecommerce activity and transfer of assets and gave
authenticity to digital documents and paved way for digital filing with
Government agencies and bodies.
 Indian Government made a number of laws pertaining to safeguarding
all from the cybercrimes thereby mitigating the risks associated using
different laws, however the changing infrastructure makes it lucid for
them to broaden the scope of the cyber law to accommodate new
sectors too.
5.11 QUESTIONS 1. What are the security risks associated with ecommerce? List down
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112 Security Issues In E-Commerce 2. What is IPR? What are the elements covered under the IPR?
3. What are the security tools used by any organization to safeguard its
digital assets?
4. What are security threats? What are the different types of security
threats?
5. Write short notes on:
a. Firewall
b. Cyber laws in India
c. The Information Act 2000
d. Right to Privacy


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113
6
MANAGEMENT CHALLENGES &
OPPORTUNITIES OF E -COMMERCE
Unit Structure
6.0 Objectives
6.1 Introduction
6.2 Factors to Success of E -Commerce
6.3 Advantages and Challenges of E -Commerce
6.4 New Business Models of E -Commerce
6.5 Required Changes in Business Processes
6.6 Channel Conflicts
6.6.1Types of Conflicts
6.6.2Conflict Magnitude
6.6.3Causes
6.6.4Consequences
6.6.5 Management
6.7 Ethical Issues in E -Commerce
6.8 Questions
6.0 OBJECTIVES After studying this unit students will be able to :
 Understa nd the concepts of E -Commerce and its growing impact and
importance
 Know the advantages, challenges, impact
 Issues and Models representing E -Commerce
6.1 INTRODUCTION E-Commerce in any business transaction is done via internet. E -
Commerce sites objective is to sell products /services directly from the
website .E -Markets are simply defined as websites where buyers and
sellers interact with each other and conduct transactions.
With rising internet and smart phone penetration in Tier 2 and Tier 3
cities, E-commerce has witnessed strong growth in India in recent past and
total size has reached to US $2.9 billion in 2013 to US $16 billion in 2015,
at annual growth rate of 34 %.Whereas mobile devises are ready to drive
sales via ecommerce platform with a new age of technology coming in
through report “e -commerce in India” -A Game Changer for economy
prepared by CII in partnership with Deloitte ,has projected the sales to munotes.in

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114 Management Challenges & Opportunities Of E-Commerce cross US $100 billion mark ,thereby increasing the strength of online
shoppers
6.2 KEY FACTORS FOR SUCCESS OF E -COMMERCE 1) Timely and effective implementation of government’s flagship
programs such as Digital India, make in India, Start –up India will
help overcome challenges related to ineffective rural internet entry
and lack of skilled manpower.
2) Continuous innovation, digitalisation , will further add a boost to such
sectors. Internet users and introduction of variety of mobile app
versions will thus boost knowledge and liking for the sector.
3) Introduction of new payment solutions have further added to provide
ease in electronic transactions .The launch of unifies payment
interface by RBI will transform the mobile banking.
4) GST will also e nhance the growth of e -commerce , as it will focus on
single comprehensive indirect tax regime applicable throughout all
states on supply of goods & services
6.3 ADVANTAGES OF E -COMMERCE E-Commerce offers benefits to customers as well as sellers. The advantage
are:
(A) Advantages to e -Marketers :
1) Global Markets: Online marketers can attract customers across the
globe. E -mark eters can design effective websites and get orders from
buyers segm ented across the World. Example: Amazon, Flip kart .
2) Audience Sizing : Thorough review of customers who regularly visit
onlin e websites and those who resist , can help marketers to target
audience size. Moreover it can also help marketers to plan their
product design, features, price accordingly
3) Lower investments : Investment requirement is comparatively less as
compared to offline marketing. Usually offline marketers require
stores, infrastruct ure, and so on. Whereas e -marketers n eed to frame
effective websites , apps to reach out to masses. Example: Shopping
apps like Meesho, Myntra
4) Low operating Cost : E-marketers need to bear limited operating
cost, compared to offline (traditional) business fi rms. As there may be
limited staff to handle e-orders , no need for insurance, which saves
additional cost of marketer.
5) Improvement in Productivity : E-Business facilitates automated
ordering and billing relating to purchases of the c ustomers . It also
facili tates availabi lity of quality items & on time . This improves
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115 M.M.S. - E- commerce Example: For Fresh Groceries/Fruits/ general items Zepto App offers
free delivery in 10 min.
6) Customer Relationship: E-marketers can develop good relations
with thei r customers. Frequent feedbacks , attractive deals , can help
them to obtain accurate and reliable information from customers.
Such information can help them to improve their sales and
performance. Example: Online services from Telecom Companies
like Vodafone, Jio, Airtel and so on.
(B) Advantages to Customers :
7) Convenience in Shopping : E-business offers comfort and
convenience to customers .The customers can avail the facility of 24/7
shopping as compared to traditional business .Example: Buyers can
place orders on apps like D -mart ready, Big Bazaar
8) Anytime Shopping : Customers can place orders any time as per
convenience. They can view purchase details, place orders , anywhere
and anytime.
9) Lower Prices : Customers can get lower prices from on line stores, as
there is less number of intermediaries, no infrastructure or insurance
cost spend by marketers. Also coupon code offers, cash back deals
further help in lowering prices of online goods. Example : Jio Mart
offers cash back offers on its goods , which are already discounted
from MRP rates.
10) Loyalty Incentives: Online marketers offer loyalty incentives to
regular online shoppers. These special discounts can be used for
purchase at a later date. Example: Zepto App offers 25 % offer to
regular customers and th ose who encourage others to buy their
products.
Challenges of E -Commerce:
1) Challenges of e -commerce laws in India: Though e -commer ce is a
growing market in India , but it does not have specific laws in India .
The sector is governed by IT Act 2000, which regulates legal
obligation of online sellers and buyers. Apart from IT Act 2000,
marketers need to comply with other laws like Indian Contract Act,
Banking and financial laws, wherever applicable.
2) Problem for Rural Customers : E-Commerce is mainly domin ated
by urban cities .Use of internet in rural areas is quite limited, due to
factors like low internet speed and internet user base , problems of
power supply , which restricts the growth of internet in rural areas.
3) Shortage of manpower: E-Commerce s ector is rapidly growing
sector, which may be affected by lack of trained manpower. Also lack
of specialised courses on e -commerce at Colleges/University levels
may further affect the growth of manpower. Hence, Companies need
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116 Management Challenges & Opportunities Of E-Commerce 4) Challenges of Customer loyalty : E-Commerce offers huge discounts
to attract people to make their purchases online. Also almost same
prices are offered even by competitors, which may reduce customer
loyalty to specific b rand.
5) Challenges of Cash on Delivery : In India, buyers prefer to make
payment on Cash on delivery basis, electronic collection of payments
is risky and expensive for online sellers .Indian consumers resist
online payments due to problem of hacking cred it cards, Privacy
issues, lack of confidence and so on.
6) Problems of Payment Gateways : Indian payment gateways have
high failure rate as compared to other countries. M any customers fail
to try again , once they face transaction failure, which reduces cha nces
of online sales.
7) Unsuitable to Certain products : Online business is not suitable for
all types of products. Items like jewellery, furniture , perishables might
not be purchased frequently as they are difficult to inspect such
products before buying .
6.4 NEW BUSINESS MODELS IN E -COMMERCE There are 4 types of E -Commerce Business Models and 5 new innovative
approaches in E -Commerce.
1) Business to Consumer (B2C): Such bus inesses sell to their end -
user. This is the most common business model . Anything yo u buy in
an online store as consumer like wardrobe , household supplies is done
as part of B2C transaction. B2C innovators have levera ged technology
like mobile apps , native ads to market directly to their customers and
make their lives easy.
2) Business to Bu siness (B2B) : In B2B business model, a business sells
its products /services to another business. Sometimes the buyer is the
end user, but often the buyer resells to the consumer. Recent B2B
innovators have made a place by replacing catalogues and order sh eet
with ecommerce storefronts in niche markets. In 2020, almost half of
B2B buyers were the millennial .
3) Consumer to Business (C2B): C2B businesses allow individuals to
sell goods & services to Companies. Under this, affiliate marketing
services would also be considered. Recent innovators have creatively
used this model to connect companies to social media influencers to
market their products.
4) Consumer To Consumer (C2C): This business is also called an
online market place which connects consumers to exchang e goods
and services and typically make their money by charging transaction
or listing fe es. Online businesses like Ebay , Craigslist developed this
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117 M.M.S. - E- commerce Further 5 Value Delivery Methods for E -Commerce innovation are
listed as fo llows:
1) Direct to Customer (D2C): By cutting out the middleman , a new
generation of consumer brands have built loyal followings with rapid
growth. Brands like Glossier are showing us how D2C can contribute
to be an area for innovation and growth
2) White Label & Private Label : ‘White Label ’: is applied to your
name and brand to a generic product purchased from a distributor.
`In Private Labelling , a retailer hires a manufacturer to create a
unique product for them to sell exclus ively .With these 2 innovations ,
firms can focus on investments in design & production and look for
an edge in technology & marketing.
3) Wholesaling : Under Wholesaling , a retailer offers its products in bulk
at a discount . It is traditionally a B2B activity, but many retailers have
offered it to budget conscious consumers in a B2C context.
4) Drop shipping: One of the fastest growing methods of e -commerce is
drop shipping. Usually, drop shippers market & sell items fulfilled by
a third party supplier like Ali Express, Printful. Drop shippers a ct as a
middleman by connecting the buyers to manufacturers.
5) Subscription Service: Early in 1600’s publishing Companies used a
subscription model to deliver books monthly to their loyal customers.
With e -commerce businesses are going beyond periodicals & f ruits of
month clubs. Today, virtually every industry has seen the arrival of
subscription services to bring convenience & savings to customers.
6.5 REQUIRED CHANGES IN BUSINESS PROCESS Business managers and employees must be capable of pursuing new
opportunities that benefit & ultimately change a business. It’s important
that a company’s people, processes & systems contribute to business
change in a positive way. Following changes must be observed while
designing business processes:
1) Present a Vision : The vision for business change must contribute to
company’s overall objectives and goals. During this phase, its good
idea to interview business leaders to receive their inputs & concerns
on business change being considered.
2) Analyze Key Stakeholders : Communi cate with key departments or
employees on the business change planned . Gain an understanding of
what these different stakeholder’s needs are and what they are willing
to participate in.
3) Align Business Leaders : When business managers support & agree
with th e need for change , project success increases and certain steps
may even be skipped. Maintain frequent communication with
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118 Management Challenges & Opportunities Of E-Commerce 4) Create a plan for Change : Devise a plan with timeline that includes
activities, mile stones and deliverables that implement the desired
business change and move the company into a new enhanced end
state.
5) Communicate Value Change : The analysis of key stakeholders
determines what departments and employees need to know an d the
best way is to communicate with them. Communications should keep
stakeholders informed of the value being created by the business
change.
6) Identify Early Change Adopters : Early adopters tend to be the first
employees to understand and adopt the busine ss change & can also
provide training to other stakeholders. Early adopters can assist in
maintaining communication channels open and obtaining
stakeholder’s support as the change is underway.
7) Create Support System : Support system needs to be present to
implement the change and train employe es on new systems and
processes . The different stakeholders must have their needs met in
ways that are relevant to them . Example: Administrative employees
can be trained through an online webinar, while production worker s
may need a more hands on approach.
8) Establish Rules : Rules and standards governing the business change
help ensure that quality standards are met and the business change
plan put into place is accomplishing its objectives .Rules should
define how decision s are made and stakeholder’s roles and
responsibilities during the implementation.
9) Increase Business Alignment : To fully realize a business change, the
entire business should support and contribute to its value. People,
processes, technology and systems sh ould reflect and carry out the
business new strategies and priorities.
10) Evaluate Risk : Diagnose the risk involved in the business change and
determine how to manage it. Conduct stakeholder surveys to identify
key risks and possible solutions that can be imp lemented and accepted
by stakeholders.
6.6 CHANNEL CONFLICTS E-Commerce Channel Conflict occurs when sales channels or partners in a
sales channel oppose each other. This conflict usually happens when a
brand sells directly to its customers online or via r etail outlets to capture
additional sales.
6.6.1 Types of Channel Conflicts:
The Channel conflict can be classified majorly into 4 categories depending
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119 M.M.S. - E- commerce

1) Vertical Level Conflict : In this the channel partner belon ging to a
higher level enters into a dispute with the channel member of a lower
level or vice -versa.
Example: A channel conflict between dealers & retailers or
wholesaler & retailers.
2) Horizontal Level Conflict: The conflict among the channel partners
belonging to the same level, i.e., issues between two or more stockists
or retailers of different territories, on the grounds of pricing or
manufacturer’s biases, is termed as horizontal level conflict.
3) Inter -type Channel Conflict : These type of conflicts commonly
arise in scrambled merchandising, where the large retailers go out of
their way to enter a product line different from their usual product
range, to challenge the small and concentrated retailers.
4) Multi -channel Level Conflict: When the manufac turer uses multiple
channels for selling the products, it may face multi -channel level
conflict where the channel partners involved in a particular
distribution channel encounters an issue with the other channel.
6.6.2 Conflict Magnitude:
The level to whi ch the conflict is considered critical or needs the attention
of the channel leader, i.e., manufacturer, is known as its magnitude.
The magnitude of conflict can be determined through the proper analysis
of the change in market share and the company’s sale s volume in a
particular area or region.
6.6.3 Causes of Channel Conflicts:
Channel Conflicts arise due to several causes, such as:
1) Role Ambiguity : The uncertain act of an intermediary in a multi -
channel arrangement may lead to disturbance in the channel of
distribution and cause conflict among the intermediaries.
2) Incompatible Goals : When the manufacturer and the intermediaries
do not share the same objectives, both work in different directions to
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120 Management Challenges & Opportunities Of E-Commerce 3) Marketin g or Strategic Mis -Alignment : Sometimes, two -channel
partners promote the manufacturer’s product in a different manner,
which created two different images of the same product in the
consumers’ mindset, which creates conflicting brand perception.
4) Difference in Market Perception : The manufacturer’s understanding
of the potential market and penetration into a specific region or
territory , may vary from the perception of the intermediaries, which
can create conflict and reduce the intermediary’s interest in cap turing
that particular market.
5) Change Resistant : When the channel leader plans to modify the
distribution channel, the intermediaries may or may not accept this
change. Thus, it may result in a condition of discord or non -
cooperation.
6) Improper Geographic o r Demographic Distribution : If the sales
territory has a narrow consumer base, and the channel leader allows
many selling partners, they tend to lose interest soon because of low
profit and limited sales.
6.6.4 Consequences of Channel Conflict:
Given belo w are some of these outcomes/consequences of channel
conflicts:

1) Price Wars: Due to channel conflict, the partners compete with each
other on the grounds of price, and therefore, the consumer may defer
the purchase searching for the best deal.
2) Customer Di ssatisfaction: If there exists a channel conflict, then the
distributors or retailers may show much interest in the company’s
products and resist to assist the consumers, which results into their
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121 M.M.S. - E- commerce 3) Sales Deterioration: Conflicts can adversely affect the sales of the
products due to the decline in distributors’ interest and an increasing
number of consumers shifting to competitors’ products.
4) Distributors Exit: For the manufacturers, it is essential to retain the
distributors or pa rtners to increase product sales. When there is a
channel conflict, the chances of various distributors leaving the
channel increases.
5) Poor Public Relations : The unsatisfied dis tributors may negatively
publicize the brand and its products as a result of manufacturer’s
unhealthy public relations with them.
6.6.5 Channel Conflict Management:
It is a universal fact that the conflicts cannot be eliminated, though these
can be handle d smartly to reduce its negative impact on business.
Following are some of the ways to manage the channel conflicts:

1) Mediation, Arbitration and Diplomacy: To resolve a dispute, the
manufacturer can adopt the strategy of intervention where a third
person intervenes to create harmony. The other option is arbitration,
where an arbitrator listens to the argument of the parties involved in a
conflict and declares a decision.
Or, the parties can resort to diplomacy where the represent atives of
both the p arties communicate and find a solution.
2) Co-Optation : The manufacturer should hire an expert who has
already gained experience in managing the channel conflicts in other
organizations, as a member of the grievance redressal committee or
board of directors, for addressing such conflicts.
3) Dealer Councils and Trade Associations : To handle the horizontal
or vertical conflicts, the manufacturer forms a dealer council where munotes.in

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122 Management Challenges & Opportunities Of E-Commerce the dealers can unanimously put up their problems and grievances in
front of the channel le ader. To bring in unity among the channel
partners or intermediaries, they can be added as members in trade
association which safeguards their interest.
4) Superior Goals: Establishing a supreme goal of the organization and
aligning it with the individual goa ls or objectives of the channel
partners, may reduce the channel conflicts.
5) Regular Communication : The channel leader should take regular
feedback from the channel partners through formal and informal
meetings to know about market trends and dynamics. Also , the
channel partner’s issues and conflicts can be addressed through
frequent interactions.
6) Legal Procedure : When the conflict is critical and uncontrollable by
the channel leader, the aggrieved party can seek legal action, by filing
a lawsuit against the accused party.
7) Fair Pricing: Most of the channel conflicts are a result of the price
war, and therefore, these can be resolved by ensuring that products are
equally priced in all the territories and a fair margin is provided to the
channel partners.
6.7 ETHICAL ISSUES IN E -COMMERCE E-Commerce has several benefits, but also involves several ethical & legal
issues which cannot be ignored. Some of these are as follows:
1) Web Spoofing: Web Spoofing is an electronic deception that relates
to the Internet. It occurs when the attacker sets up a fake website
which almost totally same with the original website in order to fool
consumers to give their credit card number or other personal
information.
Example: The attacker may setup a site called www.micros0ft.com
using the number zero in place of the letter O, which many users
sometimes type by mistake. Users might find themselves in a situation
that they do not notice they are using a bogus web -site and give their
credit card details or other information.
2) Cyber -Squatting : Cyber -squatting is an activity which a person or
firm register, purchase and uses the existing domain name belong to
the well -known organization for the purpose of infringing its
trademarks. This type of person or firm, called cyber -squatters u sually
infringed the trademarks to extort the payment from original
trademark’s owner. The extortion of payment occur when they offers
the prices far greater than they had purchased the organization’s
domain name upon. Some cyber -squatters put up derogator y remarks
about the person or company which the domain is meant to represent
(Example: www.walmartsucks.com), in an effort to encourage the
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123 M.M.S. - E- commerce 3) Privacy Invasion: This issue is related to consumer. The privacy
invasion occur when the personal details belonging to consumers are
exposed to the unauthorized party. It may occur in THREE ways.
i) Electronic commerce businesses buy information about individuals
such as their personal details, shopping habits and web page visita tion
listings. This can be done with or without the individual’s
knowledge by using different computing technologies. A large
number of web sites, which require users to create a member name,
also ask for personal details. These details are then often so ld on to
companies to aid in the marketing and selling of their products.
ii) The personal information of consumers being transmitted may be
intercepted by anyone other than the person whom it is intended.
Protecting the privacy of communication is a great cha llenge, due to
the very nature of the online medium, an open network of digital
telecommunications. It is technically and economically impossible to
patch all the holes through which unauthorized intruders may gain
access.
iii) Malicious programs delivered quie tly via web pages could reveal
credit card numbers, usernames, and passwords that are frequently
stored in special files called cookies. Because the internet is stateless
and cannot remember a response from one web page view to another,
cookies help solve the problem of remembering customer order
information or usernames or passwords.
4) Online Piracy : The online piracy can be defined as unauthorized
copyright of electronic intellectual property such as e -books, music or
videos. This unethical activity occurs when the Internet users use the
software and hardware technology in an illicit manner to transfer the
electronic intellectual property over the Internet.
5) Email Spamming : E-mail spamming, also known as unsolicited
commercial e -mail (UCE) involves using e -mail to send or broadcast
unwanted advertisement or correspondence over the Internet. The
individual who spam their e -mail usually called spammer. Many
spammers broadcast their e -mail for the purpose of trying to get
people’s financial information such as cr edit card or account bank
numbers in order to defraud them. The example of fraud using e -mail
is spammers will lure consumers to enter their personal information
on fake website using e -mail, forged to look like it is from authorized
organization such as b ank. The content of e -mail often directs the
consumers to the fake website in order to lead them to fill their
personal information such as credit card or bank account’s details.
This technique is called phishing.
6) Intellectual Property Theft and Copyright Trolls: The basic cut -
and-paste allows anyone with Internet access to directly copy the
original works of another. Text, photos, music, artwork and ideas
routinely move from the creators to the copiers, with no permission
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124 Management Challenges & Opportunities Of E-Commerce he's registered a copyright and then wants to spend the time and
trouble to write demand letters and threaten lawsuits. At the other end
of the ethical spectrum, "copyright trolls" buy the rights to movies,
books and music, threaten mass lawsuits against thousands of people
found to be downloading the material and demand a quick settlement
from each of them.
6.8 QUESTIONS 1) Write a note on Challenges & Opportunities faced by managers in E -
Commerce Sector?
2) List out in detail the New business Models developed?
3) What are Channel Conflicts? Explain different types?
4) Write a note on Causes of Channel Conflicts?
5) Describe the remedial measure to solve Channel Conflict?
6) Explain in detail the various ethi cal issues in E - Commerce?


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