OBJECTIVES

To understand the concept of Electronic Payment System

and its security services.

To bring out solution in the form of applications to uproot

Electronic Payment.

To understand working of various Electronic Payment

System based applications.
 What Electronic
Payment system is?
Electronic payment system is a system which helps the customer or user to make
online payment for their shopping.

 To transfer money over the Internet.

 Methods of traditional payment.

oCheck, credit card, or cash.

 Methods of electronic payment.

oElectronic cash, software wallets, smart cards, and credit/debit
cards.
Some Examples Of EPS:-

 Online reservation

 Online bill payment

 Online order placing (nirulas)

 Online ticket booking ( Movie)

Two storage methods
On-line
Individual does not have possession personally of electronic
cash
Trusted third party, e.g. online bank, holds customers’ cash
accounts
Off-line
Customer holds cash on smart card or software wallet
Fraud and double spending require tamper-proof encryption
 E- CASH E- WALLETS

Typesof EPS

SMART CARDS CREDITCARDS

 E-Cash
A system that allows a person to pay for goods or services by transmitting a
number from one computer to another.

Like the serial numbers on real currency notes, the E-cash numbers are
unique.

 This is issued by a bank and represents a specified sum of real money.

 It is anonymous and reusable.

 Introduction

Electronic money is paperless cash. This money is either stored on

a card itself or in an account associated with the card

The most common examples are transit cards, meal plans, and
PayPal. E-Cash can also mean any kind of electronic payment.

Electronic payment systems come in many forms including virtual

cheques, ATM cards, credit cards, and stored value cards. The
usual security features for such systems are privacy, authenticity ,
and no repudiation.
Electronic Payment

The term electronic commerce refers to any financial transaction

involving the electronic transmission of information.

 The packets of information being transmitted are commonly

called electronic tokens.

the storage medium as a card since it commonly takes the form of

a wallet-sized card made of plastic or cardboard.
Conceptual Framework

There are four major components in an electronic cash system:

 Issuers
 Customers
 Merchants or traders
 Regulators.

 Issuers can be banks, or non-bank institutions

 customers are referred to users who spend E-Cash

 Merchants and traders are vendors who receive E-Cash

 regulators are defined as related authorities or state tax agencies.

For an E-Cash transaction to occur, we need to go through at least
three stages:

 Account Setup: Customers will need to obtain E-Cash accounts through

certain issuers. Merchants who would like to accept E-Cash will also need
to arrange accounts from various E-Cash issuers. Issuers typically handle
accounting for customers and merchants.

Purchase: Customers purchase certain goods or services, and give the

merchants tokens which represent equivalent E-Cash. Purchase
information is usually encrypted when transmitting in the networks.

Authentication: Merchants will need to contact E-Cash issuers about the

purchase and the amount of E-Cash involved. E-Cash issuers will then
authenticate the transaction and approve the amount E-Cash involved.
 E-cash paym ent system
F o r accessing t h e services o n l i n e , e-cash is a p r i m e m e t h o d f o r
secure o n l i n e p a y m e n t s . . T h e
f o l l o w i n g m o d e l s h o w s h o w e cash p a y m e n t s ys t e m w o r k s :
This is a simple model of E-cash payment system. This
gives us the idea of how e-cash payment system works.
The model is explained properly in upcoming slides
The customer approaches his issuer(bank’s)
site for accessing his account. The issuer in
return issues the money in form of a token
which is generally in form of tens and
hundreds or as per specified by the customer
 In second phase the customer will
endorse those tokens to the merchant
for acquiring services, for which the
customer will authenticate the payment
for the trader.
In third phase the trader will
approach the token
issuer(customer’s bank) and
after authenticating the
tokens the issuing bank will
convert the tokens into
electronic fund
and the same will be transferred into trader’s
account
 Finally after getting the payment for the respective services the
trader provides the requisite service or product and also notifies
the customer about the approval of payment made by customer
in trader’s account.
 E-cash security
Security is of extreme importance while handling the online
transactions. Faith in the security of the medium of exchange,
whether paper or digital, is essential for the economy to function.

E-cash is much secure than other online payment modes because in this case
no credential such as card-passwords or anything such is involved. Its like
simply the online fund transfer from customer’s account to trader’s account.

However while accessing the customer’s account, the customer must keep in
mind the internet security sweep or theft. The online hacking and cracking
can be avoided by using SSL and TSL website security systems and keeping
the website link with safe “Https:// “ protocols and proper internet security
softwares to keep aside the threats of malware, evasdrooping and other
security threats.
 Advantages
 We can transfer funds, purchase stocks, and offer a variety of other
services without having to handle physical cash or cheques

Electronic cash protects its user against theft With electronic cash, the
customer does not need to provide financial information

E-cash supports small payments . Other online payment system charge a

fee for every transaction no matter how much high or low it is but e-cash
has a specific limit for additional charges that’s why very low payments are
not charged a fee.
 L i m it ations
Maybe how much secure the e-cash payment system is but still no one is
safe against the online frauds. In this case the trader is referred as
fraudulent. The trader may take the amount but may not provide the
services

While making the payment, its very important that the internet
connection and power supply should be active. If the payment is in process
and internet supply fails in between it can lead to loss of information i.e
amount will be charged but it wont reach to trader and the refund takes
very long time in general the refund time is atleast 30-45 days.

E-Cash is not for everyone. Low income segments without computer

and internet access are unable to enjoy the usage of E-Cash.
 Conclusion
The rise of E-Cash is inevitable, but further
improvements are needed. Tackling security,
anonymity, low income group readiness and
technology reliability issues will make E-Cash
more perfect. In countries such as India where
people were hesitant to use such methods has
shown a tremendous use of online payments and
E-cash payment system. Slowly but steadily the
growth is seen and improving it technologically
will make it more reliable and efficient for
customers to use it.
e-wallet
 e-wallet

Till about a decade ago, we stood in long queues to withdraw cash from a
bank and then waited painfully in other queues to pay our utility bills.

With the advent of credit and debit cards many of our cash related
problems got simpler. The internet allowed us to pay bills at the click of a
button.
 e-wallet

Today there is a big buzz around ‘e-wallet’ and talk of the death of cash
payment. Now it is possible to leave your wallet at home and get through
a typical day with the help of a digital wallet, thanks to the revolutionary
technologieswe are seeing aswe advanceto a cashlessworld.
 e-wallet

What is an e-wallet?
E-wallet or digital wallet is an online prepaid
account where one can store money, to be
used when required.
 e-wallet
Asit is a pre-loaded facility, consumers can buy a range of products from

airline tickets to grocery;make payments to retailers, transfer money to other accounts

and many other things without swiping a debit or credit card.

These e-wallets can be loaded with cashthrough a mobile payment provider,

online banking or through telecom operators.

 e-wallet
When e-wallet is used with mobile it’s called Mobile Wallet. It is a virtual

wallet which is like a prepaid account of a mobile phone.

Several companies, especially those in the e-commerce and

telecommunication services sector, have introduced e-wallets

Types of e-wallets
 CURRENT ACCOUNT D EF I CI T

Let us see the formu la of the Cu rrent Account Balance (CAB)

CA B = X - M + NI + NCT
X = Exports of goods and services

e-wallet
M = Imports of goods and services

NI = Net income abroad [ Sa la ri e s p a i d or received,

credit / d e b i t of i n c o me from
F I I & F D I etc. ]

NCT = Net current transfers [Workers' Re m i tta n c es

( u n i la te ra l),
Broadly, there are three
D on a tion s, A id s & Gra n ts,
Official, Assistance a n d kinds of e-wallets.
P e n s i o ns etc]
 e-wallet
CLOSED WALLET:

Aclosed wallet is one that is issued by a company to a consumer for buying goods and

services exclusively from that company. These instruments do not permit cash

withdrawal. Several online shopping portals offer such closed wallets. It is

basically an account where money gets credited in case of a refund due to

cancellation or return. Flipkart, JabongandMakeMyTrip are some examples.

 e-wallet
SEMI-CLOSED WALLET:

Asemi-closed wallet can be used for goods and services, including financial services, at

select merchant locations or establishments that have a contract with the issuing

companyto accept these payment instruments. Semi-closed wallets do not permit

cash withdrawal or redemption by the holder as well. Oxigen Services, Citrus

Payment Solutions,MobiKwikandPaytmofferthese wallets.

 e-wallet
OPEN WALLET:

Such walletscanbe usedfor purchaseof goodsand services, including

financial services such as funds transfer at merchant locations or point- of-sale

terminals that accept cards, and also cash withdrawals at automated teller

machines (ATMs). These kinds of wallet can only be issued by banks. An example

of open wallet is M-pesa by Vodafone India Ltd in partnership with ICICI Bank

Ltd.
What are the
benefits?
 e-wallet
Easyto getstarted.

Ease of use without having to enter your debit/credit card details for every online

transaction.

For some sites there is no minimum amount and you can deposit a small amount.

You can pass on the benefits of your e-wallet to your friends and family as well.

There is no chance of a decline of payment since e-wallet is a prepaid account.

 e-wallet

What are the risks?

 e-wallet
Revealed passwords can lead to theft. However, transacting through these

digital wallets is usually secured.

Closed & Semi-closed wallets usually do not provide the facility of refund; the

amount is only redeemable against a purchase.

 e-wallet

What happens to the money

stored in your wallet?
 Treatment of money stored in these
payment options depends on the type of
wallet.
 e-
Here is a quick grid for
your understanding.
wallet
Semi-Closed Wallet Open Wallet
ClosedWallet
Where the money goes?
To the company’s To escrow account To bank
account account
What happens to the money?
The company earns There is either no interest It earns interest, which is
interest on it till the earned or interest is shared between the
customer uses the earned based on the payment service provider
money to make a average balance and the bank depending
purchase calculation approved by on the agreement
RBI

Note: Currently the money in your e-Wallet doesn’t earn

interest.
 e-wallet
In India, where people have more mobile phones than bank accounts, mobile
wallets are the future of cash. This also means the physical wallet is one step
closerto becoming redundant.

So brace for a cashless world as we accelerate towards becoming a digital

nation.
 CURRENT ACCOUNT D EF I CI T

Let us see the formu la of the Cu rrent Account Balance (CAB)

CA B = X - M + NI + NCT
X = Exports of goods and services

e-wallet
M = Imports of goods and services

NI = Net income abroad [ Sa la ri e s p a i d or received,

credit / d e b i t of i n c o me from

Hope F I I &you
F D I etc. ]
have
NCT = Net current transfers [Workers' Re m i tta n c es
understood
( u n i la te ra l),
D on a tion s, A id s & Gra n ts,
Official, Assistance a n d the concept of
P e n s i o ns etc]
‘e-wallet’.
C r e d i t Cards
 What are Credit Cards?

Pre-approved credit which can be used for the

purchase of items now and payment of them later.
 Credit c a r d s
• It is a plastic card having a magnetic strip,
issued by a bank or business authorizing the
holder to buy goods or services on credit. Also
called charge cards
• The concept of using a card for was first
described in 1887 by Edward Bellamy in
his utopian novel Looking Backward.
• The size of most credit cards is 85.60 ×
53.98 mm
 Eligibility For Getting The
Card

• Person should have a savings current account

in the bank.
• His assets and liabilities on a particular date
are reported to bank.
• A statement of annual or monthly income.
• He is considered credit worthy up to certain
limit depending upon his income, assets and
expenditure.
 Particulars Displayed On Credit
Cards
• Name of the customer
• 16-digit card number
• Validity date
• The VISA hologram and the VISA
logo
• Name of the issuing bank
• Signature period
• Magnetic strip
• PIN
What does 16 digit
mean
s
 CLASSIFICATION OF
CREDIT CARDS

Based on mode Based on Based on Based on Based on

of credit status of geographic franchise/ issuer
recovery credit card al validity Tie-up Category

Individ- Corpor
Charge Revolving Domestic Internation-
ual - ate
Card credit card card al Card
Cards Cards

Domestic
Proprie- Master VISA
Tie-up
tary card Card Card
Standard Business Card
Gold
Card Card
Card
 Based on mode of credit
•
recovery
Charge Card-A card that charges no interest but
requires the user to pay his/her balance in full upon
receipt of the statement, usually on a monthly basis.
While it is similar to a credit card, the major benefit
offered by a charge card is that it has much higher,
often unlimited, spending limits.

• Revolving credit card-A line of credit where the

customer pays a commitment fee and is then allowed
to use the funds when they are needed. It is usually
used for operating purposes, fluctuating each month
depending on the customer's current cash flow needs
 Based on status of credit
card
• Standard Card- it is a generally issued credit card
• Business Card- (Executive cards ) it is issued
to small partnership firms , solicitors, tax-
consultants ,for use by executives on their
business trips.
• Gold Card-a credit card issued by credit-card
companies to favoured clients, entitling them to
high unsecured overdrafts, some insurance cover,
etc
 Based on geographical
validity
• Domestic card- Cards that are valid
only in India and Nepal are called
domestic cards.

• International Card- credit Cards that are

valid internationally are called
international cards.
 Based on franchise/
Tie-up
• Proprietary card- A bank issues such cards under its
own brands. Eg. SBI card Cancard of canara bank
• Master Card- this card is issued under the umbrella of
“MasterCardInternational”
• VISA Card – it is issued by any abnk having tie up
with “VISAinternational”
• Domestic Tie-up Card- it is issued by any abnk
having tie up with domestic credit card brands such as
CanCard and IndCard.
 Based on issuer
Category
• Individual Cards- Non-
corporate cards that are issued
to individuals
• Corporate Cards- Issued to
corporate and business firms.
 Credit card cycle
• A card holder makes purchase , and present it
to the merchant instead of cash .
• The retailer will check the number on the card
, and he will tally signature of voucher and
credit card .
• Vouchers are send to banks, which in turn
reimburses it for thecustomer’s purchase.
 Mechanics of Credit Card
Operation
Contract for credit card
(1)
Issue of credit card
Card User
Card Issuing Bank (2) /
Payment of credit
card(3) Customer

Clearing and
settlements (7)
Charging of credit Purchase
card of goods
and raising bills (4) and
services
(3)
Submission of
bill Merchant
Marchant’s bank
for collection establishmen
(5)
Payment for bills t
(6
)
 Advantag
es
• To Cardholders :
• Simple, convenient and can be substituted for cash
• Convenient method of payment
• He need not approach a bank for taking credit
• Credit cards issued by leading banks are acceptable in many
countries
• Holders can withdraw cash from any branch of major banks
• worldwide.
• Issuer of card provides 24 hrs customer helpline available
across the world in case of any emergency.
To Merchants/ Shopkeepers :
• Guaranteed payment
• Lessens the security risk of holding the
cash
• Overseas visitors may purchase more,
providing new market for retailer
To credit card companies/ Banks :
• Source of revenue
- Joining fee
- card renew fee
- services charges from
retailers
- Interest charged to
customer
 Disadvantag
es
To cardholders :
• Loss or stealing of card
To Merchants/ Shopkeepers :
•Retailers are required to pay a certain fee and service
charges at an agreed percentage of their credit card
sales.
To credit card companies :
• Risk of bad debt
• Risk of fraud
 Safety Tips
 Sign card with signature
 Do not leave cards lying around
 Close unused accounts in writing and by phone, then cut up
the card
 Do not give out account number unless making purchases
 Keep a list of all cards, account numbers, and phone numbers
separate from cards
 Report lost or stolen cards promptly
Debit Cards
 Debit Card
Also known as Bank Card or Check Card.
A debit card is a plastic card that provides
an alternative payment method to cash
when making purchases.
It can be called an electronic cheque, as the
funds are withdrawn directly from either the
bank account, or from the remaining balance
on the card.
 Debit or Credit..?
A debit card uses the money you have and a
credit card uses the money you don't have.
"Debit cards" are linked directly to a checking
account whereas Credit cards are not.
The "debit" networks usually require that a
Personal Identification Number(PIN).
The "credit" networks require that purchases be
made in person and often allow cards to be
charged with only a signature, and/or picture ID.
Advantages of Debit Cards
A consumer who is not credit worthy and may find
it difficult or impossible to obtain a credit card can
more easily obtain a debit card.
Use of a debit card is limited to the existing funds
in the account to which it is linked.
A debit card may be used to obtain cash from an
ATM or a PIN-based transaction at no extra
charge, other than a foreign ATM fee.
Disadvantages
Many banks are now charging non-sufficient
funds fees based upon pre-authorizations.
Many merchants mistakenly believe that amounts
owed can be "taken" from a customer's account
after a debit card (or number) has been
presented, without agreement as to date, payee
name, amount and currency, thus causing penalty
fees for overdrafts.
 Cntd
….
Debit cards offer lower levels of
security protection than credit cards.
Laws protect the consumer from fraud much
less than with a credit card.
SMARTCARD
 WHAT IS SMART CARD?
Small plastic card embedded
with an IC chip.
Chip can be either a memory or
microprocessor type.
Useful for storing and
transacting data.
Data is associated with either
value, information, or both.
 INTRODUCTION
 70’s
Smart Card First Patent in Germany and
later in France and Japan.
 80’s

Mass usage in Pay Phones and Debit Cards.

 90’s

Smart Card based Mobiles Chips & Sim

Cards.
 INTRODUCTION
 2000’s
Payment and Ticketing Applications
Credit cards, Mass transit (Smartrip)
 SMART
CARD
These are basically used for telephone calling,
cash payments and other applications.

This card contain some encrypted key that is

compared to a secret key contained on the
user’s
processor.

Smart cards can hold up to 32,000 bytes.

Smart card is an E-Wallet.

 CARD
CONSTRUCTION
 CARD
ELEMENTS
Magnetic Stripe

Logo

Chip

Hologram

Embossing
(Card Number / Name / Validity,
WHAT’S IN A
CARD?

CLK RST
RFU Vcc

GND

RFU
Vpp
I/O
TERMINOLOGI
ES
VCC : “Voltage common
connection” Power supply input
RST : “Reset signal”, used to reset the
card's communications.
CLK : Provides the card with a CLOCK
signal , from which data communications
timing is derived.
GND : “Ground”(reference voltage).
VPP : Programming voltage input - originally an
input for a higher voltage to program persistent
memory e.g. EEPROM

I/O :Input or Output for serial data (half-duplex)

to the integrated circuit inside the card.

RFU : Reserved for future use.

AUX2, optionally used for USB interfaces and other
uses.
 TYPICAL
CONFIGURATIONS
256 bytes to 4KB RAM.

8KB to 32KB ROM.

1KB to 32KB EEPROM.(Electrically

Erasable Programmable Read-
Only Memory)

8-bit to 16-bit CPU.

 CARD
CONSTRUCTION
Mostly all chip cards are
built from layers of different
materials, or substrates,
that when brought together
properly gives the card a
specific life and
functionality.
The typical card today is
made from PVC, Polyester
or Polycarbonate.
The 3 by 5 mm security
chip embedded in the card
 APPLICATIONS OF SMART
CARDS
Financial
As ATM cards, Fuel cards, SIMs.
As electronic wallet.
Educational Institutes.
Tracking Student attendance.
As an electronic purse to pay various bills.
Access control of some buildings.
Electronic Tolls
Information security
Banking
E-Governance
 E-
GOVERNANCE
As the amount of business and holiday travel
increases security continues to be a top
concern for governments worldwide.
When fully implemented smart passport
solutions help to reduce fraud and forgery of
travel documents.
Enhanced security for travelers
Philips launched such a project
with the US in 2004.
TYPES OF SMART
CARD

Contactless smart cards ( e.g. Highway toll

Tags )
Relationship based smart credit cards
Contact smart card
(SIM Card, Driving license, Electronic
purses like debit card etc. )
TRANSPORTATIO
N
Driver’s license

Mass transit fare collection system

Electronic toll collection system

BENEFIT
S
Easy to use.
Individuals gain increased
convenience.
Multiple tasks can be done by
a single card
An important key in E-
governance.
Enhanced security.
A handsome way to deal with
the things.
 ACCESS &
CONTROLS
• Applications may specify the access controls
• A password (PIN) on the MF(MasterFile)
selection
• (For example SIM password in mobiles)
• Multiple passwords can be used and levels of
security access may be given
• Applications may also use cryptographic
authentication
 SECURITY WITH SMART
CARDS
The standard security goals like

Authentication

Integrity

Non-repudiation

can easily be provided by using smart

cards..
 KEY ATTRIBUTES
Security
To make the Digital Life safe and enjoyable
Ease of Use
To enable all of us to access to the Digital
World
Privacy
To respect each individual’s freedom
 CATEGORIES OF SMART
(SIM)CARDS
Based on the type of IC
chip
embedded on the Smart
Card.
They are categorized into
three types :-
IC Micro Processor Cards
IC Memory Cards
Optical Memory Cards
ADVANTAGE
S
Faster and smarter

Portability

Flexibility (no need to carry separate ATM,

Debit, credit card or pan card etc)

Highly security (deactivates on illegal use).

DISADVANTAGE
S
Easily Lost

Possible Risk of Identify Theft

High probability for damage of card.

EXPENSIVE
E-CHEQUE
 E-CHEQUE
Recent years have seen a tremendous increase in
e-commerce transactions. The success of e-
commerce relies on developing adequate
payment technologies. One such technology is
e-Cheque. An e-
Cheque is an electronic document which
substitutes the paper check for online
transactions. Digital signatures (based on public
key cryptography) replace handwritten
signatures.
 Definitio n
o f'Electronic
Cheque'
A form of payment made via the internet that is
designed to perform the same function as a
conventional paper cheque. Because the cheque
is in an electronic format, it can be processed in
fewer steps and has more security features than
a standard paper cheque. Security features
provided by electronic cheque include
authentication, public key cryptography, digital
signatures and encryption, amongothers.
The e-Cheque is compatible with interactive web
transactions or with email and does not depend on
real-time interactions or on third party
authorizations. It is designed to work with paper
cheque practices and systems, with minimum
impact on payers, payees, banks and the financial
system.
Payers and payees can be individuals, businesses, or
financial institutions such as banks. E- Cheques are
transferred directly from the payer to the payee, so
that the timing and the purpose of the payment are
clear tothe payee
The payer writes an e-Cheque by structuring an
electronic document with the information
legally required to be in a cheque and digitally
signs it.
The payee receives the e-Cheque over email or
web, verifies the payer's digital signature, writes
out a deposit and digitally signs it.
The payee's bank verifies the payer's and payee's
digital signatures, and then forwards the cheque
for clearing andsettlement

The payer's bank verifies the payer's digital

signature and debits the payer's account
PAYER PROCESS

In order to send a cheque, the client simply

fills out a standard e-cheque. The system
allows clients to define common payees in
order to speed the e-cheque creation process.

When the cheque has been written it can be

easily transferred from the payer to the payee
over a secure e-chequechannel.
This secure channel will be established
between the payer and the payee before the
transaction begins.
The e-cheque is automatically signed by the
user using his private key based on RSA
algorithm and SHA-128; this ensures the
authenticity and the integrity of the e-cheque
PAYEE PROCESS
When the payee receives the e-cheque he can open
and view it using the e-cheque system.

In order to deposit the cheque, the payee

simply connects to the bank (which is expected
to provide e-cheque services) and uploads the e-
cheque to his bank account.
Once the bank receives the e-cheque, it will
decrypt it using the e-cheque system.
•After clearing (i.e. verifying both the cheque
signature and account balance) with the payer’s
bank, the payee’s account will be credited
accordingly.
BENEF ITS OF E-CHEQUE

TO CUSTOMERS;
No physical movement of cheques so no fear of
loss ofcheque in transit.
Quicker clearance; within 3-4 working days.
Its more secured than physical cheques.
Decrease errors and fraud. eCheques reduce the
potential for errors and fraud because fewer
people handle them.
They can serve corporate markets. Firms can use
them in more cost-effective manner
 Benefits to Bank
Reduce the risk associated with paper clearing
Superior verificationand reconciliation process
No geographical restrictions
No physical movement of cheques- it saves cost
and time forbanks.
No chance of cheque dishonor- The risk is taken
care of by the accounting server, which will
guarantee that the cheque would be honoured.
Well suited for clearing micro payments
Reduce processing costs by up to 60%. E-
cheques require less manpower to process
and don’t come with any deposit or
transaction fees.As a result, processing an e-
cheque is generally much cheaper than
processing a paper check or credit card
transaction.
 Work smarter and greener.; Electronic check
conversion is easy to set up. It relies on the
trusted ACH Network. And eChecks help
reduce the more than 67.4 million gallons of
fuel used and 3.6 million tons of greenhouse
gas emissions created by transporting paper
checks

ACH –Automated ClearingHouse.

DRAW BACKS

Customer education
Chances of misuse, hackingetc
Need a different infrastructure
Unauthorized transactions becomes
challenge for banks
Problem could be when there is more than
one signer or endorser.
Transactions based on internet-network
failure may lead to delay in payment.
Both payer and payee should have e-cheque
facility.
In India the e-cheque facility is now replaced
by CTS- Cheque Truncation System2o1o.
Where there will be a physical cheque which
will be converted into e-cheque by scanning
and transferred for clearance. And the time
taken forclearance is 24hrs.
 THANK
YOU>>>>>>>>
E-Banking Services and Challenges
E-Banking Services and Challenges
INTRODUCTION in India
Banking system is one of the important part of the any country’s
economy. Today banks operate in a very highly liberalized and
globalized manner. There is a very healthy competition among
private and public sector banks. Internet has made people’s life easy
and fast. Now people don’t want to stand in queue, they now want
fast transactions with the help of technology. Internet and
development of the IT infrastructure makes the banking system
sound and more effective. In India electronic banking is gaining
popularity as an important distribution channel to provide banking
services. With the help of e-banking banks are providing convenience
of Anytime Anywhere Banking. With the rapid growth of information
technology and other internet services, cybercrimes are increasing day
by day. Bank customers have the fear of losing their confidential
details and of becoming the victim. Cyber security has become a
huge challenge for both banks and government. There is a need of
proper approach to fight against the fraudsters, cyber criminals,
hackers by making proper execution of laws and working on the
 E-
E-banking stands for electronic banking. E-banking is a process of
BANK
delivery of banking services through electronic channels such as mobile
phone, internet, automated teller machine (ATMs), debit card, credit
card, smart card etc. The Information Technology Act, 2000 provides
ING
legal recognition to electronic transactions. E-banking came into being
in 1920s in USA and UK. In India from early 1990s E-banking has
become popular. After opening up of Indian economy in year 1991 many
foreign banks enter Indian economy and they bring new technology with
them. There are most of the banks at present who offer internet banking
such as State Bank of India, ICICI Bank, HDFC Bank, AXIS Bank,
Dena Bank, Union Bank, Bank of India etc. In India now electronic
transactions are done on large scale. The Reserve Bank of India has also
established National Payment Corporation of India (NPCI) to oversee
Retail Payment System (RPS) in India which began operating from year
2009.
 SERVICES
UNDER E-
1) Automated Teller Machines(ATMs):-
BANKING:-
Facilities under ATMs are cash withdrawal,
balance enquiry, mini statement of account, PIN
(personal identification number) change etc.
For availing this facilities customers inserts a
debit plastic card, which is encoded with
information on a magnetic strip and have to
choose their preferred language from options
available. Customers have to enter 4 digit PIN
for availing any of the service under ATM. PIN
are confidential. Sharing of PIN among friend
or any other person can create a trouble.
Depending upon the bank and nature of account
2) Debit Cards:-
The debit cards are used for withdrawal of cash from
ATM, purchase of goods and services, domestic and
international fund transfer from one person to another. In
recent few years use of debit card for mobile recharge,
bills payment, payment at online stores as increased for
getting a cashback offers and discounts. Debit card
examples: - ATM card, Rupay card, Visa Card.

3) Credit Cards: -

It is card issued by bank that can used to buy products

and services on credit. Bank charge interest on credit
card use. Credit card are primarily used for short term
financing. Almost every store allows for payment of
goods and services through credit cards. Credit card is
 4) Smart
Card: -
Smart Card also known as an Integrated
Circuit Card (ICC) is a plastic card about
the size of debit and credit card, with an
embedded microchip that can be loaded
with data, used for electronic cash
payments, they can be used to pay for
many public transportation services, this
has many benefits when the person goes to
acquire health care facilities, they can be
used as identification proof in many
countries around the world and it can be
periodically refreshed for additional use.
 5) Internet Banking through
Bank
Presently Website
internet banking:-services intends to provide following online
services:-
 Account Summary: - Customers account which are internet banking
enabled can check the current balance, total balance, unclear balance
etc. of their saving/current/overdraft/term deposit/loan accounts.

 Overdraft Details: - Limit and drawing power of OD accounts,

repayment schedule for loan accounts may be viewed.

 Transaction Details: - User may view, download and print of the last
transactions or for specified period of selected account.

 Online Requests: - User may request for issue of cheques book, stop
payment for a particular cheques or range of cheques. User can also
make change or send request for change of email address, phone
number etc.

 Fund Transfer between own Accounts:- User may transfer funds from
one account to his/her another account to the extent of fund transfer
 Adding of Account in Beneficiary List: - If the amounts are frequently
transferred to a particular account, then the facility of adding that account in
beneficiary list is available and there is also the option of providing a nick
name to that account. User can view all the beneficiary that have been added
and can also modify the details of a beneficiary by selecting that beneficiary.
 Fund transfer to third party account: - User can transfer fund from his/her
account to any other third party account to the extent of fund transfer limit
fixed by the bank.
 Standing Order: - User can give standing order for transfer of funds from one
account to another to be executed on a predefined time e.g. daily, monthly.
User can amend or cancel the standing order given in the manner prescribed
by bank.
 E-payment facilities: - User can use E-payment facility for payment of
Direct (CBDT) and Indirect
(CBEC) taxes, bills, fees of institutions etc.
 6) Mobile
Banking: - that allows customers of a bank to conduct a number of
It is a system
financial transactions through
a mobile phone. Facilities such as:-
 Fund Transfer in self-linked accounts and third party transfer.
 Account Summary

 Account Statement
 Recurring Deposits Summary
 Cheques Status
 Stop Payment of Cheques
 Locate Branch and ATMs
 Bill Payment and Recharge.
7) BHIM (Bharat Interface for Money)
Application:-
Bharat Interface for Money (BHIM) is an application developed by NPCI
(National Payment Corporation of India) to enable secure, fast and reliable
cashless payment through UPI (Unified Payment Interface) platform.
Through this application user can:-
 Choose their preferred language
 Send, receive and request for money.
 Check balance of account
 View transaction history of BHIM application.
 Add beneficiaries using UPI id, AADHAR, Account number/ IFSC code of the
party. UPI id is ten digit mobile number. Example- 1234567890@UPI.
 Add payment reminder
 Generate QR code
 Use facility of scan and pay.
 Block and spam users who are sending collect request from illicit
sources
 Add custom payment address in addition to phone number and make
it as primary address. Example-
A person whose name is Rahul. He can add
custom payment addressas- rahul@upi, rahul123@upi etc.,
based upon the availability of name.
 Transaction limits are per transaction maximum limit of Rs.10
thousand and per day maximum transaction
limit of Rs.20 thousand.
 Raise complaint, send feedback and view FAQs (Frequently Asked
Questions).
Source- Ravishankar Prasad, Union
Minister of Law and Justice &
Information Technology official
 REFORMS OF
BANKS
1) National Electronic Funds Transfer (NEFT):-
 It is a system that facilitates individual, firms and corporates to electronically
transfer funds from any bank branch to any individual, firm or corporate
having an account with any other bank branch in the

country.
 Even such individual, firms or corporates who do not have a bank account
can also deposit cash at NEFT enabled branch with instruction to transfer
funds using NEFT.

 There is no limit either minimum or maximum on the amount of funds that

could be transferred using
NEFT.
2) Real Time Gross Settlement System (RTGS):-
 RTGS system is a fund transfer mechanism for transfer of money from one
bank to another on a ‘Real Time’and on ‘Gross Basis’. This is one of the
  Here settlement in ‘Real Time’ means payment transaction is not subject
to any waiting period. The transaction are settled as soon as they are
proceed. ‘Gross Settlement’ means the transaction is settled on one to
one basis without bunching with any other transactions.
 RTGS is primarily meant for large value of transaction. The minimum
amount to be remitted through RTGS is 2 lakhs.

3) Indian Financial System Code (IFSC):-

 IFSC is an alphanumeric code that identifies a participating bank and branch
in electronic fund transfer.
 It is an 11 character code.
 The IFSC code is used by NEFT, RTGS and IMPS finance transfer system.
 Reserve Bank of India (RBI) has direct the banks to print IFSC code on
passbooks.
 Example- BKDN0123456
4) Magnetic Ink Character Recognition (MICR) Code:-
MICR code is a system for ensuring the safety and security of negotiable
instruments, to facilitate the processing of the cheques. MICR code of 9 digit
number, the first three digit represent the city, next three represent the bank and the
last three digit represent the branch. MICR code is written with a special magnetic
ink, thus fraud cases can be easily identify through check done by the magnetic
scanner. This code can be found in all the cheques at the bottom white line which is
known as MICR Band. MICR code can be used for international transactions as
well.
5) Example- Clearing
Electronic MICR code-Service
321456123 (321 city, 456 bank, 123 branch).
(ECS):-
The Electronic Clearing Service is a retail payment system that can be used to make
bulk payment. Its aim is to decrease volumes of paper instruments in MICR clearing
and improve customer service by ensuring prompt and secure interest/dividend
payment to the beneficiaries. It is a system that is cost effective and which serve as
an alternative method of bulk, low value and recurring payment transactions.
 The ECS-Credit enables companies to pay interest or dividend to large
number of beneficiary by direct credit of the amount to their bank
accounts.
The ECS-Debit is mostly used by utility services like telephone and
electricity companies to
receive the bill payments directly from customer bank accounts.

6) Know Your Customer (KYC):-

As per the RBI (Reserve Bank of India) guidelines issued on July 23rd 2013,
banks are required to periodically update their customer’s identification
document. In this connection customer (including joint account holder
customer) are require to submit latest photograph, self-attested copy of identity
proof and address proof along with a duly filled Customer Updation Form. As
per the RBI, the KYC formalities must be fulfilled in the following format:-
(A) High risk
customer- once
in 2 years.
 RECENT
TRENDS IN
1) One hundred banks joined National Financial Switch Network as
BANKING:-
direct members:-
The NFSs is the largest interoperable ATM network in the country and it manages
more than 95% of the domestic interbank ATM transactions. Till date, NFS
network comprises of 745 members which include 100 direct members, 645 sub
members including Regional Rural Banks (RRBs) and White Label ATM
operators (WLAOs). The network now has 2.3 lakhsATMs.
The NPCI (National Payment Corporation of India) said on December 7, 2016
that 100 banks have joined the NFS network as direct members. Direct members
are those banks that directly participate in clearing and settlement with NPCI.
Direct member bank can also act as a sponsor bank.

2) Launching of digital offerings by banks :-

The State Bank of India (SBI) on the occasion of 61st State Bank Day, launched
 Banks through their social media i.e. Facebook, Twitter and Instagram
promote their products and services. They tie-up with e-commerce company
and bring the exciting offers for their customers. With the usage of their debit
card, credit card etc purchaser get a cashback or discount. For example:-
Instant discount of 10% at Luxehues.com with SBI debit card, offer validity
from August 1, 2017 to January 31, 2018 this is one of the promotion done
3) E-wallet
by SBI in their official Instagramaccount.
companies:-
E-wallet companies like Paytm, Freecharge and PhonePe have extended their
business in millions and there is a cutthroat competition among them. E-wallet
companies attract their customer by giving cashbacks. After the demonetization on
November 8th, 2016 small shops and customers who were not using E-wallets have
also started receiving and making payment via E-wallets. Services provided by them
are making mobile phone recharge, DTH recharges, landline bill payment, water bill
payment, electricity bill payment, payment of institution fees, gas refill payment,
and transfer of money from one wallet to another wallet and wallet to bank account,
 RECENT DATA OF FRAUD
CASES:-

3.2 million Debit Cards details leaked and unauthorised usage

done in October, 2016 this was the one of the biggest ever breaches of
financial data in India. People reported that their cards were unauthorised used
from China. Out of 3.2 million debit cards 2.6 cards were Visa and Master-
Card, 6 lakh cards were RuPay Card. The cards were of State Bank of India
(SBI), HDFC Bank, ICICI Bank, Yes Bank and Axis Bank. The breach is
said to have originated in malware introduced in systems of Hitachi Payment
Services, enabling fraudsters to steal information and to steal funds. Hitachi,
provides ATM, point of sale (PoS) and other services.
Technology related
In country like India the cybercrimes are increasing day by day as the number of
frauds
users of E-banking are rapidly increasing. People and companies are using E-
banking services like internet banking, mobile banking for fast services,
enhancing efficiency and cost-cutting. But while banks customers have become
tech-savvy and started using online banking services and products, evidence
suggests that even fraudsters are devising newer ways of perpetrating frauds by
exploiting the loopholes in technology system and processes.Innocent
peoples are being targeted by hackers and fraudsters. Bank group wise detail
of the number of technology related fraud cases with the amount involved
therein over four years is as under following table:-
 Bank Group wise Technology Related Frauds

(No. of cases in absolute terms and

amount involved in Rs. Crore)
Cumulative
2009-10 2010-11 2011-12 2012-13
total (As at
end March
2013)
No. Amo No. Amo No. Amo No. Amo No Amo
Bank Group
of unt of unt of unt of unt . unt
cas invol cas invol cas invol cas invol of Invol
es ved es ved es ved es ved ca ved
se
s
Nationalized
118 1.82 143 3.39 172 7.26 190 9.85 824 25.60
Banks
including SBI Group
Old Private Sector 9 0.15 4 0.46 9 0.06 6 1.09 55 2.30
Banks
 CHALLENGES AND
PROBLEMS OF E-BANKING
1) Due to technical defaults sometimes there is loss of data, which create insecurity
among customers. IN INDIA:-
2)Lack of awareness in customers. For example- people share ATM card number,
CVV and the OTP (One Time Password) by believing in fake calls.
3)Temporary not availability of bank’s website which create problems for customers
while making payment, resetting passwords, checking account statements etc.
4) Not in service of toll-free numbers of banks in case of problem faced by
customers like loss of ATM card
etc.
5) Not in service and no availability of cash inATMs.
6)Deduction of amount from account even after the unsuccessful transaction while
withdrawing cash from ATM, making payment through card or internet banking.

7) Poor response from bank regarding transaction related to E-banking.

8) Very delay refund of amount from bank in case of unnecessary deduction.
9)Lack of communication between bank and customer. Many customers AADHAR
card number, present phone numbers, present communication address are not
updated with the banks. For example- Sometimes important links, SMS are sent by
banks in customer’s old contact number which create a trouble.

10) Poor services by banks. For example-

(A) SMS regarding debit or credit of amount and login of internet banking comes
very late e.g. after 4 to 5 days.
Sometimes it also happens that no SMS come from bank.
(B) Knowing that, they can also solve issue, bank staff send customers for
approaching in another branch for solving their issue.
11)Banks are over loaded with works. Even for deposit of cash through Pay in Slip
many bank staff say to customers for going branch in which they have opened
account.
12) Lack of ATMs in villages and towns.
15) Lack of training programs for bank staff and customers.

16)Many banks are not following the KYC (Know Your Customer) norms issued by RBI. On July 27,
2016 RBI has imposed monetary penalty on the following banks who had done violation of
instruction/guidelines, on KYC norms. The penalties has been imposed in exercise of powers vested in
RBI under the Section 47(A)(1)(c) of the Banking Regulation Act, 1949, taking into account the
violation of the instruction/guidelines issued by the RBI from time to time.

S. Penalty Amount (in ₹

Name of the bank
No million)
.
1. Allahabad Bank 20
2. Bank of India 10
3. Bank of Baroda 50
4. Canara Bank 20
5. Corporation Bank 10
6. HDFC Bank 20
7. IndusInd Bank 20
8. Punjab National Bank 30
9. RBL Bank 10
10. SBBJ 20
11. SBM 10
 SUGGESTIONS:
-
1)For providing the additional security for customers, banks should focus
on adopting Multi-Factor Authentication (MFA) system.
2)Encryption plays a crucial role in online security. All banks keeping in mind the
security issues should upgrade their online portal to 256-bit SSL (Security Socket
Layer) from 128-bitSSL.
Banks like SBI (State Bank of India) has already upgraded.
3) The use of same password for a long time is not secure. Bank should make
compulsory rule regarding
change of ATM PIN, internet login and transaction password etc. after a specified
period.
4)Banks should educate people regarding use of genuine sites and give security tips
regarding payment via credit card, debit card etc.
5) By all banks, access to internet banking should be allowed only after entering
6) All banks should register alternate mobile number of customers and it
should also be printed on the
passbook along with primary mobile number.
7)Biometric ATM machines can also be used to prevent hacking of password and
to make easy for illiterate people.
8)All banks should follow the KYC (Know Your Customer) norms and other
guidelines given by apex bank (Reserve Bank of India).
9) There should be timely joint meetings of all banks (public sector, private sector)
headed by RBI.
10) Government of India with the cooperation of state government, RBI and other
banks connect all citizens of
India with banking system.
11)Government with the cooperation of banks must start a Certificate Program for
college and school student on ‘Digital Payment’.
13)E- Banking is related with internet connectivity. In India internet connectivity
and its speed is very poor. TRAI should take steps for strengthening telecom
sector. Most of the time we don’t get messages from bank due to the poor
service/network of Telecom Company.
14) Strong action should be taken against the hackers and frauds.
15) After every successful and unsuccessful transaction via internet banking,
mobile banking and cards
banks should provide their customer option of sending feedback and that
feedback should also be send to
RBI.
 Manufacturing
Information System
Manufacturing Information System

• Definition (same components as marketing)

– A computer-based system that works in
conjunction with other functional information
systems to support the firm's management in
solving problems that relate to manufacturing
the firm's products
 Manufacturing Information Systems
• The manufacturing function is concerned with the production
of goods that the business sells.
• Manufacturing information provide services to support the
manufacturing function.
• Inventory control is often considered to be a manufacturing
information system because manufacturing produces the goods
for inventory.
• Purchasing may also be a manufacturing information system
in some businesses.
 Some other common manufacturing information
systems are:

Production scheduling: This system schedules the use of

manufacturing facilities to produce products most efficiently.
Material requirements planning (MRP): The purpose of this
system is to determine what parts and materials will be needed
during the manufacturing process and when they will be
needed.
Manufacturing resource planning (MRP II): This system is
called MRP II to distinguish it from materials requirements
planning. It combines MRP with production scheduling and
other functions in a comprehensive manufacturing information
system.
Just-in-time (JIT) inventory management: This system is a
form of inventory control in which parts and materials are
scheduled to arrive from suppliers just before they are needed
in the manufacturing process.

Computer-aided design (CAD): This system involves using

computers to assist in the design of products to be
manufactured.

Computer-aided manufacturing (CAM): This system involves

using computers to control machines in the manufacturing
process.
Robotics:This system uses computer-controlled robots in the
manufacturing process

Computer-integrated manufacturing (CIM): This system

combines many of the other manufacturing systems into a
single system.

Supply-chain management: This system manages the

movement of materials and products from suppliers through
manufacturing and distribution to retailers
A Model of a Manufacturing System
Output
Input subsystems Data Information

subsystems
Accounting Production
information subsystem
system
Internal D
sources Inventory
A subsystem
Industrial T
engineering Users
system
A
B Quality
Environmental subsystem
sources
A
S
Manufacturing
intelligence E Cost
subsystem subsystem
 Accounting Information System
• Data collection terminals
– Track material flow
– Gather job data (job reporting)
– Gather attendance data (attendance reporting)
 Location of
Receiving area 1 Data Collection Terminals
Receiving Terminal
inspection 2

Raw-materials
storeroom 3 4 5

6
8

9 Shop floor area

7
10

Finished-goods
storeroom 11

Shipping area 12
Industrial Engineering Subsystem

• The industrial engineer

• Studies physical and conceptual systems
• Sets production standards
Manufacturing Intelligence Subsystem
• Can be viewed in terms of environmental
contacts
• Labor unions (personnel flow)
– formal and informal systems
– personnel information
– union contract compliance
• Suppliers (material and machine flow)
 Production Subsystem
Used to:
1. Build production facilities
2. Operate production facilities
• Production schedule determines when the
production steps are performed
• Track expected and actual completion times
 Job Flow Through the Plant
Plastic top Step 5 Install bulb
Raw
materials
inventory Plastic
cylinder Step 6 Install reflector

Attach switch
Step 7 Install red lens
Step 2 Step 1 Attach spring

Step 8 Install clear lens

Step 3 Step 4
Step 9
Put top on
Attach strap Add batteries cylinder
Flashlight
PRODUCTION AREA Finished
goods
inventory
 Inventory Subsystem
• Importance of determining the inventory level
• Maintenance cost (carrying costs)
• Purchasing costs
• Economic Order Quantity (EOQ)
• Economic manufacturing quantity (EMQ)
 Quality Subsystem
• Deming’s fourteen points; maintained that it
is not workers but management that
determines quality
• Total quality management (TQM)
• Elements of TQM
– zero defects
– quality at the source
 Cost Subsystem
• Periodic reports
• Required ingredients
1. Standards
2. Information
 Electronic Data Interchange
(EDI)

TRANSACTI
ON DATA

COMPANY A COMPANY B

Simply termed as Paperless Tradi

155
 EDI Definition
EDI is the computer-to-computer exchange of
routine business documents (data) in a standard
format between companies.

EDI is the exchange of documents in standardized

electronic form, between organizations, in an automated
manner, directly from a computer application in one
organization to an application in another organization
International Data Exchange Association (IDEA)
formally define EDI as:

•“The transfer of structured data, by agreed

message standards, from one computer system
to another, by electronic means”. 156 156
EDI definition Cont….
EDI is defined by International Data Exchange Association (IDEA)
as:-
This definition has four elements-
1. Structured data- EDI transactions are composed of codes, values
and short pieces of text if necessary; each element with a strictly
defined purpose. For example, an order has codes for the customer
and product and values such as quantity ordered.
2. Agreed message standards- The EDI transaction has to have a
standard format. The standard is not just agreed between the trading
partners but is a general standard agreed at national or international
level. A purchase order will be one of a number of agreed message
standards.
3. From one computer system to another- The EDI message sent is
between two computer applications. There is no requirement for
people to read the message or relay it in a computer system.
4. By Electronic Means- Usually this is by data communications but
the Physical transfer of magnetic tape or floppy disc would be within
the definition of EDI. Often networks specifically designed for EDI
will be used.
157
 PAPER DOCUMENT
INTERCHANGE

P Data Entry
O

Computer Computer

Post Office

Purchaser Invoice

158
 ELECTRONIC DATA
INTERCHANGE
P Data Entry
O

Computer Computer

VAN

Purchaser Invoice
• Electronic interchange between the computer and an electronic post office
eliminates these problems 159
 EDI History
1948 – Berlin Airlift standardizes processes of
airlifting of its consignments
1960 – electronic data transmissions commenced in
rail and road transport industry
1968 – US Transportation Data Coordinating
Committee (TDCC) formed to develop transport
rules

ANSI announced X12 standards to replace TDCC

standards
UK developed its own standards for documents used in
international trade
UN Economic Commission adopts UK standards into
General purpose TradeData Interchange 160
(GTDI)
standards
 EDI Components
ED
I Four basic components
Hardware of EDI:
Standard
s Hardware
Includes computers and
ED modems
Software
I Select one to fit your
requirements
Communications

EDI standard
Softwa Communicatio
re ns

161
EDI
One of the
Standard most important EDI components is standards
EDI Standard - “A set of rules, agreed upon, accepted, and
voluntarily adhered to, by which the data is structured into
message formats for exchange of business and operational
information” (Beby, Daniel J., E-D-I or D-I-E)
Standards
Started in 1950s and 1960s
First developed for the transportation, warehouse, and
grocery industries
Provide the commonality of format
Interpretation for communicated information intelligible
to both the sender and receiver
American National Standards Institute (ANSI) developed
the first national, cross-industry EDI standards
162
ANSI X12 is the standard for EDI transactions in the U.S.
 ELECTRONI ANSI X12
C DATA
INTERCHA
NGE
STANDARD
S UN/EDIFACT

Other Standards
Transportation Data Coordinating Committee (TDCC)
Uniform Communications Standard (UCS)
Warehouse Information Network (WINS)
Voluntary Inter-Industry Communication Standard (VICS)
EDI for Administration, Commerce, and Trade (EDIFACT)

163
 EDI Software

1. Document
Support

Databa
4. Translation se
Communicati
ons 2.
Mapping

X12

3. Standards
Support

164
Software Component:

Will help design and maintain an electronic form

Will replicate a routine paper business form
ASCII files can be used to exchange information
between an application package and an EDI package
Translators take information and translate it into an
ANSI X12 format
Application packages can be mapped to eliminate
data entry.
EDI software does not have to match your trading
partner’s software.
Software must use ANSI X12 standards.
Software will send, receive, translate and store
165 the data
Governme Health Retail Grocer Transportatio
nt care y n Poli
cy

Advertis
ing
EDI Insura
nce

USER
Constructi
on
S Manufacturi
ng

Banks Chemica Electroni Petroleu Automot

l cs m ive

166
EDI Users:
Government - DOD, DOC, DOI, GSA, HHS, DOE
Federal, state, and local governments
Health care - Hospitals, Pharmacies, Labs, Insurers
Retail - Used to support Vendor Managed Inventory
(VMI)
Transportation - Motor, Air, Rail, Ocean
Insurance - Property and Casualty, Health care,
Life/Annuity, Pensions, Reinsurance
Manufacturing industry uses EDI to support just-
in-time material requirement (JIT)
Automotive industry uses EDI to support Evaluated
Receipt Settlement(ERS)
Petroleum
Electronics
Chemical
Banks use financial EDI
167
Construction
EDI Benefits
●No recapture of data. So faster transfers of data and fewer errors
● Reduced cycle time – result of above
● Better coordination with suppliers – no delays, missing documents in
transit, no human errors in data entry

● Reduced redundancy – documents stored in email boxes, available

anywhere, anytime.
● Expands market reach – through value-added networks
● Increased revenue and sales – result of frictionless transactions and
related errors, faster account settlements

•Decrease mailing costs - Information exchanged electronically

•Greater customer satisfaction -Customers receive products faster
-Suppliers get paid quicker
•Reduction in order time -Reduced minimum 50%
•Better cash management -Goods received faster Invoicing and
payments occur faster and more accurately
–Corporate balance sheets are up-to-date More accurate decision
168 making
information available.
 EDI Disadvantages
• Trading Partners Involvement – Highly dependence
on the participation of trading partners. You need to be
confident that they will do their part. EDI will be
meaningless if your trading partner didn't get involved
using EDI system effectively .
• Costly for smaller companies – Many small
companies are facing resources problems in getting
starter with the initial implementation of EDI system. It
is beyond the resources these companies to invest tens
or hundreds of thousands of dollars in setting and
implementation costs, as well as weeks of personnel
training, to get an EDI system running
.
• Difficult to agree on standard to be used –Even
though there are widely-accepted and used standards,
there are no ways to force trading partners to accept
these standards. Cooperation between trading partners
is needed in order to develop a common rules to avoid
differences in interpretation.
169
Barriers to EDI Implementation
●Business process change – from traditional paper
format to EDI format

Cost in time and money for organizations to

●

migrate to EDI
●Business perception of EDI as technical data
format, not as document exchange system to be
integrated with internal MIS

170
EDI Operation 1

● EDI implies

– Transfer information electronically

– Information transfer between two trading partners
who agree upon data formats
– Transferable information complies with agreed
upon formats

● EDI can happen in two ways

– Exchange data directly with each partner

– Interact with multiple partners through a central
information clearing house. Relieves sender from
171
compatibility and licensing issues
EDI operation 2

●Trading partners meet to specify the

applications in the EDI standard they would
implement.

●Each partner adds EDI programs to its

computer to translate its data into EDI format
for transmission and reception.
●As often as required, partners exchange data
in standard format.

172
EDI Operation 3

● Sender confirms authenticity of recipient

● Records in senders database generate data to
transmit.
● Sender composes transmission in EDI format
● Receiver translates received data into its
computer record for its internal processing
● All transmissions are checked both
electronically and functionally for errors and
corrected, if needed 173
EDI Building Blocks

1. Application / conversion Layer .

2. Standard Formats Layer
(EDIFACT, X12 etc)
3.Data Transport Layer
(email, FTP etc)
4.Interconnection Layer
(network infrastructure)

174
 Architecture of EDI-

• The architecture of EDI is divided into four layers-

1.Application Layer
2.Standards translation Layer
3.Transport Layer
4.Physical Network Infrastructure Layer
• 1. Application Layer-

• The first layer of EDI defines the business applications that

are used by EDI. This layer of EDI translates business
application into request for quotes, purchase orders,
acknowledgement and invoices. For every company this layer
is specific and also for the software that company uses.
• The application layer also called the semantic layer. The
Semantic layer describes the Business application that is
driving
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EDI
Application / Conversion Layer

● Comprises application involved in EDI

● Applications may use their won record formats for
storage, retrieval and processing information within
internal system
● Applications convert internal information and
documents to EDI format
● Conversion may be part of application if number of
conversions are few
● Conversion may be separate program if number of
176
conversions are many
2.Standard Layer-

• This layer of EDI architecture defines the

structures of the business form and some
content which are related with the application
layer. This layer of EDI has no mean without
application layer so we can say that EDI
applications and standard layer are interlinked.

5/7/2023
Standard Formats Layer

● Specify the syntax and semantics of documents being

exchanged
● Many document standards exist

– US grocers' Uniform Communication Standard

– U K's DISH
– Europe's GTDI
– TDCC and its replacement ANSI X12
– EDIFACT to merge X12 and GTDI

178
3.Transport Layer-

• EDI transport layer is a non electronic way of

sending the business form from one company
to another company. This non electronic way
may be registered mail, postal services or
private career, telecommunications, fax etc.
Now a days the transportation method is more
complex with compare to e-mail.
5/7/2023
Data Transport Layer

● Group of services that automate e-transfer process

● Utilized any of the available network transport services, such

as email
● ITU-T adopted X.435 standards to support

email message standards to ensure integrity and non-

repudiation

180
Product Data Exchange Standard
(PDES)
● Is a project in US to
– Develop an exchange standard for product daa in support of industrial
automation
– Represent US position in ISO arena relative to the development of a single
world-wide standard for exchange of product data
● Includes data relevant to the entire life cycle of a product,
manufacturing, quality assurance, testing support etc.
● So far, mechanical, electrical plant design products have been

included for standardization

181
Product Data Exchange Standard (PDX)
● Is in XML format
● Used to exchange BOM, change order, asbuilt

configuration and quality information of

products

182
Initial Graphics Exchange
Specifications (IGES)
● CAD tools enable ease of revise and archive and manufacturing
instructions to plants
● Drawing specifications of different CAD tools differ

● Standards needed for exchange of drawing between designer and

manufacturers
● CAD vendors and users created IGES in 1979

● Specifies information structures to digitally represent and

communicate product data

● Specifications concerned with data to describe engineering

characteristics of physical products, in terms of physical dimensions

183
Standard for Product Data
Exchange (STEP)
● Also called ISO 10303.xxx, where xxx is part number
● Aims at standardizing product data between computer-based

product life cycle systems

● Intended to be used for all products

● Covers electronic, electromechanical, sheet-metal, fiber

composites etc
● Covers design, analysis, planning and manufacturing phases

of product life cycle

● Data entities are defined in schema in EXPRESS language

● Application protocols define models that define parts

● PDML designed to support PDE for commercial systems

184
4.physical Layer-

• The physical layer of EDI also called the

infrastructure layer. This layer defined the
component communication path for EDI data
transaction. What are the structure of e- commerce
supported EDI in which information can be build
and what are the communication established over
which EDI data transfer from one customer to
another customers.

5/7/2023
 FROM TRADITIONAL TO INTERNET-

APPEN
BASED EDI

DIX
TRADITIONAL EDI
EDI is a communication standard that enables the electronic transfer of routine documents, such as pur- chasing orders,
between business partners. It formats these documents according to an agreed-upon struc- ture. An EDI
implementation is a process in which two or more organizations determine how to work together more effectively
through the use of EDI. For other organizations, it is an internal decision spurred by the desire for competitive
advantage. EDI is basically a computer-to-computer messaging system with a minimum of human intervention
EDI often serves as a catalyst and a stimulus to improve the business processes that flow between organizations. It
reduces costs, delays, and errors inherent in a manual document-delivery system.
Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions.
These include purchase orders, invoices, credit approvals, shipping notices, confirma- tions, and so on.
Data formatting standards. Because EDI messages are repetitive, it makes sense to use formatting (coding)
standards. Standards can shorten the length of the messages and eliminate data entry errors, because data entry
occurs only once. EDI deals with standard transactions, whereas e-mail is more open. EDI uses a special standard
language and is secure, whereas e-mail is not. When a user enters data into the EDI system, the data are
automatically converted to EDI language. If there are missing or incorrect data, the EDI converter offers assistance.
EDI translators. An EDI translator automatically translates data. The software organizes informa- tion into a
standard format.
EDI has been around for about 30 years in the non-Internet environment. To distinguish it from Internet-based
EDI, we call EDI on the non-Internet platform traditional EDI.

1
• APPLICATIONS OF TRADITIONAL EDI
•Traditional EDI has changed the business landscape, triggering new
definitions of entire industries. It is used extensively by large
corporations, sometimes in a global network, such as the one operated
by General Electric Information System (which has over 100,000
corporate users). Well-known retailers such as Home Depot and Wal-
Mart would operate very differently without EDI, because it is an
integral and essential element of their business strategies. Thousands of
global manufacturers, including Procter & Gamble, Levi Strauss,
Toyota, and Unilever, have used EDI to redefine relationships with their
customers through such practices as quick-response retailing and just-
in-time ( JIT) manufacturing. These highly visible, high-impact
applications of EDI by large companies have been extremely successful.

• LIMITATIONS OF TRADITIONAL EDI

•However, despite the tremendous impact of traditional EDI among
industry leaders, the set of adopters represented only a small fraction of
potential EDI users. In the United States, where several million busi-
nesses participate in commerce every day, fewer than 100,000 companies
have adopted traditional EDI. Furthermore, most of these companies
have had only a small number of their business partners on EDI,
2 Part One

Purchase Order (PO) Fulfillment w i th and Without EDI

Start P.O. Delivery

Sales
Order Placer
Accounting/Finance Order Confirmation Bill Delivery Mail Room

Without EDI
Accounting/Finance
Purchasing
Payment Delivery
Mail Room

Shipping

Shipping
Receiving Product Delivery Order Fulfillment

Buyer Seller

Computer Convertor Generates

P.O. Standardized
Standardized
P.O.
P.O. Form
P.O.Form

Invoice Flash Report

Start

With EDI Instant Datato

Departmental • Sales
Buyer • Inventory
EDI Converter • Manufacturing
• Engineering

Product Delivery
Shipping
Receiving
Order Fulfillment
Buyer Seller
mainly due to its high cost. Therefore, in reality, few businesses have benefited from
EDI. The major fac- tors that held back more universal implementation of traditional
EDI include the following:
Significant initial investment is needed, and ongoing operating costs are
high. Business processes must be restructured to fit EDI requirements.
A long start-up period is needed.
EDI requires use of expensive private VANs. EDI has a
high operating cost.
Multiple EDI standards exist, so one company may have to use several standards in
order to commu- nicate with different business partners.
The system is difficult to use.
 3
HowEDI CutsCostsof Ordering Supplies

An average hospital generates about 15,000 purchase orders of a PC with an EDI translator, a modem, and a link to the
each year, at a processing cost of about $70 per order. The mainframe-based information system. The hospital can have
Health Industry Business CommunicationCouncil estimates that two or three ordering points. These are connected to a value-
EDI can reduce this cost to $4 per order—generating yearly added network (VAN), which connects the hospital to its sup-
savings of $840,000 per hospital. The required investment ranges pliers (seeExhibit W5A.2 below). Thesystem alsocan connect
H o w EDI
between $8,000 and $15,000, whichCuts the Cost of Ordering
includespurchase Supplies
to other hospitals or to centralized joint purchasingagencies.
PC/EDI Translator
Hospitals
Pharmaceutical Supplier’s Mainframe
System
Pharmacy: PC/EDI
Translator

PC/EDI Translator
Hospital Dietary: PC/EDI PC/EDI Dietary Supplier’s
Information System Translator Modem VAN System

Material Management:
Mainframe
PC/EDI PC/EDI Translator
Translator Other Hospitals’ PC/EDI
Materials
Translators
Supplier’s System

Mainframe
PC to Mainframe Links
Telephone Lines
 Benefits of EDI

•EDI enables companies to send and receive large amounts of routine

transaction information quickly around the globe.
•Computer-to-computer data transfer reduces the number of errors.
• Information can flow among several trading partners consistently and freely.
•Companies can access partners’ databases to retrieve and store standard
transactions.
• EDI fosters true (and strategic) partnership relationships because it involves a
commitment to a long-term investment and the refinement of the system over
time.
•EDI creates a complete paperless TPS (transaction processing system)
environment, saving money and increasing efficiency.
•Payment collection can be shortened by several weeks.
•Data may be entered off-line, in batch mode, without tying up ports to the
mainframe.
•When an EDI document is received, the data may be used immediately.
•Sales information is delivered to manufactures, shippers, and warehouses almost
in real time.
•EDI can save companies a considerable amount of money.
 A converter is required to translate business transactions to EDI code.
The system is inflexible; it is difficult to make quick changes, such as adding business partners.
These factors suggest that traditional EDI—relying on formal transaction sets, translation software, and
VANs—is not suitable as a long-term solution for most corporations. Therefore, a better infrastruc- ture was
needed; Internet-based EDI is such an infrastructure.

INTERNET-BASED EDI
Internet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the case and review the
various types of Web-based EDI.

WHY INTERNET-BASED EDI?

When considered as a channel 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 accessible 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 currentlyavailable.
Using the Internet instead of a VAN can cut communication costs by over 50 percent.
Using the Internet to exchange EDI transactions is consistent 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 search 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, such as collabora- tion,
workflow, and search engine capabilities (see Boucher-Ferguson 2002).
4

Traditional Versus Web-Based EDI

Traditional Electronic Data Interchange (EDI)
Translate
Translate Store and Forward
Business EDI Value- EDI Business
Application Formatted Added Formatted Application
Message Network Message

Web-basedEDI
Orders

EDI
Internet Server Inventory

Web Web
Browser Server Legacy
Applications
 ChapterFive 5

TYPES OF INTERNET-BASEDEDI
The Internet can support EDI in a variety of ways.
Internet e-mail can be used to transport EDI messages in place of a 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 EDI
software that enables a company to provide its own EDI services over the Internet. Harbinger Express
is an example of a company that provides third-party hosting services.
Internet-based EDI is frequently XML based to ease integration among business partners.
THE PROSPECTS OF INTERNET-BASEDEDI
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 mes- sages into their legacy processing systems. The Internet simply serves as
a cheaper alternative transport mechanism. For a discussion, see Witte et al. (2003). 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 transactions 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 transac- tions. The system helped the company to grow rapidly.
Tradelink of Hong Kong was successful in recruiting only several hundred of the potential
70,000 com- panies 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 being 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 differ- ent 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.