Introduction to E-commerce

Meaning and concept

E-commerce is concerned with the buying and selling information, products and services
over computer communication network.
E-commerce refers to paperless exchange of business information using electronic data
interchange, electronic mail, bulleting boards and other network based technologies. The
internet has given great momentum to e-commerce, because it is cheap compared to other
types of networks.
Andrew. B. Whinston defines e-commerce as “it provides the capability of buying and selling,
production and information on the internet and other on line services.”
Electronic commerce is about doing business electronically-p. Timmers.

History of E-commerce
E-commerce became possible in 1991 when the internet was opened to commercial use.
EDI is widely viewed as the beginning of E-commerce. E-commerce was made possible by
the development of electronic data interchange (EDI), the exchange of business documents
from one computer to another in a standard format. EDI originated in the mid-1960s, when
companies in transportation and some retail industries were attempting to create “paperless”
offices.
The second generation of e-commerce is characterized by the transaction of goods and
services through the internet.
By the end of the 1980s, the internet had still used for non-commercial purpose. The primary
users were still scientists and engineers working for the government or for universities.
It was the development of a graphical user interface (GUI) and the navigability of the world
wide web (WWW) that changed the nature of internet use. In the early 1990s, the creation of
the hypertext markup language (HTML), with specifications for uniform resource locators (URLs)
enabled the web to use universally.
History of E-commerce is unthinkable without Amazon and Ebay, which were among the first
internet companies to allow electronic transactions. According to statistics, the most popular
categories of product sold in the world wide web are music, book, computers, office supplies
and other consumer electronics.

Importance of E-commerce
E-commerce has become an integral part of business in the modern world. It is generally
associated with buying or selling a product by using the internet as the platform. Plenty of
opportunities are available from e-commerce and the importance of e-commerce can be
discussed under the following heads.
Consumer sovereignty:- consumer is the king in the market. The marketing strategies of all
business organisations in one way or other, related with the satisfaction of consumers.
Consumers in e-commerce enjoy wide choice and best service. It is very convenient for everyone
to shop anytime, anywhere and in any device instead of visiting the shops in person.
Customisation:- through customisation, marketers in all industries are seeking new ways to
interact with customers and delivering service.
New markets:- it is easier to penetrate and reaching of the customers across the world within
minutes over internet.
Efficient use of resources:- availability of plenty of information, no transportation costs and free
entry into markets led to the efficient use of resources that will in turn reduce both cost and
prices.
Low investment:- running an e-commerce business requires low capital investments compared
to establishing traditional physical shops.
Employment opportunities:- the direct impact of the e-commerce growth has been on the
creation of employment opportunities across the value chain.
Quick and speedy disposal of customers:- now we are able to process transactions at a great
speed with the help of information technology and it takes less time to complete formalities
with minimum investment.
Managing competition:- in this competitive market, those who can satisfy and boost customer’s
expectations are going to achieve great sales.

Features of E-commerce
Ubiquity:- in traditional commerce, customers can buy something only after visiting a store or
market place. E-commerce, in contrast, is characterised by its ubiquity which means is available
everywhere, at all times.
Global Reach:- E-commerce takes place beyond cultural and national boundaries. E-commerce
can attract customers across the world.
Universal Standards:- the technical standards for conducting e-commerce use universal
standards which mean they are shared by all nations around the world.
Ample Information:- in e-commerce, it is available in the internet just a click away.
Interactivity:- in e-commerce there is sufficient scope for interaction. It enables two-way
communication between merchant and consumer.
Information Density:- E-commerce technologies reduce information collection, storage,
processing, and communication costs. Information Becomes more, less expensive, and of higher
quality.
Personalization/ plentiful Customization:- E-commerce technologies is also useful for
personalization. Merchants can target their marketing messages to specific customers according
to their behaviour, interests, and past purchases. The technology also allows customisation-
designing product or service based on a user’s preferences or prior behaviour.

Benefits of E-commerce
International Market:- E-commerce enables business firms to have access to people all around
the world.
Reduced inventories and overheads:- E-commerce firms need not stock large inventory. This is
because of online collecting the customer order and then delivering through JIT (just-in-time)
manufacturing.
Mass customisation:- in the e-commerce environment firms are able to customise their
products and services to the customer’s requirements.
Lower telecommunications cost:- the internet is much cheaper than value added networks
(VANs) which were based on leasing telephone lines for the exclusive use of the organisation
and its authorised partners.
Digitisation of products and processes:- digitisation of products and processes particularly in
the case of software and music/video products, which can be downloaded or e-mailed directly
to customers via the internet in digital or electronic format within 24-hour-time.

Benefits of E-commerce to consumers

Easy Accessibility:- E-commerce enables customers to shop in 14 hours a day, all year round
from almost any location.
More choices:- customers can now choose a wide range of products
And customise.
Price comparisons:- customers can ‘shop’ around the world and can make price comparisons
either directly by visiting different sites, or by visiting a single site where prices of different
sellers are exhibited.
Improved delivery processes:- this can range from the immediate delivery of digitised or
electronic goods such as software or audio-visual files by downloading via the internet, to the
on-line tracking of the progress of packages being delivered by mail or courier.

Benefits of E-commerce to society

Flexible working practices:- E-commerce enables more flexible working practices, which
enhances the quality of life of people in society, enabling them to work from home.
Connects people:- this also helps people in both developing countries and rural areas to enjoy
and access products, services, information and other people which otherwise would not be so
easily available to them.
Facilitates delivery of public services:- E-commerce also facilitates delivery of public services.

Products suitable for E-commerce

All products are not suitable for selling on the internet. The following types of products and
services are more suitable for effective conducting of e-commerce.
Selling of commodity items:- commodity item is a product or service that is difficult to
distinguish from the same products or services provided by other sellers. Eg:- books, CDs
Information based products:- the internet is primarily used to communicate, entertain, educate
and research.
High Value Products:- customers normally won’t buy thing which could be readily available near
their place. Eg:- grocery or match box.
Services:- E-commerce is highly suitable in service industries such as air travel and hotel
reservation services.
Investments:- E-commerce sites are useful for investors in making investments in shares,
mutual funds, bonds and commodity trading.
Products suitable for shipping:- products that could be transported easily are suitable for e-
commerce.
Strong brand identity:- a product that has a strong brand identity such as a Nokia, Nike or sony
is easier to sell over the web than an unbranded item, because the brand’s reputation reduce
the buyer’s concern about quality when buying that item online.
Standard and Non perishable goods:- E-commerce is more suitable for selling standard and non
perishable goods.
Physical Inspection:- the product which requires close physical inspection before purchase such
as high fashion clothing, antiques or perishable food products are not suitable in e-commerce.
Permissible under law:- similarly products which are not permissible to sell under law are not
suitable to sell online. Eg:- India, Arms

E-commerce VS traditional commerce

in traditional commerce, in addition to buying or selling, firms engage in many other
activities. Eg:- the seller of a product must identify demand, promote its products to potential
buyers, accept orders, deliver its products, bills and accept payment for its product, and support
its customers’ use of its product after the sale.

Features of traditional commerce

Identity:- customers can easily confirm the identity of a merchant simply by visiting into a shop.
Immediacy:- customers can touch and feel and hold the goods and services they can collect
relevant information before buying.
Value:- it is very easy for a buyer to appraise the value of a product, especially its relative value,
if that item is very near to customers.
Dialogue:- customers can talk with the merchant face-to face.
Feedback:- customers can contact and interact with other customers and can collect feedback
about the merchant, as well as by observing the merchant interacting with other customers.
Privacy:- customers can make purchases with cash without revealing their identity.

Traditional commerce models

Retail store:- retail store is the most popular model for traditional commerce.
Retail special order:- when a retail store does not stock the product that a customer want, or is
currently out of stock, they often have the option of making special order for the product.
Phone order from a catalogue:- mail order catalogues, with their operators standing by, have
been operating around longer than the internet.
Bargaining:- bargaining for price and other terms of transaction also form a part of traditional
commerce scenario in many parts of the world.

Distinction between traditional commerce and e-commerce

Volume of sales:- many traditional commerce facilities are designed to sell in large volume. They
may handle many orders per day and most of these orders are typically quite large. On the other
hand, e-commerce business may process numerous orders a day, but the size
Of their may be small compared to traditional commerce.
More products:- traditional commerce can stock and sell large variety of products for their
customers. However, handling numerous products is a major challenge for online marketers.
Direct Interaction:- traditional commerce is based on face to face interaction.
Lower Costs:- ecommerce is usually much cheaper than maintaining a physical store in busy and
popular locations. Compared with costs such as commercial space rent, opening an online store
can be done with a minimum cost.
Access:- there is no limit to the market in ecommerce. An ecommerce however, in traditional
commerce selling of products restricted to people who actually visit the shop.
Product’s Returns Rate:- in a traditional store, the customer will be purchasing the product in
person, a significantly higher rate of returns of products can expect in ecommerce.
Credit card Fraud:- the remote nature of ecommerce makes much more difficult to detect fraud,
while in traditional commerce, this type of fraud is comparatively low.
Human resource:- the human resources function at an e-commerce business is very critical.
Such a business not only will have to hire and maintain more employees, it will also need to
manage them more efficiently for the perfect performance of customer orders.

Differences between E-business and E-commerce

1. E-commerce is the subset of E-Business. E-business is a very broad concept while the e-
commerce is only a small part of it.
2. E-commerce is defined as conducting business communications and transactions through
computer networks. It is the buying and selling of goods and services through digital
communication.
On the other hand, e-business is conducting business on the internet, but not just buying and
selling but also servicing customers and communicating with business partners.
3. E-commerce involves those activities which are essentially in the nature of monetary
transaction. However, e-business is a much broader term. There are many other things
besides selling including procurement of raw materials or goods, customer education,
looking for suppliers etc.
4. To sell online is e-commerce but to bring and retain customers and educate them online
about the product or service is e-business. Having a website is not sufficient to do
commerce. But, it requires a professionally built website loaded with latest technologies
to capture the attention of the visitors.
5. E-commerce has also been defined as a process covering outward processes that touch
customers, suppliers and external partners while e-business covers internal processes
such as production, inventory management, product development, risk management,
finance etc.

Impacts, challenges and limitations of E-commerce (type)

E-Infrastructural issues:- internet is the backbone of e-commerce.
Logistics &supply chain:- logistics failure in any area leads to very harmful damage to company’s
future and can hurt the brand image.
Branding & Marketing:- to get people to come on an e-commerce site and make a purchase
involves heavy cost due to branding and marketing.
Declining Margins:- with the introduction of a large number of players in the already
competitive e-commerce market, big offers like huge discounts, offers, taking returns etc.
Security:- one of the important challenges of e-commerce is the lack of sufficient system
security, reliability, standards and communication Protocols.
Security and Privacy:- privacy protection has been a critical issue of both present and
forthcoming electronic commerce users.
Pressure for innovation:- pressure to innovate and develop business models to exploit the new
opportunities may sometime leads to strategies harmful to the organisation.
Price wars:- facing increased competition from both national and international competitors
often leads to price wars and subsequent occurrence of losses for the organisation.
Compatibility issues with technology:- there are problems where old business systems cannot
communicate with web based and internet infrastructures.
Cost of updating technology:- not only the initial cost of buying equipment but additional
investment to update technology regularly to be compatible with the changing requirement of
the internet, websites and applications is also a major limitation.
Financial commitment:- computing equipment is needed for individuals to participate in the
new ‘digital’ economy, which means an initial capital cost to customers.
Computer literacy:- a basic technical knowledge is required of both computing equipment and
navigation of the internet and the world wide web.
No personal contact:- customers are more comfortable in buying products physically face to
face.
Breakdown in human interaction:-
Wasted resources:-
Facilitates just-in-time manufacturing:-
Tax related issues:-

Electronic data interchange (EDI)

EDI is the electronic exchange of business documents in a standard, computer processable,
universally accepted format between trading partners. It is a standard for the electronic
exchange of business documents, such as invoices and purchase orders. EDI consists of
standardised electronic message formats for common business documents such as purchase
order, request for quotation, bills of lading, invoice and similar documents.

Q. what are EDI standards?

Ans. there are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and
ebXML. And, for each standard there are many different versions, e.g., ANSI 5010 or EDIFACT
version D12, release A. when two business firms decide to exchange EDI documents, they must
agree on the specific EDI standard and version.

Benefits of EDI
Avoids time delays:- time savings is one of the benefits from the reduction in paper processing.
Low labour costs:- in non-EDI systems, manual processing is needed for data keying, document
storing, retrieving, sorting, stamping etc.
Elimination of errors:- documents can be transferred more quickly and processing errors can be
decreased allowing business to be done more efficiently.
Certainty:- exchange of paper documents along with manual processing delays makes the
receipts of documents uncertain.
Low inventories:- because of time delays and uncertainties in non EDI processing, inventories
are often higher than necessary.
Information access:- EDI permits user access to a vast amount of detailed transaction data.
Low cost:- EDI provides cost savings by reducing paper and eliminating paper processing.
Increase quality of the trading relationship:-
Competitiveedge:- an organisation using EDI will be more competitive than their rivals who use
traditional methods to exchange documents.

Drawbacks of EDI
High cost:- one of the severe criticisms levelled against EDI its high cost.
Limited accessibility:- EDI applications do not allow consumers to communicate and transact
with suppliers in an easy and direct way.
Rigid requirements:- EDI applications require highly structured protocols, software etc for
information interchange.
Partial solutions:- EDI applications suggest only partial solutions to organisation in their
transacting process.
Closed world:- the scope of EDI applications is very limited.

Supply chain management (SCM)

A supply chain is the alignment of firms that bring products or services to market.
A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer
request. The supply chain not only includes the manufacturer and suppliers, but also
transporters, warehouses, retailers, and customers themselves.
Supply chain management as, the systemic, strategic coordination of the traditional business
functions and the tactics across these business functions within a particular company and across
businesses within the supply chain, for the purposes of improving the long-term performance
of the individual companies and the supply chain as a whole.

SCM participants
Manufacturers:- producers or manufacturers are organisations that make a product.
Distributors:- distributors are companies that take inventory in bulk from producers and
distribute it to customers.
Retailer:- retailers stock inventory and sell in small quantities to the general public.
Customers:- customers or consumers are any entities that purchases and uses a product.
Service providers:- these are organizations that provide services to producers, distributors,
retailers, and customers.

Q. state any three objectives of supply chain management?

Ans. E-commerce is buying and selling of goods over the internet, the correct and timely
movement of goods is essential for the success of e-commerce, hence the need of supply chain.
Supply chain becomes the most critical aspect which needs to be quick, un-interrupted and
secure. They likes to get delivered products within hours of their order placement. The main
task of the supply chain management is to coordinate the information.

Q. what are the factors influencing successful E-commerce? (infrastructure)

Ans. the Hardware Infrastructure:- computers with internet connection are the backbone of
e-commerce.
Internet:- internet is the world’s largest computer network.
World wide web:- internet provides several facilities for its maximum exploitation.
Web store Requirements:- the development of a website and the creation of a presence on the
internet are very essential to start an e-commerce venture.
Electronic Payments:- payments are an integral part of doing business, whether in the
traditional way or online.
Security:- security over electronic transaction should be ensured for e-commerce.
Marketing:- marketing is one of the important infrastructures neede for e-commerce.
M-commerce:- until recently, almost all e-commerce transactions took place over wired
networks.
IT services:-

Business-to-business (B2B)
B2B is the major type of e-commerce model. It is conducted between two separate
businesses. This is a kind of e-commerce, where a company selling or buying from other
companies. One company communicates with companies through internet technology. B2B is
the sale and the exchange of products and service between businesses.

Benefits of B2B E-commerce

Market stability:- compared to other business strategies, the B2B e-commerce business model
has more market stability.
Better Sales:- A B2B e-commerce site with attractive web pages is a powerful way to reach new
B2B customers.
Improved brand awareness:- improve brand awareness in the market place is also seen B2B
business model.
Lower costs:- lower cost is another advantage of B2B business model.
Better customer service:- e-commerce provides an exceptional opportunity for the B2B
organisation to improve its customer service initiatives.

Business-to-consumer (B2C)
B2C stands for “business-to-consumer” and applies to any business or organisation that sells
its products or services to end consumers over the internet. B2C e-commerce consists of the
sale of products or services from a business to the consumers. It is conducted between a
business and a retail consumer.

B2C process
Consumer visits site:- consumer visits the site of the seller online where product related
information such as price, quality and other specifications are exhibited.
Customer register:- in most cases customers are required to register their details in a register
in the database of the company so that customers can avail all the services offered by it.
Ordering:- if customers are satisfied with the goods and terms of condition he can place the
order.
Payment:- credit cards, electronic cheques, internet banking, and digital cash are among the
popular options that the customer can use for paying for the goods or services.
Shipment and Delivery:- the next step in B2C model is physically delivering the product or
service from the merchant to the customer.
Service and support:- it is rather easy to maintain current customers than to attract new
customers.

Benefits of B2C E-commerce

Lower marketing costs:- expenses relating marketing is comparatively cheap in electronic
medias than traditional medias.
Lower order processing cost:- business firm can check orders from customers and ensure its
accuracy before proceeding delivery of goods.
Better customer service:- customers can visit the web site at any time on their convenience and
get all information regarding various matters online.
Lower customer support cost:- customers can refer to the web site for basic questions and
clearing doubts, so that number of customer service staff can be reduced, thus reducing the cost
again.
Wider markets:- the web site is open and accessible at any time on any day that reaches
customers all over the world.

Consumer-to-business (C2B)
C2B is an electronic commerce business model in which consumers offer products and
services to companies and the companies pay them. This business model is a complete reversal
of traditional business model where companies offer goods and services to consumers.

Consumer-to-consumer (C2C)
C2C model involves the electronically facilitated transactions between consumers through
some third party. C2C e-commerce consists of individuals using the internet to sell product and
services directly to other individuals. Eg:- online auction

Business-to-government (B2G)
It refers to the supply of goods and services for online government procurement. This is a
huge market which mainly covers everything from office supplies to military equipment. One of
the main B2G activities is paying government taxes and fees online such as vehicle tax, property
tax and income tax.

Business-to-employee (B2E)
This form of e-commerce is more commonly known as an ‘intranet’. An intranet is a web site
developed to provide employees of an organisation with information.
Business models in emerging E-commerce areas
Consumer-to-consumer (C2C) business models:- C2C business provides a platform for
consumers to sell to each other, with the help of an online business.
Peer-to-peer (P2P) business models:- like the C2C models, P2P business models connect users
and enabling them to share files and computer resources without a common server.
M-commerce business models:- M-commerce or more precisely mobile-commerce permits
mobile access to the web.

Applications of E-commerce
Electronic commerce and banking:- banks now have a variety of technological devices to initiate
online banking programs without investing huge investments.
Electronic commerce and retailing:- another important application area of electronic
commerce is retailing.
Television retailing:- television based retailing has how become a popular method of retailing.
CD-ROM based shopping:- with the popularity of internet and world wide web, many retailing
firms are adopting web sites as an effective media retailing.
Online publishing:- electronic publishing is mostly being used to supplement demand for
printed periodicals.

Steps to E-commerce
Generating Demand:- the first step in e-commerce is generating demand which means
converting visitors to the into buyers.
Ordering & Fulfilment:- once a consumer is at the site, they must be induced to place an order.
Process Payment:- any of the available methods for processing payments such as electronic
cash, cheque, debit or credit card can be used.
Service & support:- the needs of customers can be fulfilled by providing exceptional customer
support and services.
Security:- consumers should know that their transactions over the internet are safe and secure.

Influencing Factors of successful E-commerce

Website Presentation:- website is the foundation to do e-commerce business.
Accessible:- providing an attractive, easy to access website that is simple to navigate and
understand another important factor for successful e-commerce.
New technology:- it is always better to use latest technology for e-commerce.
Product Line:- a deeply positioned product line is very essential for the success of e-commerce.
Pricing:- one of the main reasons why consumers buy online is to save money.
User friendliness:- many online merchants believe that the price in e-commerce is the most
important factor for a consumer to make a purchasing decision.
Offer Incentives:- in e-commerce environment there should be sufficient provision for
customers to buy and then return items that they don’t really want.
Payment and security:- payment and security are the other important factors that decide the
success of e-commerce.
Trustworthy:- visitors will be doubtful to make a purchase online until they feel that they can
trust the merchant.
Adequate Stock:- companies must keep adequate stock of all products in order to avoid
backorders.
Relationship Building:- it is essential to focus on taking small steps to develop the website as a
social hub.
Optimized for Search Engines:- online searches provide some of the highest quality of traffic
that may lead to access our site.
Order Confirmatio:- it is highly essential to send communication to consumers confirming of all
orders.
Select suitable mode of Delivery:- there might be a variety of mode of delivery.
Exhibit information clearly:- it is also essential to post all company contact information very
visibly on the site.
Quickness:- websites should load quickly.

Reasons for the failure of E-commerce

Poor Management:- the main reason for failure of e-commerce is poor management.
A poorly designed website:- a professional website needs to feature the items clearly with
photos and descriptions.
Lack of marketing:- marketing of the site is needed for both online and offline.
Selling the wrong product online:- there are products that are not suitable to be sold online.
Poor order fulfilment:- information on the internet spreads like anything.
Poor customer service:- poor customer service would send customers running away.
Inadequate Resources:-
Poor channel Integration:- a common mistake committed by firms is poor channel integration.
Ignoring customers:-
High cost:-
Poor planning:-

Electronic payment system

Electronic payment is defined as a financial exchange that takes place online between buyers
and sellers.

Participants in an online payment system

The customer:- customer in the e-commerce may be a holder of a payment card such as a credit
card or debit card from an issuer.
The issuer:- the issuer means a financial institution, such as a bank, that provides the customer
with a payment card.
The merchant:- the person or organization that sells goods or services to a cardholder via a web
site is the merchant.
The acquirer:- acquirer is a financial institution that establishes an account with a merchant and
processes payment card authorisations and payments.
The payment gateway:-
The process:-

Basic steps of an online payment

Step 1 :- the customer places an order online by selecting items from the merchant’s website
and sending the merchant a list.
Step 2:- the buyer submits a payment request through his cell phone, computer or mobile
payment processor.
Step 3:- the service provider routes the data via a secure connection to the buyer’s bank or
credit company.
Step 4:- the buyer’s bank either approves or declines the transaction based on the buyer’s
available funds or credit.
Step 5:- the payment provider stores the transaction and send a record to both the seller and
buyer.
Step 6:- the goods or services are sent to the buyer and the buyer’s bank sends the funds to the
seller.

Prepaid payment system

Prepaid refers to the payment made in advance and services are availed afterward. Prepaid
payment system provides a service that is paid for prior to usage. In the case of prepaid payment
systems, a customer is allowed to spend only up to the amount that have pre-deposited into
the account.

Benefits of the pre-paid payment system

1. It is accepted at all merchant establishment worldwide according to the affiliation of the credit
giving company.
2. It can be used to withdraw cash at ATMs
3. Reloadable anytime anywhere
4. It can be used to withdraw cash in any international currency.
5. It usually backed up by personal accident insurance cover.
6. Customer has the facility to get online and track spending, check balance, change pin.

Post-paid payment system

post-paid refers to a system where the services are availed first and thereafter pay the price for
it. The post-paid payment system is like a credit card used to make purchases through web site.

Features of post-paid payment system

Global acceptance:-
Balance transfer option:- it is possible to transfer outstanding funds from one card to the other
card with low interest rates.
Revolver facility:- customer can pay only a small amount of the total outstanding and revolve
the rest for payment to the next month.
Cash advance facility:- the customer can withdraw around 30% of the credit limit at any ATM
connected to the credit card company.
Other service:- the credit card can be used for railway tickets and airline ticket purchase.
Convenience:- post paid instruments are convenient for the customer.
Easy availability:- the holder can load prepaid credit cards anytime they need.

Types of electronic payments

1. Electronic cash or e-cash
E-cash is an electronic medium for making payments. The refers to a system in which a person
can securely pay for goods or services electronically without necessarily involving a bank to
mediate the transaction.

Advantages of E-cash
convenience to consumers:-
consumer privacy:- anonymity implementation gives consumer a privacy to use e-cash just like
the conventional coins and paper notes.
Purchase in small lost:-
Global market:- to merchant, e-cash provides an opportunity expand their businesses across
the globe without the barrier of different currencies.
Security:-
Efficiency of banks:-

Disadvantages of E-cash
Existence of counterfeiters:-
Lack infrastructure:-
Computer literacy:- consumer needs to learn new things such as installing software on the
computer and understand how e-cash software operates.
Less popularity:- many people are still not using e-cash because of several reasons.
Difficulty in monitoring:- other issue of a e-cash is money monitoring by the government.

2. Electronic cheque
The payer/account holder writes an e-cheque using a computer or other type of electronic
device and transmits the e-cheque to the payee electronically. Digital signatures are used for
signing and endorsing electronic cheques.

Advantages of E-cheque
Faster processing:- faster processing of e-cheques is much beneficial to business people.
Lower costs:- the cost of an electronic cheque is much cheaper than that of a paper cheque.
Customer payment options:- some customers do not possess a debit or credit card.
Security and reliability:-

Disadvantages of E-cheque
Fraud potential:- as computers process electronic cheques, hackers can potentially get access
to users banking information.
Errors:- the computer-driven nature of electronic cheques also makes them subject to computer
errors.
Absence of float:-
Bouncing:- due to the insufficient funds in many individual’s bank accounts, their e-cheques are
often “bounced” or returned.

Smart cars
A smart card is similar to a credit card or debit card in size and shape. It is plastic card that
contains an embedded computer chip-either a memory or microprocessor type-that stores and
transacts data.

Advantages
Security:- smart card are secured because unauthorised access is prevented by a lock function.
Convenience:- smart cards are also convenient to use since it is an easy method of payment.
Flexibility:- smart cards are flexible because smart cards can be used for all kind of purchases
although certain limits are set within each country.
Control:- smart cards provide control on spending within the limits of an existing amount on the
card.
International use:- smart cards are highly useful as it allow cardholders to use the card when
travelling or transferring money abroad.
Interest free loan:- finally, in comparison with a credit card, a smart card allows consumers an
interest free loan.

Disadvantages
Security:- level of security is another important disadvantage.
Chance of loss:- like a credit card, smart cards are small, lightweight and can be easily lost if not
properly handled.
Slow adoption:- if used as a payment card, not every store or restaurant will have the hardware
necessary to use these cards.
Possible risk of identify theft:- there is no risk when used smart cards correctly for identification
purposes by authorised officials.

Credit cards
Credit card is small plastic card with a unique number attached with an account. 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 can pay the credit card bill.

Advantages
Convenience:- the main advantage of credit cards is their convenience.
Fast payment:- it takes only a few seconds to swipe a credit card or insert it in a chip-enabled
card reader.
easy access:- user need not worry about the cash when use a credit card for shopping.
More shopping options:- it is not possible to make purchases over the phone with cash.
Consumer protections:- another advantage of credit cards over debit cards is the increased
consumer protection they provide.
Credit score:- using a credit card regularly, and paying the bill on time, user will be able to
develop a strong credit score.
Record keeping:- when a person makes most of his purchases with a credit card, he gets an
automatic record of his spending.

Disadvantages
Over spending:- the biggest disadvantage of credit cards is that they encourage people to spend
money that they don’t have.
High interest rates and increased debt:- credit card companies charge an huge amount of
interest on each balance at end of each month.
Credit card fraud:- like cash, sometimes credit cards can be stolen.
Hidden costs:- credit cards appear to be simple and straightforward at the outset, but have a
number of hidden charges.
High interest rate:- if dues are not cleared before the billing due data, the amount is carried
forward and interest is charged on it.

Debit cards
Debit card is a prepaid card and also known as ATM card. This is a payment card that deducts
money directly from a consumer’s bank account to pay for a purchase.

Advantages of a debit card

Easy to obtain:- it is easy to obtain a debit card because most institutions will issue a debit card
upon request once opening an account.
Convenience:- purchases can be made using a chip-enabled terminal
Or by swiping the card rather than issuing out a bank cheque.
Quick purchase:- merchants like debit cards much more than cheques or credit cards because
using a debit card is much faster than writing a cheque.
Comfortable:- payment of costly items or things can be easily bought using debit cards rather
than writing a cheque or counting the cash.
Safety:- users need not have to carry cash or a cheque book with them for making purchase.
Control on spending:- unlike credit cards, debit card won’t allow to spend more than the
amount of money in the bank account.
Readily accepted:- debit card is a widely accepted payment medium and it can be used where
ever user goes.
Disadvantages debit card
No grace period:- unlike a credit card, a debit card uses funds directly from bank account.
Limited money access:- debit card takes money from the savings account.
Less safety:- most financial institutions will try and protect their customer from debit card fraud.
Extra fees:- debit cards can be accessed without any fee only in that specified bank ATM.

Electronic purse
Electronic purse is a multipurpose prepaid card the size of a credit card. Electronic purse would
consist of a micro-chip embedded in a credit card, debit card, or stand alone card to store value
electronically.

Convenience in handling
Convenience in handling coins:- some consumers might find an electronic purse to be much
more convenient than cash for small-value transactions.
No cost of handling cash:-
Easy reloading:-
Less time:-
High security:-
Marketing tool:-

Disadvantages
Not widespread:- payment with e-purse over the internet is not widespread.
Less secure:- the information on the card is not completely secure because, if it falls into the
wrong hands, it can be examined in a number of ways.
Low cost saving:- cost savings held out by e-purses are limited compared to the required
investment.

Internet banking
Internet banking refers to any banking transaction that can be conducted over the internet,
generally through a bank’s website under a private profile, and with a desktop or laptop
computer.

Mobile Banking
Mobile banking allows customers to perform many of the same activities as internet banking
using a smart phone or tablet instead of a desktop computer. However, simply accessing the
bank’s website on a mobile device is not the only method of mobile banking.

E-wallets
e-wallet is a type of electronic card which is used for transactions made online through a
computer or a smart phone. Its utility is same as a credit or debit card. An e-wallet needs to be
linked with the individual’s bank account to make payments. E-wallet is a type of pre-paid
account in which a user can store his money for any future online transaction. E-wallet has
mainly two components, software and information.
Security issues in electronic payment system
Before the introduction of computers, people manage payment systems directly and valuable
information of business organisations was kept safely in paper records and files. However, in e-
commerce environment, information related to payments is transmitted through computers
and as such it can easily be accessible to any number of people including outsiders.

Objectives security
Availability objective:- information should be available and usable whenever it is required.
Confidentiality objective:- this objective states that information should be available to only
those who have the right to access it.
Integrity objective:-as per this objective, information should be protected from unauthorised
alteration and modification and misuse.

Types of security online payment

Computer Viruses:- viruses are programs that attach themselves to a computer or a file and
then circulate themselves to other files and to other computers on a computer, either by altering
or deleting it.
Worms:- computer worms are programs that reproduce, execute independently and travel
across the network connections. The key difference between a virus and worm is the manner in
which it reproduces and spreads.
Trojan horse:- this term ‘Trojan horse’ derives from Greek mythology and refers to wooden
horse that the Greeks used to sneak into the city of troy and conquer it. In software field this
means an unauthorized programme, which passively gains control over another’s system by
representing itself as an authorised programme.
Hacking:- hacking is unauthorized intrusion into a computer or a network. The person engaged
in hacking activities is generally referred to as a hacker. These types of hackers are called white-
hat hackers. These hackers help many companies once they find vulnerabilities with their
computer system. Illegal hackers also called crackers or black-hat hackers frequently assault the
internet and other networks to steal or damage data and programs.
Denial-of-service attack (DOS):-
Phishing:- phishing is a method used to solicit personal information by posing as a trustworthy
organization. In recent years phishing have been used for online identity theft information.
Pharming:-
Spyware:- spyware any technology that is used in collecting information about a person or
organization without their knowledge.
Malware:- “malware” is short for malicious software and is typically used as a term to refer to
any software designed to cause damage to a single computer, server, or computer network.
Thus, malware is any program or file that is harmful to a computer user.
Spam:- email continues to be the most important service for internet users. Billions of messages
are transferred every day.
Internet hoax:- internet hoaxes are stories that spread throughout the internet, often through
email, forums, and blogs or showing images that are untrue or alterations of the truth.
Masquerading or spoofing:-
Solutions to security issues
Antivirus programs:- it is highly essential to safeguard computers and files from the attacks of
these viruses. Antivirus programs are special type of software meant for limiting the risks
created by computer viruses.
Firewalls:- another important security measure is the use of firewalls. Firewall prevents
unauthorised users from accessing private networks.
Encryption:- many organisation depend on encryption technique to protect their valuable
information sent over the internet and other networks.
Secure socket layer (SSL):- SSL is a standard security technology for establishing an encrypted
links between a server and a client-typically a web server and a browser. SSL allows traffic be
encrypted. The SSL is the most widely deployed security protocol used today.
Secure electronic transaction (SET):- SET encrypts payment card transaction data and verifies
that both parties in the transaction are genuine.
Digital signatures:- digital signatures are used not only to verify the authenticity of the message
and claimed identity of the sender but also to verify message integrity.
Digital certificates:- a digital certificate is an electronic file that uniquely identifies individuals
and web sites on the internet and enables secure, confidential communications.

Biometrics
Online credit card fraud is increasing due to identity theft. The solutions to online fraud and
identity theft include authentication and verification, both of which are addressed with
biometrics.

Types biometric
Face:- the analysis of facial characteristics
Fingerprint:- the analysis of an individual’s unique fingerprints
Hand geometry:- the analysis of the shape of the hand and the length of the fingers
Retina:- the analysis of the capillary vessels located the back of the eye
Iris:- the analysis of the colored ring that surrounds the eye’s pupil
Signature:- the analysis of the way a person signs his name.
Vein:- the analysis of pattern of veins in the back if the hand and the wrist
Voice:- the analysis of the tone, pitch, cadence and frequency of a person’s voice.

Functions of biometric systems

1. To prove that you are who you say you are (positive ID), or
2. To prove that you are not who you say you are not (negative ID).
In a positive ID situation, the subject states that he is a particular person and submits a “live”
sample (a fingerprint, for example) to the system.

Components
1. A reader or scanning device. 2. Software that converts the scanned information into
digital form and compares match points. 3. A database that stores the biometric data for comparison