CHAPTER 3

E-COMMERCE AND
ELECTRONIC PAYMENT
SYSTEM

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E – Commerce: Introduction

E- Commerce

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E-Commerce (Contd…)

 E-Commerce (Electronic Commerce)

is the activity of buying and selling of
goods and services online or over the
internet.
 It is a business model that enables a
firm or individual to conduct business
through an electronic network.

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 E – Commerce (Contd…)

 E-commerce is the use of electronic

communications and digital information
processing technology in business transactions
to create, transform, and redefine relationships
for value creation between or among
organizations, and between organizations and
individuals.
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E- Commerce: History

 The growth and acceptance of credit

cards, automated teller machines (ATM)
and telephone banking in the 1980s
were also forms of electronic commerce.
 Another form of E-Commerce was the
airline reservation system, for example
Sabre in the USA and Travicom in the
UK.

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 E-Commerce: History (Contd…)

 By the end of 2000, many European and

American business companies offered their
services through the World Wide Web.
 Since then people began to associate a
word “E-Commerce" with the ability of
purchasing various goods through the
Internet using secure protocols and
electronic payment services

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 Classification of E – Commerce

There are 6 basic types of e-commerce:

1.Business-to-Business (B2B)

2.Business-to-Consumer (B2C)

3.Consumer-to-Consumer (C2C)

4.Consumer-to-Business (C2B).

5.Business-to-Administration (B2A)

6.Consumer-to-Administration (C2A)

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1. B2B
 Business-to-Business (B2B) e-commerce
encompasses all electronic transactions of
goods or services conducted between
companies.
 Producers and traditional commerce
wholesalers typically operate with this type
of electronic commerce
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 2. B2C

 The Business-to-Consumer (B2C) type of e-

commerce is distinguished by the establishment
of electronic business relationships between
businesses and final consumers. It corresponds
to the retail section of e-commerce, where
traditional retail trade normally operates.

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 3. C2C
 Consumer-to-Consumer (C2C) type e-
commerce encompasses all electronic
transactions of goods or services
conducted between consumers.
 Generally, these transactions are
conducted through a third party, which
provides the online platform where the
transactions are actually carried out.

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 4. C2B

 In C2B there is a complete reversal of the

traditional sense of exchanging goods.
 This type of e-commerce is very common
in crowdsourcing based projects.
 A large number of individuals make their
services or products available for purchase
for companies seeking precisely these
types of services or products.

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 5. B2A
 This part of e-commerce encompasses all
transactions conducted online between
companies and public administration.
 This is an area that involves a large amount
and a variety of services, particularly in areas
such as fiscal, social security, employment,
legal documents and registers, etc.
 These types of services have increased
considerably in recent years with investments
made in e-government.
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6. C2A

 The Consumer-to-Administration
model encompasses all electronic
transactions conducted between
individuals and public administration

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E-Commerce Framework

 The term e-commerce framework is

related to software frameworks for e-
commerce applications.
 They offer an environment for building e-
commerce applications quickly.
 They provide an overall structure for e-
commerce related applications.
 They are flexible enough to adapt them to
your specific requirements.
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E-Commerce Framework (Contd…)

 A web shop, basically

 General, all-in-one solution
 Well designed website for shoppers
 Administration web interface for shop
employees
 Built-in databases for goods, stock, orders, …
 Content management (text, pictures, …)
 Payment systems
 Ready to use in very short time

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Scope of E-Commerce

 Electronic Commerce is more than just

buying and selling products online. It
also includes the entire online process
of developing, marketing, selling,
delivering, servicing and paying for
products and services.
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 Advantages of E-Commerce

 The main advantage of e-commerce is its ability

to reach a global market, without necessarily
implying a large financial investment.
 The limits of this type of commerce are not
defined geographically, which allows consumers
to make a global choice, obtain the necessary
information and compare offers from all
potential suppliers, regardless of their locations.

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 Advantages of E-Commerce

 By allowing direct interaction with the final

consumer, e-commerce shortens the product
distribution chain, sometimes even
eliminating it completely.
 This way, a direct channel between the
producer or service provider and the final
user is created, enabling them to offer
products and services that suit the individual
preferences of the target market
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 Advantages of E-Commerce

 E-commerce allows suppliers to be closer to their

customers, resulting in increased productivity and
competitiveness for companies; as a result, the
consumer is benefited with an improvement in
quality service, resulting in greater proximity, as
well as a more efficient pre and post-sales support.
 With these new forms of electronic commerce,
consumers now have virtual stores that are open
24 hours a day.

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 Advantages of E-Commerce

 Cost reduction is another very important

advantage normally associated with
electronic commerce.
 The more trivial a particular business
process is, the greater the likelihood of its
success, resulting in a significant reduction
of transaction costs and, of course, of the
prices charged to customers.

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 Disadvantages of e-commerce

1. Strong dependence on information and

communication technologies (ICT);

2. Lack of legislation that adequately

regulates the new e-commerce activities,
both nationally and internationally;

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Disadvantages of e-commerce

3. Market culture is averse to electronic

commerce (customers cannot touch or try
the products);
4. The users’ loss of privacy, the loss of
regions’ and countries’ cultural and
economic identity;
5. Insecurity in the conduct of online
business transactions.
6. There is no guarantee of product quality
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E-COMMERCE EXAMPLES:
• An individual purchases a book on the
Internet.
• A government employee reserves a
hotel room over the Internet.
• A business buys office supplies on-line
or through an electronic auction.
• A manufacturing plant orders electronic
components from another plant within
the company using the company's
intranet.
E-Business

E-business refers to all uses of

advances in information technology
(IT), particularly networking and
communications technology, to
improve the ways in which an
organization performs all of its
business processes.

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E-Business (Contd…)
E-business encompasses an
organization’s external
interactions with its:
 Suppliers
 Customers
 Investors
 Creditors
 The government
 Media

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 E-Business (Contd…)
 E-business includes the use of IT to
redesign its internal processes.
 For organizations in many industries,
engaging in e-business is a necessity.
 Engaging in e-business in and of itself does
not provide a competitive advantage.
 However, e-business can be used to more
effectively implement its basic strategy and
enhance the effectiveness and efficiency of
its value-chain activities.
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E- Commerce Vs E- Business

 E-Commerce – is the term used for the

activity of buying and selling of goods
over internet
 E- business – is the term used to
describe all business activities with the
help of ITC.
 However, E-Commerce and E-Business
are usually used interchangeable.

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E-Commerce Vs E-Business (Contd…)

 E-business includes e-commerce but

also covers internal processes such as
production, inventory management,
product development, risk
management, finance, knowledge
management and human resources.
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Electronic Data Interchange:
Electronic Funds Transfer:
• EDI is the structured
transmission of data
between organizations
by electronic means. It
is used to transfer
electronic documents
or business data from
one computer system
to another computer
system.
• EFT is the electronic
exchange or transfer
of money from one
account to another.
EDI

 Electronic Data Interchange (EDI):

Standard protocol, available since the
1970s, for electronically transferring
information between organizations
and across business processes.
 EDI:
 Improves accuracy
 Cuts costs

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Recent EDI Facilitators
 Traditional EDI was expensive. New
developments that have removed this
cost barrier are:
 The Internet: Eliminates the need for
special proprietary third-party
networks.
 XML: Extensible Markup Language –
Set of standards for defining the
content of data on Web pages.
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Recent EDI Facilitators

 ebXML:
 Defines standards for coding common
business documents.
 Eliminates need for complex software
to translate documents created by
different companies.

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 Integrated Electronic Data
Interchange (EDI)
 Reaping the full benefits of EDI
requires that it be fully integrated with
the company’s AIS.
EDI
Company
Suppliers
Purchase orders AIS
EDI
Customers Customer orders
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 E-Business Effects on Value
Chain Activities
Value Chain – E-Business Opportunity
Primary Activities
 Inbound logistics  Acquisition of digitizable products
 Reduced inventory “buffers”

 Operations  Faster, more accurate production

 Outbound logistics  Distribution of digitizable products

 Continuous status tracking

 Sales and Marketing  Improved customer support

 Reduced advertising costs
 More effective advertising

 Post-sale Support and Service  Reduced costs

 24/7 Service availability

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E-Business Effects on Value
Chain Activities
Value Chain – E-Business Opportunity
Support Activities
 Purchasing  Source identification and reverse
 Human Resources auctions
 Infrastructure  Employee self-service

 EFT, FEDI, other electronic payments

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Purchasing and Inbound
Logistics
 The Internet improves the purchasing activity
by making it easier for a business to identify
potential suppliers and to compare prices.
 Purchase data from different organizational
subunits can be centralized.
• This information can be used to negotiate better
prices.
• Number of suppliers can be reduced.
• Reverse auctions can be held
 For products that can be entirely digitized, the
entire inbound logistics function can be
performed electronically.

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Internal Operations, Human
Resources, and Infrastructure
 Advanced communications
technology can significantly improve:
 The efficiency of internal operations.
 Planning.
 The efficiency and effectiveness of the
human resource support activity.
 The efficiency and effectiveness of
customer payments.

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 Information Flows in
Electronic Commerce
1. Inquiries
Buyer Seller
2. Responses

3. Orders

4. Acknowledgment

5. Billing

6. Remittance data
Explanations:
EDI = Steps 1-6 7. Payments
EFT = Step 7
FEDI = Steps 1-7

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Financial Electronic Data
Interchange (FEDI)
 The use of EDI to exchange information
is only part of the buyer-seller
relationship in business-to-business
electronic commerce.
 Electronic funds transfer (EFT) refers to
making cash payments electronically,
rather than by check.
 EFT is usually accomplished through the
banking system’s Automated Clearing
House (ACH) network.

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Financial Electronic Data
Interchange (FEDI)
 An ACH credit is an instruction to your
bank to transfer funds from your
account to another account.
 An ACH debit is an instruction to your
bank to transfer funds from another
account into yours.

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 Financial Electronic Data
Interchange (FEDI)
Company A Company B
Remittance data
and payment
instruction
Company A’s Company B’s
bank bank
Remittance data and funds
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ASPs

 An Application Service Provider (ASP)

is a company that provides access to
and use of application programs via
the Internet.
 The ASP owns and hosts the
software; the contracting organization
accesses the software via the
Internet.

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Factors to Consider When
Evaluating ASPs
Advantages Disadvantages
 Lower costs  Viability of ASP
 Automatic upgrading to  Security and privacy of
current version of data
software
 Availability and
 Need fewer in-house IT
staff reliability of service
 Reduced hardware needs  Inadequate support or
 Flexibility poor responsiveness to
problems
 Knowledge support
 Security and privacy of
 Standard software that
data may not meet all
customized needs

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Factors to Include in Service
Level Agreements
 Detailed specification of expected ASP
performance
 Uptime
 Frequency of backups
 Use of encryption
 Data access controls
 Remedies for failure of ASP to meet
contracted service levels
 Ownership of data stored at ASP

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Outbound Logistics
 E-Business can improve the efficiency and
effectiveness of sellers’ outbound logistical
activities.
 Timely and accurate access to detailed
shipment information.
 Inventory optimization.
 For goods and services that can be digitized,
the outbound logistics function can be
performed entirely electronically.

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Sales and Marketing

 Companies can create electronic

catalogs to automate sales order
entry.
 Significantly reduce staffing needs.

 Customization of advertisements

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Post-Sale Support
and Service

 Consistent information to customers.

 Provide answers to frequently asked
questions (FAQs).

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Learning Objective 2

Discuss methods for increasing the

likelihood of success and for
minimizing the potential risks
associated with E-Business.

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End of Chapter 3

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