UNIT-III:CONSUMER ORIENTED E-COMMERCE APPLICATIONS: Introduction - Mercantile Process Model: Consumers Perspective and Merchant’s Perspective - Electronic Payment Systems: Legal Issues & Digital Currency - E-Cash & E-Cheque - Electronic Fund Transfer (EFT) - Advantages and Risks - Digital Token-Based E-Payment System - Smart Cards.
UNIT-IV:ELECTRONIC DATA INTERCHANGE: Introduction - EDI Standards - Types of EDI - EDI Applications in Business – Legal - Security and Privacy issues if EDI - EDI and E-Commerce - EDI Software Implementation.
UNIT-III
CONSUMER ORIENTED E-COMMERCE APPLICATIONS
Introduction - Mecantile Process Model:
Mercantile process is an interaction model between consumer and Merchants for online commerce.
• This is necessary to buy and sell goods, a buyer, a seller, and other parties should follow some standard business processes.
• The establishment of a common merchant process (or set off processes) is must to increase the convenience for customers.
• A well established standard process using processing credit cards purchases contributed more for the E-Commerce.
There
are three types of mercantile models.
•
Mercantile models from the consumer’s perspective
• Mercantile models from the merchant’s perspective
Q1) Explain about the Mercantile
Process Model from Consumer’s perspective?
Ans:
The online consumer expects quality , convenience, value and low price etc. To meet their expectations and understand the behavior of online shopper there is a need for the business process models that provides the standard product / service purchasing process.
The
process model for a consumer point of view consists of seven activities that
can be grouped into three phases. They are :
The
following are the steps taken by customer, in purchasing:
1 Pre-Purchase determination
2.Purchase consummation
3.Post-Purchase interaction phase.
1. Pre Purchase Preparation:
From
the consumer point of view any major purchase may involve some amount of pre purchase deliberation. Pre purchase deliberation is defined as elapsed time between the
consumer’s first thinking
about buying and
actual purchase itself.
Consumers
can be categorized into three types:
1 Impulsive buyers
2. Patient buyers
3. Analytical buyers
Impulsive buyers: Impulsive buyers purchase the products quickly.
Patient buyers: Patient buyers are those ,who purchase products after making some analysis or comparison.
Analytical buyers: Analytical buyers are those, who do substantial research before making the decision to purchase product or services.
2. Purchase Consummation:
After identifying the product , the buyer and the seller must interact in some way ( e- mail, on- line) to carry out the mercantile transactions. The mercantile transaction is defined as the exchange of information between the buyer and seller followed by necessary payment by the third party such as the central bank, master card, visa card etc.
It includes the following steps:
1.
Through e- mail, online the buyer contacts the vendor to purchase a product or
service.
2.
Vendor states the price.
3.
Buyer and vendor may or may not engage in a transaction.
4.
If satisfied buyer
authorizes payment to
the vendor with
an encrypted transaction.
5.
Vendor contacts the billing service of the buyer for authentication.
6.
Billing service checks the buyer account balance and puts a hold on the amount
transfer.
7.
Billing service gives the vendor green signal to deliver the product.
8.
On notification of
sufficient funds, vendor
delivers the goods/ service to
buyer
9.
On receiving the
goods the buyer
signs and delivers
receipt. Vendors then tell billing service to complete the transaction.
10. At the end of the billing cycle buyer receives a list of transactions.
Post Purchase Interaction:
After
making a purchase, customer service issues need to be considered. Returns and
claims are an important part of purchasing process.
The following are some issues:
1. Inventory Issues: To serve a customer properly a company should inform a customer right from when an item is ordered to it is sold out, otherwise the company will have a disappointed customer.
2. Customer service issues: Customers often have questions about the product such as colour, size, shipment etc, and other things in mind can resolved only by talking to an order entry operator.
Q.2) Explain the mercantile process models from Merchant’s
perspective
Ans: E-commerce order management cycle:
Order to delivery cycle from the merchant’s perspective has been managed with an eye towards standardization and cost. To fully realize and maintain a competitive advantage in the online environment it is necessary to examine the order management cycle (OMC) that also includes the traditional order to delivery cycle.
OMC has the following generic steps:
1.
Pre sales Interaction:
a)
Order planning and order generation:
The
business process begins before an actual order is placed by the customer. The
production planners develops
the final forecast
used to hire workers
and built inventory. Order planning leads into order generation.
b)
Cost Estimation and Pricing:
Pricing is the bridge between the customer needs and company capabilities. Pricing at the individual order level depends on understanding value to the customer .Through order based pricing it is difficult to generate greater profits.
2. Product /Service purchase and delivery:
a)
Order Receipt and
entry: After the
acceptable price quote,
the customer enters
the order receipts and entries
paid in OMC.
b)
Order selection and prioritization:
customer service representatives are responsible for choosing which order to
accept and which to reject. All the customer orders may not gain equal
priority. Some are better business and offers healthy profits. Companies can
also make gains by determining which orders to execute faster.
c) Order Scheduling: During this phase prioritized orders get slotted into an actual production or operational sequence.
d) Order fulfillment and delivery: During order fulfillment and delivery the actual provision of product or service is made.
e) Order billing and payment : After the order has been fulfilled and delivered billing is typically handled by the finance staff. The billing function is designed to serve the needs of the company not the customer service.
3.
Post Sale Interaction:
a) Customer service and support: This phase plays an interestingly important role. Depending on the specifications of business it can include elements such as physical installation of a product, repair and maintenance, customer training, equipment upgrading and disposal. Thus post sale service can affect customer satisfaction and company profitability of the year.
Electronic payment systems
Definition: Electronic payment is a financial exchange that takes
place online between buyers and sellers. The content of this exchange is
usually as encrypted credit card numbers, electronic cheques or cash. The
various factors that have had the financial intuitions to make use of
electronic payments are:
1.
Decreased technology cost. Interest is becoming free almost everywhere in the
world.
2.
Reduced operational and proceeding cost.
3. Increasing online commerce.
Advantages:-
1.
Privacy.
2.
Integrity.
3.
Compatibility.
4.
Good transaction efficiency.
5.
Acceptability.
6.
Convenience.
7.
Mobility.
8.
Low financial risk.
9. Anonymity.
1)
The greatest advantage of e-payments is the convenience. I.e. customer can pay
on one from any locations 24 hours day, 7 days a week.
2)
E-payments have reduced the amount of time spent on bill management or payment
by about 60%.
3)
Compared to the cost of postage, check writing has any online payment can save
the money.
4) E-payments are secure.
Q.3)
What is EFT? Explain about different
electronic payments.
Ans: Electronic payment systems are emerging in banking, retail, healthcare, online markets And even in government organizations. This emerging payment technology was labeled as electronic fund transfer (EFT). EFT was defined as any transfer of funds initiated through an electronic terminal (telephonic instrument or computer or magnetic tape) so as to order, instruct or authorize a financial institution to debit or credit an account.
EFT
can be segmented into three broad categories.
1.
Banking and financial Payments (such as ATM)
2.
Retail payments ( such as debit cards)
3. Online E-commerce payments.
1.Banking and financial Payments:
Large
Scale payments: Bank-to-Bank transfer is a good example of
this kind of payment, where funds flow
from one bank to another.
Small Scale Payments: ATMs and Cash dispensaries are examples for this kind of payment.
Home banking: Home banking services are classified into three types:
(I)Basic Services: It includes personal financial services
(II) Intermediate Services: It includes financial management
(III)Advanced Services: It includes the trading service.
2.Retailing payments:
Credit Cards: Payment by using a credit card is one of most common mode of electronic payment.
A
Credit card is a small plastic card with a unique number attached with an
account. It has also a magnetic strip that is used to read credit card via card
readers. When a customer purchases a product via credit card, credit card
issuer bank pays on behalf of the customer and customer has a certain time
period to pay the credit card bill. It is usually credit card monthly payment
cycle.
Following
are the actors in the credit card system:
- The card holder -
Customer
- The merchant - Seller
of product who can accept credit card payments.
- The card issuer bank -
Card holder's bank
Credit card payment process:
Step1: Bank issues and activates a credit card to customer on his/her request.
Step2: Customer presents credit card information to merchant from whom he/she want to purchase a product/service.
Step3: Merchant validates customer's identity by asking for approval from card brand company.
Step4: Card brand company authenticates the credit card and paid the transaction by credit. Merchant keeps the sales slip.
Step5: Merchant submits the sales slip to acquirer banks and gets the service chargers paid to him/her.
Step6: Acquirer bank requests the card brand company to clear the credit amount and gets the payment.
Step7: Now card brand company asks to clear amount from the issuer bank and amount gets transferred to card brand company.
Debit Card :
Debit card is a small plastic card with a unique number mapped with the bank account number. It is required to have a bank account before getting a debit card from the bank. In case of payment through debit card, amount gets deducted from card's bank account immediately and there should be sufficient balance in bank account for the transaction to get completed. Debit cards free customer from carrying cash, cheques.
Smart Card :
Smart card is similar to credit card and debit card in appearance but it has a small microprocessor chip embedded in it. It has the capacity to store customer work related/personal information. Smart card is also used to store money which is reduced as per usage. Smart card can be accessed only using a PIN of customer. Smart cards are secure because they stores information in encrypted format. Mondex and Visa Cash cards are examples of smart cards.
3.Online E-Commerce Payments:
(a)
Token Based Systems :
1.
E-Cash (Digi-cash)
2.
E-cheque (Net Cheques)
3.
Smart cards or debits cards.
E-Cash:
E-cash is a new concept in online payment systems because it combines computerized convenience with security and privacy that improve over paper cash. Its versatility opens up a host of new market and applications.
E-cash focuses
on replacing cash
as a principle
payment system in
consumer oriented e-payments. To displace cash, the electronic payment
systems need to have some qualities of cash. Cash can
be held and
used by anyone even those who don’t have an account
in a bank and cash places no risk on the part of the acceptor that the medium
of exchange may not be good.
Properties of E-cash:
e-cash
must have the following four properties.
1. Monetary value
2. Interoperability.
3. Retrievability.
4. Security.
Monetary value:
e-cash must have monetary value. It must be backed by either cash, bank authorized credit card or bank certified cashier cheque. When e-cash is created by one bank, is accepted by others reconsideration must occur without any problems.
Interoperability:
E-cash must be interoperable i.e., exchangeable. It must be operable in place of other e-cash, paper cash, goods and services, electronic benefit transfer etc.
Retrievability:
E-cash must be storable and retrievable. Remote storage and retrieval would allow users to exchange e-cash from home or office or while traveling.
Secuirty:
E-cash may not be easy to copy or tamper with, while being exchange. This includes preventing or detecting duplication and double spending.
Advantages of e-cash:
1.To consumer, E-cash is more than a convenient way of carrying
cash. Consumer only needs to have smart card like devices to initiate
transaction. It gives consumer a privacy to use E E-cash just like the
conventional coins and paper notes. Consumers are able to make transactions
without the need of third party verification.
2.To merchant, E-cash provides an opportunity to expand their businesses across the globe. Merchant can be protected against fraud, since transactions need verification from financial institutions or banks.
3.For the banks, E-cash implementation does reduce cost in maintaining cash in the bank and therefore increase bank management efficiency. With E-cash, banks are now able to provide their services to the world via the Internet more easily.
Disadvantages of e-cash:
1. One of the disadvantages of E-cash is the existence of
fake, who are able to recreate E-cash either stored in smart card or softcopy
based. All parties involve, consumers, merchants and banks/issuers, are
affected by this counterfeit activity.
2. Liability of the loss E-cash on damage smart card or
crashed computer where the E E-cash is installed is also in question.
Companies are not willing to accept e-cash system in order to attract more consumers.
Electronic Cheques:
- It is another form of
electronic tokens.
- Buyers must register
with third-party account server before they are able to write electronic
cheques.
The account server acts as a billing service.
The
advantages are:
1. They work in the same way as traditional
checks.
2. These are suited for clearing
micropayments
3. Financial risk is assumed by the accounting server & may result in easier acceptance
Smart Cards & Electronic Payment Systems :
Smart cards are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe.
The smart card technology is widely used in countries such as France, Germany, Japan, and Singapore to pay for public phone calls, transportation, etc.
Smart cards are basically two types:
1. Relationship-Based Smart Credit Card
2. Electronic Purses, [also known as debit cards and electronic money]
Relationship-Based Smart Credit Cards:
It
is an enhancement of existing cards services and/or the addition of new
services that a financial institution delivers to its customers via a
chip-based card or other device. These
services include access
to multiple financial
accounts, or other information
card holders may want to store on their card
It includes access to multiple accounts, such as debit, credit, cash access, bill payment & multiple access options at multiple locations
Electronic Purses:
Electronic purses are the wallet-sized smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for everything
The electronic purse works in the following manner:
1. After purse is loaded with money at an ATM, it can be used to payment in a vending machine with a card reader.
2. It verifies card is authentic & it has enough money, the value is deducted from balance on the card & added to an e-cash & remaining balance is displayed by the vending machine.
(b)
Credit card based systems:
1.
Encrypted credit cards.
2. Third party Authorization numbers
Encrypted credit cards: An encrypted credit card is like a super secure credit card. Encryption controls its transactions. It just hides the card number from the main database until the public key is found. So it is unreadable to any other person.
Third party Authorization numbers: Security and verification can be provided by using
third-party, which is a company that gathers and verifies the payment of funds
that flow from one party to another.
For example: First Virtual.
(c) Digital Token based Electronic payments systems:
It is a new financial instrument. The electronic token which will be in the form of e-cash or e-cheques. They are designed in various forms of payments packed by a bank or a financial institution. E-tokens are of three types
1. Cash or real type: Transactions
are settled with exchange of electronic currency. An example of online currency
is e-cash.
2. Debit
or prepaid: Users pay
in advance for
the privilege of
getting information.
Examples of prepaid
payment mechanisms are
smart cards, electronic purses
that store electronic money.
3. Credit or postpaid: the server authentication the customers and verifies with the bank that funds are adequate before purchase examples of postpaid mechanisms are credit or electronic cheques.
Q.4) Discuss about the risks
in e-payment systems
Ans: Risks in e-payments:
Risk Management is an essential
challenge of e-commerce. Electronic payment systems includes the following
major risks:
1.Risks
from Mistake/fraud
2.
Privacy Issues
3.
Impulsive Buying
4.
Payment Conflict
5. Credit Risk
Risks
from Mistake / Fraud:
Electronic payment systems are prone to fraud. The payment is done usually after keying in a password and sometimes answering security questions. It cannot verify the true identity of the maker of the transaction. As long as the password and security questions are correct, the system assumes you are the right person. If this information falls into the control of fraudsters, then they can cheat you of your money.
Privacy
Issue:
Electronic payment systems must ensure and maintain the privacy every time on a purchase. Information about every purchase by using a credit card goes into a database and stored some where. So the privacy of the customer should be protected as much as possible.
Impulse
Buying:
Electronic payment systems encourage impulse buying. Here, even though you had not planned to buy a product, just because it will cost you just a click to buy it through your credit card. Impulse buying leads to disorganized budgets.
Payment
Conflict:
Payment conflicts often arise because the payments are not done manually but by an automated system that can cause errors. You might end up with a conflict due to these technical glitches, or anomalies.
Credit
Risk:
Credit risk is a major problem in net settlement systems. Because a banks failure to settle it’s net position could lead to a chain reaction of bank failures. The digital central bank must develop policies to deal with this problem.
Q.5) Explain about the designing of E-payment system
Ans: Designing an electronic payment system:
Designing an electronic payment system includes several factors:
Privacy: A user expects to trust in a secure system; just as a telephone is a safe
Security: A secure system verifies the identity of two-party transactions through “user authentication” & reserves flexibility to restrict information/services through access control .
Intuitive interfaces: The payment interface must be as easy to use as a telephone.
Database integration: With home banking, for ex, a customer wants to play with all his accounts.
Brokers: A
“network banker”-someone to
broker goods &
services, settle conflicts,
&
‘financial transactions electronically-must be in place
Pricing: One fundamental issue is how to price payment system services. For e.g., from cash to bank payments, from paper-based to e-cash. The problem is potential waste of resources.
Standards: Without standards, the welding of different payment users into different networks and different systems is impossible.
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