INFORMATION TECHNOLOGY PROGRAMMES
Bachelor of Science in Information Technology - B.Sc. (IT)Master of Science in Information Technology - M.Sc. (IT)
In collaboration
with
KUVEMPU UNIVERSITY
B.Sc.(IT) - 6th Semester
BSIT - 61
Basics of .NET
BSIT - 62
E-Commerce
Directorate of Distrance Education Kuvempu University
Shankaraghatta, Shimoga District, Karnataka
Universal Education Trust
Prepared by UNIVERSAL EDUCATION TRUST (UET) Bangalore
First Edition : May 2005 Second Edition : May 2012
Copyright © by UNIVERSAL EDUCATION TRUST, Bangalore All rights reserved
No Part of this Book may be reproduced
in any form or by any means without the written permission from Universal Education Trust, Bangalore.
All Product names and company names mentioned herein are the property of their respective owners.
NOT FOR SALE
For personal use of Kuvempu University IT - Programme Students only.
Corrections & Suggestions
for Improvement of Study material
are invited by Universal Education Trust, Bangalore. E-mail : [email protected]
Printed at :
Pragathi Print Communications Bangalore - 20
E-COMMERCE
(BSIT - 62)
: Contributing Authors :
Dr. G. Raghavendra Rao
Professor & Head, Department of Computer Science & Engineering &
Principal
National Institute of Engineering Mysore - 570 008
In this course on e-commerce, you get introduced to one of the latest and useful branches of computer study. The concept of electronic commerce is about carrying on the sales/purchases of equipment, articles, services or even information without the seller and buyer being face to face. The concept is to make use of the computer networks with the associated communication lines for interaction, placing of orders and even transfer of money. Only the shipment of the articles is to be done physically.
There are several issues involved in the transactions, which we will examine in some detail – the facility to know the availability of articles/services, placement of orders, transfer of money, the security issues involved etc. The first chapter deals with the overall concept of commerce and e-commerce. We look at the concept of commerce in brief and how the introduction of computers can revolutionize the entire arrangement. The second chapter deals with the fundamentals of consumer oriented e-commerce. What are the needs of such an environment? What are the main areas of it’s application? How can we use e-commerce in areas like banking, home shopping, entertainment etc. are discussed briefly.
The third chapter gives an architectural frame work for e-commerce. It describes the various application services needed in detail and also a very brief overview of the world wide web.
The fourth chapter once again details the desirable characteristics of a market place. We then proceed to the mercantile process models – from the consumer’s perspective as well as from the merchant’s perspective. These models are extremely useful in the actual configuration of systems.
The fifth chapter describes on of the most important aspects of e-commerce – the concept of electronic payment. We discuss in some detail the token based electronic payment systems (e-cash), electronic checks, smart cards and the various risk factors involved in each of these modes of payment.
The next chapter deals with the concept of EDI electronic data interchange – we discuss the concept of EDI, the various blocks in a typical EDI and again the various legal and privacy issues involved. We also talk about standard and open EDIs.
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The next chapter continues with the concept of EDI, discussing the various implementation aspects. We also talk of VALUE-Added networks, the issues involved in them and the concept of internet based EDI.
E-commerce need not be useful only in transactions between the seller and the buyer. It can be used to smoothen the operations between the various departments of the same organization. The eighth chapter deals with building of such interdepartmental information systems. It briefly touches upon aspects like the different types of organizations, concept of work flow coordination and overview of supply chain management.
In the next portion, discuss about the most important aspects of e-commerce namely security. In the absence of any face to face interaction and since the dealings are mostly with total strangers, there is always a threat of mismanagement, swindling and all other sorts of commercial crimes. To overcome this several security measures are in place, even though there can e nothing like an absolutely secure environment, several methods to provide a reasonable security to the activities have been developed. The ninth chapter describes the various types of threats to transaction both on communication lines in general and internet in particular. The next chapter deals with the specific demands of e-commerce and also describes several commercial protocols available. The last chapter gives the detailed literature of a protocol called SET (Secure Electronic Transaction. This is expected to give the student an idea about the various trade offs in a commercial environment and it is also advised that the student will try to implement a part of this on a computer.
The students are strongly advised go through the reference books given at the end for more detailed information on the subject.
Contents
Unit – I
Introduction 1
Chapter 1
Web Commerce 2
1.1 Concept of Commerce and e-commerce 1.2 Summary
1.3 Questions 1.3.1 Answers
CHAPTER 2
Fundamentals of consumer oriented e-commerce 6
2.0 Introduction
2.1 Basic tenets of e-commerce in a consumer oriented scenario 2.2 Basic Banking Services
2.3 Home Shopping 2.4 Home Entertainment
2.5 Microtransactions for information 2.6 Desirable characteristics of e-marketing
2.6.2 A scope for interactions
2.6.3 Scope for designing new products 2.6.4 A seamless connection to the marketplace 2.6.5 Recourse for disgruntled users
2.7 Questions 2.7.1 Answers
Chapter 3
Electronic Commerce and the World Wide Web 12
3.0 Introduction
3.1 ARCHITECTURAL FRAMEWORK FOR ELECTRONIC COMMERCE 3.1.1 Electronic Commerce Application Services
3.1.2. Information Brokerage and Management 3.1.3. Interface and Support Services
3.1.4. Secure Messaging and Structured Document Interchange Services 3.1.5 Middleware Services
3.1.6. Transparency
3.2 WORLD WIDE WEB (WWW) AS THE ARCHITECTURE 3.3 Summary
3.4 Questions 3.4.1 Answers
Chapter 4
Consumer-Oriented Electronic Commerce 19
4.0 Introduction
4.1 Desirable Characteristics of an Electronic Marketplace 4.2 MERCANTILE PROCESS MODELS
4.3 MERCANTILE MODELS FROM THE CONSUMER’S PERSPECTIVE 4.3.1 Pre-purchase Preparation
4.3.2. Information Brokers and Brokerages 4.3.3. Purchase Consummation
4.3.4. Postpurchase Interaction
4.4 MERCANTILE MODELS FROM THE MERCHANT’S PERSPECTIVE 4.4.1. Order Planning and Order Generation
4.4.2 Cost Estimation and Pricing
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4.4.3. Order Receipt and Entry
4.4.4 Order Selection and Prioritization 4.4.5 Order Scheduling
4.4.6 Order Fulfillment and Delivery
4.4.7. Order Billing and Account / Payment Management 4.4.8. Post-sales Service
4.5 Summary 4.6 Questions
4.6.1 Answers
Chapter 5
Electronic Payment Systems 30
5.0 Introduction
5.1 DIGITAL TOKEN-BASED ELECTRONIC PAYMENT SYSTEMS 5.2 Electronic Cash (e-cash)
5.2.1. Properties of Electronic Cash 5.2.2 Electronic Cash in Action
5.2.3 Business Issues and Electronic Cash 5.2.4. Operational Risk and Electronic Cash 5.2.5. Legal Issues and Electronic Cash 5.3 Electronic Checks
5.4 Smart Cards and Electronic Payment Systems 5.4.1 Relationship-Based Smart Cards
5.4.2. Electronic Purses and Debit Cards 5.5 Credit Card-Based Electronic Payment Systems 5.6 Risk and Electronic Payment Systems
5.6.1 Risks from Mistake and Disputes 5.6.2. Managing Information Privacy 5.6.3. Managing Credit Risk
5.7 Designing Electronic Payment Systems 5.8 Summary
5.9 Self Study 5.9.1 Answers
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Unit II
Introduction 41
Chapter 6
Inter-organizational Commerce and EDI (Electronic Data Interchange) 42
6.0 Introduction
6.1 ELECTRONIC DATA INTERCHANGE 6.2 EDI Layered Architecture
6.3 EDI in Action
6.3.1 Tangible Benefits of EDI
6.4 EDI: LEGAL, SECURITY, AND PRIVACY ISSUES 6.4.1 Legal Status of EDI Messages:
6.4.2 Digital Signatures and EDI: 6.5 EDI and Electronic Commerce
6.5.1 Traditional EDI 6.5.2 Open EDI 6.6 Summary 6.7 Questions 6.7.1 Answer Chapter 7
EDI Implementation, Value-Added Networks
7.1 Structure of EDI Transactions 7.2 EDI Software Implementation
7.2.1 EDI Business Application Layer 7.1.1 EDI Translator Layer
7.3 EDI Communication Layer
7.4 How much will an EDI implementation Cost 7.5 Value-Added Netowrks (VANs)
7.5.1 VAN Pricing Structures 7.6 Internet-based EDI
7.7 Summary 7.8 Questions
8.0 Introduction
8.1 Work-Flow Management
8.2 Product or Service Customization 8.3 Supply Chain Management 8.4 Internal Information Systems
8.4.1 A new paradigm: Information Architecture 8.5 Organizational Structure: Vertical Versus Horizontal
8.5.1 The vertical organization 8.5.2 The Horizontal Organization
8.5.3 Virtual or Network Organizational Structure 8.5.3.1 Understanding the structure of virtual enterprises 8.5.4. Electronic Organizations and Brokerages
8.6 Work-Flow Automation and Coordination 8.6.1. Work-Flow Coordination
8.6.2. Work-Flow-Related Technology 8.7 Supply Chain Management (SCM) 8.8 Summary
8.9 Questions 8.9.1 Answers
Chapter 9
The Need for Computer Security 72
9.0 Introduction
9.1 Reasons for Information security 9.2 Protecting Resources 9.3 Type of Risks 9.4 Security threats 9.4.1 Bulletin boards 9.4.2 Electronic mail 9.4.3 File transfer 9.4.4 IP Spoofing 9.4.5 Password guessing 9.4.6 Password sniffing
9.4.7 Telnet 9.4.8 Viruses 9.5 Security Strategies 9.6 Security Tools 9.7 Kerberos 9.8 UNIX Security
9.9 Password security system
9.10 Approaches for enterprise level security 9.11 Viruses and worms
9.11.1 The nature of viruses
9.11.2 Countering the threat of viruses 9.12 Summary
9.13 Questions 9.13.1 Answers
Chapter 10
Approaches to Safe Electronic Commerce 93
10.0 Introduction 10.1 Overview
10.2 Secure Transport Protocol 10.3 S-HTTP
10.4 Secure socket layer (SSL) 10.5 Secure transactions
10.6 Secure electronic payment protocol (SEPP) 10.7 SEPP Process
10.8 Secure electronic transaction 10.9 Summary
10.10 Self Study 10.10.1 Answers
Unit – III
11.0 Introduction 11.1 Background 11.2 Objectives 11.3 Business Requirements 11.3.1 Requirements 11.3.2 Features 11.3.3 Scope 11.4 CONCEPTS
11.4.1 Payment System Participants 11.5 Cryptography 11.6 Certificate Issuance 11.7 Kinds of shopping 11.8 Payment processing 11.9 Cardholder Registration 11.10 Merchant Registration 11.11 Purchase request Reference Books 139
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Unit – I
Introduction
T
his unit is expected to serve as an eye opener to the basic tenets of e-commerce. We get ourselves introduced to the basic concepts of e-commerce and introduced to the various issues involved. We begin with a brief description of the various activities that can be categorized as e-commerce. Then we move on to the various mercantile process models. There are two perspectives for such models from the consumer’s point of view and from the merchant’s point of view. These views help us to appreciate the concepts betters.Then we move on to the concept of electronic payment systems. These are probably the most tricky part of e-commerce. While cash or something equivalent to cash could be most welcome, we see that there are lots of issues to be looked into before such a decision is made. Especially since the seller and buyer do not meet face to face, it becomes essential to safeguard the interest of the seller on one hand and the anonymity of the buyer on the other. There are also alternatives like electronic checks, smart cards etc., but no single solution appears perfect.
Chapter 1
Web Commerce
I
n this introductory chapter, you will be introduced to the fundamental concepts of commerce, web commerce, e-commerce, it’s scope and limitations. This is supposed to work as a basis for the further building up of the course. The course does not presuppose any major background of either mathematics or computers, though it expects the student to be familiar with the day to day practices and terminologies of the market. These are normally known to every student at this level of training, but wherever some extra explanation is deemed fit, the same has been made available. Of course, a preliminary idea about computers is also essential.1.1
CONCEPT OF COMMERCE AND E-COMMERCE
Commerce is normally associated with the buying and selling of items. Traditionally, commerce is one of the oldest activities of human beings and the concept of traders selling and buying items is a part of history. Normally the activity of commerce/trade presupposes that the buyer and seller as well as the items of trade are available at one place. The is brings us to the concept of markets which is a common place where the buyers and sellers meet along with their products. Money is also an essential part of the market place. Though commerce started and to some extent continues even today with the barter system, where both the seller and the buyer exchange their respective items, to make the entire activity flexible, the concept of money is an essential component. Originally money, in a mutually acceptable from is also a part of market place with the advent of time, the concept also changed the term commerce extended to beyond the concept of items and today includes buying and selling of products, information as well as information and knowledge. The concept of single merchants and traders has extended to the concept of organizations, business houses, service providers and several levels of consumers. Though the scope of commerce has broadened, it is still possible to apply the basic concepts of commerce’s and trading to the transactions of these days. Further, to take care of the concept of money, we have several concepts of banking, various methods of representing and transferring money like cheques, MOUs, Drafts etc. as also the concept of different currencies, their equalities, trade restrictions, concept of taxes etc. However, over the years there is a continued effort to improve the efficiency of trading, cut costs, speed up the operations and also to make the entire operation trouble free.
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Chapter 1 - Web Commerce
The advent of computers brought in another dimension to the situation, originally computers were used mainly for calculations and scientific applications. At that time, they were mainly calculators to speed up and well as make error free calculations. Subsequently, when the cost of the memories started going down drastically, computers were being used to store information in terms of files. An easier and faster way of storing large amounts of information. Reentering of large amounts of data for each and every calculation was avoided. This resulted not only in faster calculation, but also made it error free. Further, with floppy disks and magnetic tapes being available, it was possible to transfer the data and files from one computer to another – Say from one office of the company to the other office or from the sellers computers to the buyers computer etc.
The growth of computer networks, however, transformed the entire scenario to a different magnitude all together, with the concept of connecting computers through transmission media, the need for physically transferring data through floppy disks etc. was avoided. Thus, people sitting in different cities and even countries, could transmit and share data. This meant that the entire information about buying, selling, costs, taxes and all such associated details are available and also can be transmitted across to the various persons involved at almost zero costs. This revolutionized the scenario of trading and commerce and can be called the beginning of e-commerce.
The matters improved further, with the concept of the world wide web and the internet, the number of users on the web increased manifold and the cost of getting connected crashed. This, coupled with several changes in banking and other systems, made the entire set of e-commerce operations available even to the individual and small time users, apart from the large companies and organizations.
Definitely, the key element of e-commerce is information processing. Given a suitable scenario and infrastructure, every stage of commerce, except of course production of goods and their physical delivery can be automated. The tasks that can be automated include information gathering, processing, manipulation and information distribution. Broadly speaking the following categories of operations came under e-commerce:
i. Transactions between a supplier/a shopkeeper and a buyer or between two companies over a public network like the service provider network (like ISP). With suitable encryption of data and security for transaction, entire operation of selling/buying and settlement of accounts can be automated.
ii. Transactions with the trading partners or between the officer of the company located at different locations.
iii. Information gathering needed for market research.
iv. Information processing for decision making at different levels of management. v. Information manipulation for operations and supply chain management.
vii. Transactions for information distributions to different retailers, customers etc. including advertising, sales and marketing.
You can also note that, these transactions, apart from being important in themselves also affect other transactions. For example data gathering affects information management, advertising affects market research etc. The use of computers in these areas not only make the operations quicker, but also error free and provides for consolidated approach towards the problem.
It is not that the concept of e-commerce is totally without side effects. The very nature of the concept, that is revolutionary makes it difficult for the users to understand fully the various issues involved. There are several areas of security, safety against fraud etc., the concept of legal acceptance that are yet to be solved. Also since the internet knows no national boundaries, the concepts become more complex, since what is legal in one country may not be so in another. There is also the concepts of taxation and state controls that needs to be solved. All these issues will be taken up in some detail during the course of this topic.
In spite of all this, the growth of e-commerce and web-commerce has been phenomenal in all countries across the globe and is likely to only increase in coming years.
1.2 SUMMARY
In this chapter, we got ourselves introduced to the basic components of e-commerce and web commerce. The essentials of trading, commerce and market place were discussed briefly. The effect of computers on each of these was discussed. It was noted that it is the concept of networking of computers that has actually revolutionized the entire process.
It was also indicated that e-commerce is not entirely without side effects. Several problems associated with it were indicated. All these provide us with a background for further enlargement of the subject in the coming chapters.
1.3 QUESTIONS
1. Define commerce2. Before the advent of networks, how was data being transferred between computers? 3. Name two stages of commerce that cannot be automated.
4. What is the role of encryption in data transfer.
5. Name two areas which are reasons of worry in e-commerce. 6. List the categories of operations comes under e-commerce
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Chapter 1 - Web Commerce
1.3.1 ANSWERS
1. Commerce is buying and selling of items. 2. With secondary memories like floppies. 3. Production of goods and delivery of goods. 4. To ensure security of data.
CHAPTER 2
Fundamentals of consumer oriented
e-commerce
2.0 INTRODUCTION
I
n this chapter, we look at the basic concepts regarding e-commerce. We have fitted this as consumer oriented because all that we are dealing is how to supply the items needed by the consumer at his doorsteps. Though we have talked of computer being the essential component of e-commerce, we also describe one/two instances wherein the computer may not be central to the operations concerned. We briefly look at basic banking services, teleshopping and it’s variations, home entertainment and the different mercantile models.2.1 BASIC TENETS OF E-COMMERCE IN A CONSUMER
ORIENTED SCENARIO
It has been said that the convergence of money, commerce, computing and networks form the global consumer market place. Though it is true in most cases, the earliest (or rudimentary) systems had computers being replaced by other electronic devices like the television or even telephone. It is to be noted that there are several other, related areas that need to be address while setting up an e-commerce system. These include facilities for negotiations, bargaining, order processing, payment and customer service. Though it is desirable that the entire system is automated, it may be possible that one/more of these activities may be transacted in a traditional manner. For example, while the order is placed over phone, further negotiations may be made with the sales representative calling on the buyer, the payment may be made through a cheque etc. To begin with, we include systems where in only a part of the operations are done through electronic means also as e-commerce systems.
BSIT 62 E-Commerce
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Some of the fundamental issues that need to be addressed before consumer oriented e-commerce can be made broad based are listed below.
i. Standard business practices and processes for buying and selling of products as well as services need to be established.
ii. Easy to use and well accepted software and hardware implementations of the various stages of e-commerce like order taking, payment, delivery, after sales interactions etc. need to be established.
iii. Secure commercial and transport practices that make the parties believe that they are not at the mercy of any body else for the safety of their information and goods need to be in place. It may be noted that each one of the above requirements can be established only over a period of time with several trial and error methods. Ironically, e-commerce can grow in a very big way only when these requirements are fully available and are within the grasp of the average user.
We next look at a few of the applications of e-commerce in some detail, to understand the implications of e-commerce in a full scale.
We look at the following concepts in some detail 1. Basic banking services
2. Home shopping 3. Home entertainment
4. Microtransaction for information
2.2 BASIC BANKING SERVICES
The concepts under basic banking services are what a normal customer would be transacting with his bank most of the time. They are mainly related to personal finances. It can safely be presumed that most of normal transactions that a customer has with his bank can be classified into the following
i. Checking his accounts statements ii. Round the clock banking (ATM) iii. Payment of bills etc.
iv. Fund transfer and
v. Updating of his pass books etc.
Indeed most of these can be done through telephone with suitable passwords etc, except round the
clock banking. The concept of Automated Teller Machines is to allow the customer to draw money from his account at any part of the day (or night). In fact, ATMs are to day thought to be one single concept that changes the way banks functioned. The customer need not go to the bank at all for his most important service. In other words, both the bank and the customer became faceless to each other. But it helped the customer by ensuring that he need not modify his working schedule to visit the bank. At the same time, the banks need not resort to concept like split hours, opening on holidays etc. to project themselves as customer friendly.
ATM Bank Switching centre ATM Bank Switching centre ATM Bank Switching centre
ATM Bank Switching centre
Association switching centre Association switching centre Inter Association switching centre
It can be noted that the individual ATMs are connected to a Bank Switching Centre. The Switching Centres of several banks are interconnected to an association switching centre (May be all banks of a particular region, for example) All such centre are globally connected to a main switching centre. While the actual operations are not important here, it is important to note that the PC are any such computers are not employed at the customer level. It is also argued that an average customer is more comfortable with the process of simple insertion of a card rather than complicated operations on PCs. However, we include the ATMs also under e-commerce.
2.3 HOME SHOPPING
Our next example is home shopping. For simplicity, we presume it is television based shopping. It may be noted that this concept is picking up now in India in a small way, wherein the channels set apart only a very small portion of their broadcasting time to teleshopping.
In the simplest case, the channels describe the various aspects of their product and the customer can order the items over phone. The goods are delivered to his home and payment can be made in the normal modes.
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In a more sophisticated version, orders can be placed online (through computers) and payment also can be made through credit /debit cards. It may be noted that several concepts of traditional marketing like negotiations, trial testing etc. are missing from this scheme and it is most suitable for those customers who are almost sure of what they need to buy but who are to busy to go to the shops. Otherwise, there is hardly any concept of interaction and there is little scope to ensure the quality of product, after sales service etc.
2.4 HOME ENTERTAINMENT
The next example of this type of commerce is home entertainment. Dubbed on line movies, it is possible for the user to select a movie/CD online and make his cable operator play the movie exclusively for him (movie on demand) cause against payment. Payment can be either online/ billed to his account. It is also possible to play interactive games online/download them to your computer to play. The concept of downloading games/news etc. at a cost to the mobiles is also a similar concept. It may be noted that in all these cases, the physical movement of the customer/trader is avoided, of course, the computer need not always be a part of the deal.
2.5 MICROTRANSACTIONS FOR INFORMATION
The telephone directories provide a basic type of microtransaction. If you want by one particular type of item – say books – they list the addresses and phone numbers of the various book dealers whom you may contact. Similar facilities are available on the internet – may be for more number of items and also with more details. IT may include detailed catalogues, other related information etc. of course, the customer has to pay a small charge for visiting the site – each time he visits the site. This can be though of as an extension of the earlier described television based ordering. You don’t have to order only those items that are shown in the computer, but search for an item that you need. Also ordering is on line. Some preliminary two way interactions are also possible.
Several modifications and value additions to the above mentioned preliminary scheme are possible. Ofcourse, each value addition also adds cost.
2.6 DESIRABLE CHARACTERISTICS OF E-MARKETING
Before we embark on the detailed study of e-commerce, we shall discuss some of related issues. Commonsense tells us that few transactions are more congenial for e-marketing than others. We list out the desirable features of a hypothetical market pace – let us call it e-market.
2.6.1 A minimal size of the place
Obviously for any such place to thrive there is a critical size, below which it is not profitable to operate. This minimal number of buyers and sellers characterises the profitability of the place.
2.6.2 A scope for interactions
Interactions include trial runs of the products, classifications of doubts on the part of the customers, details of after sales services, ability to compare different products and of course scope for negotiations and bargaining. Negotiations can be in terms of cost, value additions, terms and conditions, delivery dates etc.
2.6.3 Scope for designing new products
The customer need not buy only what is available. He can ask for modifications, upgradations etc. The supplier must be able to accept these and produce made to order items.
2.6.4 A seamless connection to the marketplace
It is obvious that each customer will be operating with a different type of computer, software, connectivity etc. There should be available standards sot that any of these costumers will be able to attach himself to any of the markets without changing his hardware/software/interfaces etc..
2.6.5 Recourse for disgruntled users
It is naïve to believe that transaction of such a place end up in complete satisfaction to all parties concerned. Especially because of the facelessness of the customer and the supplier, there should be a standard recourse to settle such disputes.
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2.7 QUESTIONS
1. List any three basic needs of consumer oriented e-commerce. 2. List any three basic banking activities.
3. What does ATM stand for
4. Why does an ATM does not involve a computer at customer’s level? 5. What is the simples type of home shopping?
6. What is movie on demand?
7. Name any two concepts of TV based home entertainment? 8. What is the need for seamless connections?
9. What is the need for market place interacts? 10. What is the need for settling disputes?
11. List and explain the desirable characterstics of e-marketing. 12. Explain basic tenets of e-commerce.
2.7.1 ANSWERS
1. Standard processes for buying and selling; well accepted hardware and software and secure commercial and transport practices.
2. Account checking, ATM, payment of bills, fund transfer etc. 3. Automated Teller machine.
4. Because any average customer is more comfortable with simply inserting an ATM card. 5. The channels describe the product, orders are placed over phone, delivery is made at home
and payment in the standard mode.
6. The viewer selects the movie to view an the TV against payment. 7. Movie an demand and on line games.
8. So that persons with different types of hardware and software can interact easily. 9. To facilitate comparisons, negotiations, bargaining etc.
10. To ensure that disgruntled customers / traders can have a standard recourse for settlement.
Chapter – 3
Electronic Commerce and the World
Wide Web
3.0 INTRODUCTION
I
n this chapter, we get a view of the frame work for e-commerce. The framework defines and creates tools for integrations of information. We look at the six layers of software in a conceptual framework that can provide a suitable e-commerce mechanism. Also we note that these frameworks help us to define three types of transactions – business to business, consumer to business and intra organizational. We also get a brief concept of World Wide Web and a basic e-commerce architecture on the web.We have broadly defined electronic commerce as a modern business methodology that addresses the desire of firms, consumers, and management to cut costs while improving the quality of goods and increasing the speed of services. The need for electronic commerce stems from the demand within business and government to make better use of computing, that is, to better apply computer technology to improve business processes and information exchange both within an enterprise and across organizations.
Electronic commerce applications are quite varied. In its most common form, e-commerce is also used to denote the paperless exchange of business information using EDI, electronic mail (e-mail), electronic bulletin boards, electronic funds transfer (EFT), and other similar technologies.
The term electronic commerce is used to describe a new on-line approach to performing traditional functions such as payment and funds transfer, order entry and processing, invoicing, inventory management, car go tracking, electronic catalogs, and point-of-sale data gathering.
These business functions act as initiators to the entire order management cycle that incorporates the more established notions of electronic commerce. In short, what we are witnessing is the use of the term electronic commerce as an umbrella concept to integrate a wide range of new and old applications.
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Chapter 3 - Electronic Commerce and the World Wide Web
3.1 ARCHITECTURAL FRAMEWORK FOR ELECTRONIC
COMMERCE
In general a frame work is intended to define and create tools that integrate the information found in today’s closed systems and allow the development of e-commerce applications. The architecture should focus on synthesizing the diverse resources already in place in corporations to facilitate the integration of data and software for better applications. The electronic commerce application architecture consists of six layers of functionality, or functionality, or services: (1) applications; (2) brokerage services, data or transaction management; (3) interface and support layers; (4) secure messaging, security, and electronic document interchange; (5) middleware and structured document interchange; and (6) network infrastructure and basic communications services.
3.1.1 ELECTRONIC COMMERCE APPLICATION SERVICES
The application services layer of e-commerce will be comprised of existing and future applications built on the innate architecture. Three district classes of electronic commerce applications can be distinguished; customer-to-business, business-to-business, and intra-organization.Consumer-to-business Transactions
Here customers learn about products differently through electronic publishing, buy them differently using electronic cash and secure payment systems, and have them delivered differently.
Business-to-Business Transactions
Here, businesses, governments, and other organizations depend on computer-to-computer communication as a fast, an economical, and a dependable way to conduct business transactions. Small companies are also beginning to see the benefits of adopting the same methods. business-to-business transactions include the use of EDI and electronic mail for purchasing goods and services, buying information and consulting services, submitting requests for proposals, and receiving proposals.
Intra-organizational transactions
A Company becomes market driven by dispersing throughout the firm information about its customers and competitors; by spreading strategic and tactical decision making so that all units can participate; and by continuously monitoring their customers commitment by making improved customer satisfaction an ongoing objective. To maintain the relationships that are critical to delivering superior customer value, management must pay close attention to service, both before and after sales.
3.1.2. Information Brokerage and Management
The information brokerage and management layer provides service integration through the notion of information brokerages, the development of which is necessitated by the increasing information resource fragmentation. We use the notion of information brokerage to represent an intermediary who provides service integration between customers and information providers, given some constraint such as a low price, fast service, or profit maximization for a client.
Information brokerage does more than just searching. It addresses the issue of adding value to the information that is retrieved. For instance, in foreign exchange trading, information is retrieved about the latest currency exchange rates in order to hedge currency holdings to minimize risk and maximize profit. With multiple transactions being the norm in the real world, service integration becomes critical. Another aspect of the brokerage function is the support for data management and traditional transaction services. Brokerages may provide tools to accomplish more sophisticated, time-delayed updates or future-compensating transactions. These tools include software agents, distributed query generator, the distributed transaction generator, and the declarative resource constraint base-which describes a business’s rules and environment information. At the heart of this layer lies the work-flow scripting environment built on a software agent model that coordinates work and data flow among support services.
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Software agents are used to implement information brokerages. Agents are encapsulations of users instructions that perform all kinds of tasks in electronic marketplaces spread across networks. Information brokerages dispatch agents capable of information resource gathering, negotiating deals and performing transactions.
Although the notion of software agents sounds very seductive, it will take a while to solve the problems of inter-agent communication, interoperable agents, and other headaches that come with distributed computing and networking.
3.1.3. Interface and Support Services
Interface and support services, will provide interfaces for electronic commerce applications such as interactive catalogs and will support directory services – functions necessary for information search and access. Interactive catalogs are the customized interface to consumer applications such as home shopping. An interactive catalog is an extension of the paper-based catalog and incorporates additional features such as sophisticated graphics and video to make the advertising more attractive.
Directories, on the other hand, operate behind the scenes and attempt to organize the enormous amount of information and transactions generated to facilitate electronic commerce. The primary difference between the two is that unlike interactive catalogs, which deal with people, directory support services interact directly with software applications. For this reason, they need not have the multimedia glitter and jazz generally associated with interactive catalogs.
3.1.4. Secure Messaging and Structured Document Interchange
Services
The importance of the fourth layer, secured messaging, is clear. Broadly defined, messaging is the software that sits between the network infrastructure and the clients or electronic commerce applications, masking the peculiarities of the environment. In general, messaging products are not applications that solve problems; they are more enablers of the applications that solve problems.
Messaging services offer solutions for communicating non-formatted (unstructured) data-letters, memos, reports – as well as formatted (structured) data such as purchase orders, shipping notices, and invoices. It supports both synchronous (immediate) and asynchronous (delayed) message delivery and processing. It is not associated with any particular communication protocol. No preprocessing is necessary, although there is an increasing need for programs to interpret the message. Messaging is well suited for both client-server and peer-to-peer computing models.
The main disadvantages of messaging are the new types of applications it enables – which appear to be more complex, especially to traditional programmers – and the jungle of standards it involves. Also, security, privacy, and confidentiality through data encryption and authentication techniques are important issues that need to be resolved.
3.1.5 Middleware Services
Middleware is a relatively new concept that emerged only recently. With the growth of networks, client-server technology, and all other forms of communicating between / among unlike platforms, the problems of getting all the pieces to work together grew. In simple terms, middleware is the ultimate mediator between diverse software programs that enables them talk to one another.
Another reason for middleware is the computing shift from application centric to data centric. To achieve data –centric computing, middleware services focus on three elements: transparency, transaction security and management, and distributed object management and services.
3.1.6. Transparency
Transparency implies that users should be unaware that they are accessing multiple systems. Transparency is essential for dealing with higher-level issues than physical media and interconnection that the underlying network infrastructure is in charge of. The ideal picture is one of a “virtual{“ network: a collection of work-group, departmental, enterprises, and interenterprise LANs that appears to the end user o r client application to be a seamless and easily accessed whole.
Transparency is accomplished using middleware that facilitates a distributed computing environment. The goal is for m the applications to send a request to the middleware layer, which then satisfies the request any way it can, using remote information.
3.2 WORLD WIDE WEB (WWW) AS THE ARCHITECTURE
Electronic commerce depends on the unspoken assumption that computers cooperate efficiently for seamless information sharing. Unfortunately, this assumption of interoperability has not been supported by the realities of practical computing. Computing is still a world make up of many technical directions, product implementations, and competing vendors.
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Figure shows a block diagram depicting the numerous pieces that constitute a Web architecture. The architecture is made up of three primary entities: client browser, Web server, and third-party services. The client browser usually interacts with the WWW server, which acts as an intermediary in the interaction with third-party services.
Client browser WWW Server Functions Third-party Services
Local or company-specific data Mosaic / WWW browser Browser Extensions Information retrieval Data and transaction management Secure massaging Digital library of document / data servers Third –party information processing tools / services Electronic payment servers
Fig. 3.2 Block diagram depicting an electronic commerce architecture.
The client browser resides on the user’s PC or workstation and provides an interface to the various types of content. The browser has to be smart enough to understand what file it is downloading and what browser extension it needs to activate to display the file. Browsers are also capable of manipulating local files.
Web server functions can be categorized into information retrieval, data and transaction management, and security. The third-party services could be other Web servers that make up the digital library, information processing tools, and electronic payment systems.
3.3 SUMMARY
We discussed the framework for e-commerce, that defines and creates tools for integration of information. We identified six layers of software namely application services, brokerage and data management, interface layer, secure messaging, middleware services and network infrastructure. We also saw the concept of World Wide Web and also an e-commerce architecture suitable for WWW.
3.4 QUESTIONS
1. Define EDI. 2. Define EFT.3. Name a few operations performed by e-commerce. 4. Define a framework.
5. List the six layers of e-commerce architecture.
6. Name the three classes of e-commerce applications based on transactions. 7. Define a information Brokerage.
8. Define a software agent. 9. Define middleware.
10. Name the three stages of e-commerce architecture on web. 11. With the help of an example give the meaning of secure messaging. 12. With the help of a diagram explain e-commerce architecture. 13. Give the architecture framework for e-commerce.
3.4.1 Answers
1. Electronic Data Interchange. 2. Electronic Fund Transfer.
3. Payment, fund transfer, order entry, invoicing et.
4. Framework is intended to define and create tools that integrate information.
5. Applications, brokerage services, interface, secure messaging, middleware and network infrastructure.
6. Consumer to business, Business to business, intra organization.
7. An intermediary who provides integration between customers and information providers. 8. Agent is an encapsulation of users’ instructions.
9. It is a mediator between diverse application programs that talk to each other. 10. Client browser, WWW server functions and third party services.
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Chapter 4
Consumer-Oriented Electronic
Commerce
4.0 INTRODUCTION
T
his chapter mainly deals with the actual process of e-commerce - The process as viewed from the consumers point of view as well as from the merchant’s point of view. We begin the discussions from where we left in chapter 2. We review the various characteristics that are desirable in a market place. This forms a background for the two mercantile models. The model from the consumer’s point of view has about 7 stages and as we can see, concentrates only on the product searching to post-sales as well as the consumers and how this affects the model. The model from the merchant’s point of view can be called a order management cycle and has about 8 stages.4.1 DESIRABLE CHARACTERISTICS OF AN ELECTRONIC
MARKETPLACE
The following criteria are essential for consumer-oriented electronic commerce:
Critical mass of buyers and sellers. The trick is getting a critical mass of corporations and consumers to use electronic mechanisms. In other words, the electronic marketplace should be the first place customers go to find the products and services they need.
Opportunity for independent evaluations and for customer dialogue and discussion. In the marketplace, not only do users buy and sell products or services, they also compare notes on who has the best products and whose prices are outrageous. The ability to openly evaluate the wares offered is a fundamental principle of a viable marketplace.
Negotiation and bargaining. No market place is complete if it does not support negotiation. Buyers and sellers need to be able to haggle over conditions of mutual satisfaction, including money, terms and conditions, delivery dates, and evaluation criteria.
New products and services. In a viable marketplace, consumers can make requests for products and services not currently offered and have a reasonable expectations that someone will turn up with a proposed offering to meet that request.
Seamless interface. The biggest barrier to electronic trade is having all the pieces work together so that information can flow seamlessly from one source to another. This requires standardization. On the corporate side, companies need compatible EDI software and network services in order to send electronic purchase orders, invoices, and payments back and forth. Recourse for disgruntled buyers. A viable marketplace must have a recognized mechanism for resolving disputes among buyers and sellers. Markets typically include a provision for resolving disagreements by returning the product or through arbitrage in other cases.
4.2 MERCANTILE PROCESS MODELS
Mercantile processes define interaction models between consumers and merchants for on-line commerce. This is necessary because to buy and sell goods, a buyer, seller, and other parties must interact in ways that represent some standard business processes.
The establishment of a common mercantile process (or set of processes) is expected to increase convenience for consumers who won’t have to figure out a new business process for every single vendor.
4.3 MERCANTILE MODELS FROM THE CONSUMER’S
PERSPECTIVE
The business process model from a consumer’s perspective consist of seven activities that can be grouped into three phases: pre-purchase phase, purchase consummation, and post-purchase interaction. 1. The pre-purchase preparation phase includes search and discovery for a set of products in the larger information space capable of meeting customer requirements and products selection from the smaller set of products based on attribute comparison.
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Chapter 4 - Consumer-oriented Electronic CommerceProduct / service search and discovery in the information space
Comparison shopping and product selection based on various attributes Negotiation of terms, e.g., price, delivery times
Placement of order
Authorization of payment
Receipt of product
Customer service and support (if not satisfied in X days, return product)
Pre-purchase determination Purchase consummation Post-purchase interaction Fig. 4.1
2. The purchase consummation phase includes mercantile protocols that specify the flow of information and documents associated with purchasing and negotiation with purchasing and negotiation with merchants for suitable terms, such as price, availability, and delivery dates; and electronic payment mechanisms that integrate payment into the purchasing process. 3. The postpurchase interaction phase includes customer service and support to address customer
complaints, product returns, and product defects. Let’s consider each of the consumer purchasing phases in detail.
4.3.1 Pre-purchase Preparation
From the consumer’s perspective, any major purchase can be assumed to involve so me amount of pre-purchase deliberation, the extent of which is likely to vary across individuals, products, and purchase
situations. Purchase deliberation is defined as the elapsed time between a consumer’s first thinking about buying and the actual purchase itself. Information search should constitute the major part of the duration, but comparison of alternatives and price negotiation would be included in the continually evolving information search and deliberation process.
In general, consumers can be categorized into three types: 1. Impulsive buyers, who purchase products quickly.
2. Patient buyers, who purchase products after making some comparisons.
3. Analytical buyers, who do substantial research before making the decision to purchase products or services.
In fact, marketing researchers have isolated several types of purchasing:
Specifically planned purchases. The need was recognized on entering the store and the shopper bought the exact item planned.
Generally planned purchases. The need was recognized, but the shopper decided in-store on the actual manufacturer of the item to satisfy the need.
Reminder purchases. The shopper was reminded of the need by some store influence. This shopper is influenced by in-store advertisements and can substitute products readily. Entirely unplanned purchases. The need was not recognized entering the store.
While the technology for supporting search is important, we still need to understand the actual process that consumers and organizations employ in gathering information.
4.3.2. Information Brokers and Brokerages
To facilitate better consumer and organizational search, intermediaries called information brokers or brokerages are coming into existence. Information brokerages are needed for three reasons: comparison shopping, reduced search costs, and integration.
Today, many on-line information providers are moving to a consumer services model, where they provide not only inexpensive access but lots of free information.
4.3.3. Purchase Consummation
After identifying the products to be purchased, the buyer and seller must interact in some way to actually carry out the mercantile transaction. A mercantile transaction is defined as the exchange of information between the buyer and seller followed by the necessary payment.
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A single mercantile model will not be sufficient to meet the needs of every one. In very general terms, a simple mercantile protocol would require the following transactions. Although there may be many variants of this protocol, the basic flow remains the same.
1. Buyer contacts vendor to purchase product or service. This dialogue might be interactive on-line- through World Wide Web (WWW), e-mail, off-line through an electronic catalog and telephone.
2. Vendor states price.
3. Buyer and vendor may or may not engage in negotiation.
4. If satisfied, buyer authorizes payment to the vendor with an encrypted transaction containing a digital signature for the agreed price.
5. Vendor contacts his or her billing service to verify the encrypted authorization for authentication.
6. Billing service decrypts authorization and checks buyer’s account balance or credit and puts a hold on the amount of transfer.
7. Billing service gives the vendor the “green light” to deliver product and sends a standardized message giving details of transaction.
8. On notification of adequate funds to cover financial transaction, vendor delivers the goods to buyer or in the case of information purchase provides a cryptokey to unlock the file. 9. On receiving the goods, the buyer signs and delivers receipt. Vendor then tells billing service
to complete the transaction.
10. At the end of the billing cycle, buyer receives a list of transactions. Buyer can then either deny certain transactions or complain about over billing. Suitable audit or customer service actions are then initiated depending on the payment scheme.
4.3.4. Postpurchase Interaction
As long as there is payment for services, there will be refunds, disputes, and other customer service issues that need to be considered. Returns and claims are an important part of the purchasing process that impact administrative costs, scrap and transportation expenses, and customer relations.
Other complex customer service challenges arise in customized retailing that we have not fully understood or resolved:
Inventory issues. To serve the customer properly, a company should inform a customer right away when an item ordered is sold out-not with a rain check or back-order notice several Chapter 4 - Consumer-oriented Electronic Commerce
days later. On the other hand, if the item is in stock, a company must be able to assign that piece to the customer immediately and remove it from available inventory.
Database access and compatibility issues. Unless the customer can instantly access all the computers of all the direct-response vendors likely to advertise on the Information Superhighway – on a real-time basis, with compatible software – he or she is not likely to get the kind of service that customers normally get.
Customer service issues. Customers often have questions about the product (color, size, shipment), want expedited delivery, or have one of a myriad of other things in mind that can be resolved only by talking to an order entry operator.
4.4 MERCANTILE MODELS FROM THE MERCHANT’S
PERSPECTIVE
The order-to-delivery cycle from the merchant’s perspective has been managed with an eye toward standardization and cost.
To achieve a better understanding, it is necessary to examine the order management cycle (OMC) that encapsulates the more traditional order-to-delivery cycle. OMC has the following generic steps.
4.4.1. Order Planning and Order Generation
The business process begins long before an actual order is placed by the customer.
The first step is order planning. Order planning leads into order generation. Orders are generated in number of ways in the e-commerce environment. The sales force broadcasts ads (direct marketing), sends personalized e-mail to customers (cold calls), or creates a WWW page.
4.4.2 Cost Estimation and Pricing
Pricing is the bridge between customer needs and company capabilities. Pricing at the individual order level depends on understanding, the value to the customer that is generated bye ach order, evaluating the cost of filling each order; and instituting a system that enables the company to price each order based on its valued and cost. Although order-based pricing is difficult work that requires meticulous thinking and deliberate execution, the potential for greater profits is simply worth the effort.
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Cost estimation and pricing of product services
Order receipt and entry
Order Selection and Prioritization Customer inquiry and order planning generation
Fig. 4.2
4.4.3. Order Receipt and Entry
After an acceptable price quote, the customer enters the order receipt and entry phase of OMC. Traditionally, this was under the purview of departments variously titled customer service, order entry, the inside sales desk, or customer liaison. These departments are staffed by customer service representatives, usually either very experienced, long-term employees or totally inexperienced trainees. In either case, these representatives are in constant contact with customers.
4.4.4 Order Selection and Prioritization
Customer service representatives are also often responsible for choosing which orders to accept and which to decline. In fact, not all customer orders are created equal; some are simply better for the business than others.
Another completely ignored issue concerns the importance of order selection and prioritization. Companies that put effort into order selection and link it to their business strategy stand to make more money.
4.4.5 Order Scheduling
During the ordering scheduling phase the prioritized orders get slotted into an actual production or operational sequence. This task is difficult because the different functional departments – sales, marketing, customer service, operations, or production-may have conflicting goals.
Communication between the functions is often nonexistent, with customer service reporting to sales and physically separated from production scheduling, which reports to manufacturing or operations. The result is lack of interdepartmental coordination.
4.4.6 Order Fulfillment and Delivery
During the order fulfillment and delivery phase the actual provision of the product or service is made. While the details vary from industry to industry, in almost every company this step has become increasingly complex. Often, order fulfillment involves multiple functions and locations. The more complicated the task the more coordination required across the organization.
4.4.7. Order Billing and Account / Payment Management
After the order has been fulfilled and delivered, billing is typically handled by the finance staff, who view their job as getting the bill out efficiently and collecting quickly.
4.4.8. Post-sales Service
This phase plays an increasingly important role in all elements of a company’s profit equation: customer value, price, and cost. Depending on the specifics of the business, it can include such elements as physical installation of a product, repair and maintenance, customer training, equipment upgrading and disposal. Because of the information conveyed and intimacy involved, post sales service can affect customer satisfaction and company profitability for years.
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4.5 SUMMARY
In this chapter, we come across the process of purchase / sale of goods. The entire process can be viewed either from the buyers’ point of view or the merchant’s point of view. Accordingly, the consumer’s perspective can be considered to be made up of 3 stages – purchase determination, purchase consummation and post purchase interaction. We also learnt that consumers can be categorized as impulsive, patient and analytical buyers. The purchases themselves can be specifically planned, generally planned, reminder purchases or unplanned purchases. We went through the details of each of these phases. Similarly from the merchant’s point of view, the stages can be presales interaction, product service production and postsales interaction.
4.6 QUESTIONS
1. Name the three broad phases of consumer’s perspective. 2. What are the categories of consumers?
3. What are the four types of purchases? 4. Why are information brokerages needed?
5. What issues are included in post purchase interaction? 6. Name the phases from the merchants point of view? 7. What is order selection?
8. Why is a critical mass necessary for market? 9. What is the need for standardization?
10. On what factors can negotiations take place?
11. List the desirable characterstics of e-commerce market place? 12. Explain mercantile model from consumer’s perspective? 13. Explain mercantile model from merchant’s perspective?
4.6.1 Answers
1. Pre-purchase determination, purchase consummation, post purchase interaction. 2. Impulsive buyers, patient buyers and analytical buyers.
3. Specifically planned, Generally planned, reminder purchases and unplanned purchases. 4. To help in comparison shopping, reduce search costs and integration.
5. Inventory issues, database access issues and customer service issues.
6. Presales interaction, product service, production and delivery and post sales interaction. 7. Prioritize orders based on same factors.
8. Otherwise the cost per unit goes up.
9. To move seamlessly across various hardware and software.
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Chapter 5
Electronic Payment Systems
5.0 INTRODUCTION
I
n this chapter we discuss some very important issues of a market place – regarding the payment procedures. In a purely long distance purchase scenario, payment also is to be made without the customer and the seller coming face to face. Hence traditional concept of buying with cash does not work. However, one can think of concepts like electronic tokens (e-cash), checks, and credit and debit cards. We also see that each of these present their own problems, unlike regular cash, which is guaranteed by the respective governments. We note that there are two major, conflicting issues – anonymity of the buyer and the legality of the tender. Also, there are disputes regarding double payments, taxation laws and exchange rates. Hence, we see a very interesting combination of several issues to be solved simultaneously.Electronic payment systems and e-commerce are intricately linked given that on-line consumers must pay for products and services.
We will examine the following issues
What form and characteristics of payment instruments – for example, electronic cash, electronic checks, credit / debit cards – will consumers use?
In on-line markets, how can we manage the financial risk associated with various payment instruments – privacy, fraud, mistakes, as well as other risks like bank failures? What security features (authentication, privacy, anonymity) need to be designed to reduce these risks? What are the step-by-step procedures and institutional arrangements that form the fabric of
the electronic payment business processes that link consumers and organizations?
5.1 DIGITAL TOKEN-BASED ELECTRONIC PAYMENT
SYSTEMS
None of the banking or retailing payment methods are completely adequate in their present form for the consumer-oriented e-commerce environment. Their deficiency is their assumption that the parties will at some time or other be in each other’s physical presence or that there will be a sufficient delay in the payment process for frauds, overdrafts, and other undesirables to be identified and corrected. These assumptions may not hold for e-commerce.
Entirely new forms of financial instruments are also being developed. One such new financial instrument is “electronic tokens” in the for m of electronic cash / money or checks. Electronic tokens are designed as electronic analogs of various forms of payment backed by a bank or financial institution. Simply stated, electronic tokens are equivalent to cash that is backed by a bank.
Electronic tokens are of three types:
1. Cash or real-time. Transactions are settled with the exchange of electronic currency. An example of on-line currency exchange is electronic cash (e-cash)
2. Debit or prepaid. Users pay in advance for the privilege of getting information. Examples of prepaid payment mechanisms are stored in smart cards and electronic purses that store electronic money.
3. Credit or postpaid. The server authenticates the customers and verifies with the bank that funds are adequate before purchase. Examples of postpaid mechanisms are credit / debit cards and electronic checks.
Here are four dimensions that are useful for analyzing the different initiatives
1. The nature of the transaction for which the instrument is designed. Some tokens are specifically designed to handle micro-payments, that is, payments for small snippets of information. Others are designed for more traditional products. Some systems target specific niche transactions; other seek more general transactions. The key is to identify the parties involved, the average amounts, and the purchase interaction.
2. The means of settlement used. Token must be backed by cash, credit, electronic bill payments (prearranged and spontaneous), cashier’s checks, IOUs letters and line of credit, and wire transfers, to name a few. Each option incurs trade-offs among transaction speed, risk, and cost. Most transaction settlement methods use credit cards, while others use other proxies for value.
3. Approach to security, anonymity, and authentication. Electronic tokens vary in the protection of privacy and confidentiality of the transactions. Encryption can help with authentication, non-repudiability, and asset management.
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4. The question of risk Who assumes what kind of risk at what time? The tokens might suddenly become worthless and the customers might have the currency that nobody will accept. If the system stores value in a smart card, consumers may be exposed to risk as they hold static assets. Also electronic tokens might be subject to discounting or arbitrage. Risk also arises if the transaction has long lag times between product delivery and payments to merchants. This exposes merchants to the risk that buyers don’t pay-or vice-versa that the vendor doesn’t deliver.
5.2 ELECTRONIC CASH (E-CASH)
Electronic cash (e-cash) is a new concept in on-line payment systems because it combines computerized convenience with security and privacy that improve on paper cash. Its versatility opens up a host of new markets and applications. E-cash presents some interesting characteristics that should make it an attractive alternative for payment over the Internet.
E-cash focuses on replacing cash as the principal payment vehicle in consumer-oriented electronic payments.
The predominance of cash indicates an opportunity for innovative business practice that revamps the purchasing process where consumers are heavy users of cash. To really displace cash, the electronic payment systems need to have some qualities of cash that current credit and debit cards lack. For example, cash is negotiable, meaning it can be given or traded to some one else. Cash is legal tender, meaning the payee is obligated to take it. Cash is a bearer instrument, meaning that possession is prima facie proof of ownership. Also, cash can be held and used by anyone even those who don’t have a bank account, and cash places no risk on the part of the acceptor that the medium of exchange may not be good.
Now compare cash to credit and debit cards. First, they can’t be given away because, technically, they are identification cards owned by the issuer and restricted to one user. Credit and debit cards are not legal tender, given that merchants have the right to refuse to accept them. Nor are credit and debit cards bearer instruments; their usage requires an account relationship and authorization system. Similarly, checks require either personal knowledge of the payer or a check guarantee system. Hence, to really create a novel electronic payment method, we need to do more than recreate the convenience that is offered by credit and debit cards. We need to develop e-cash that has some of the properties of cash.
5.2.1. Properties of Electronic Cash
Specifically, e-cash must have the following four properties: monetary value, interoperability, retrievability, and security.
