E-Commerce Tutorial

E-COMMERCE TUTORIAL
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 ABOUT THE TUTORIAL

E-Commerce Tutorial
E-Commerce or Electronics Commerce is a methodology of modern business which addresses the need of business
organizations.

This reference will take you through simple and practical approach while learning e-commerce principles.

Audience
This reference has been prepared for the beginners to help them understand the basic to advanced concepts related to
e-commerce.

Prerequisites
Before you start doing practice with various types of examples given in this reference, I'm making an assumption that you
are already aware about what is a market, buyers, sellers, a traditional commerce.

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 Table of Contents
E-Commerce Tutorial ................................................................ i
Audience ................................................................................... i
Prerequisites ............................................................................. i
Copyright & Disclaimer Notice ................................................... i
E-Commerce Overview ........................................................... 1
Traditional Commerce v/s E-Commerce ......................................................... 4
Advantages ............................................................................. 5
Advantages to Customers .............................................................................. 6
Advantages to Society .................................................................................. 7
Disadvantages......................................................................... 8
Technical Disadvantages ............................................................................... 9
Non-Technical Disadvantages ....................................................................... 9
Business Model ..................................................................... 10
Business - to - Business (B2B) ..................................................................... 11
Business - to - Consumer (B2C) ................................................................... 12
Consumer - to - Consumer (C2C) ................................................................. 12
Consumer - to - Business (C2B) ................................................................... 13
Business - to - Government (B2G) ............................................................... 13
Government - to - Business (G2B) ............................................................... 14
Government - to - Citizen (G2C) .................................................................. 14
Payment Systems ................................................................. 15
Credit Card ................................................................................................ 15
Credit card payment process ........................................................................ 16
Debit Card ................................................................................................. 16
Smart Card ................................................................................................ 16
E-Money ................................................................................................... 17
Electronic Fund Transfer ............................................................................. 17
Security Systems .................................................................. 18
Measures to ensure Security ........................................................................ 18
Security Protocols in Internet ............................................................... 19
Secure Socket Layer (SSL) .......................................................................... 19
Secure Hypertext Transfer Protocol (SHTTP)................................................ 19

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Secure Electronic Transaction...................................................................... 19
B2B Business Model ............................................................. 21
Key technologies ........................................................................................ 22
Architectural Models .................................................................................. 22
B2C Business Model ............................................................. 23
Consumer Shopping Procedure .................................................................... 23
Disintermediation and Reintermediation ....................................................... 24
EDI ........................................................................................ 26
EDI Documents ......................................................................................... 26
Steps in an EDI System ............................................................................... 27
Advantages of an EDI System ..................................................................... 27
About tutorialspoint.com ...................................................... 28

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1
E-Commerce Overview
This chapter gives a basic idea about e-commerce starting with its features and
comparison between traditional and e-commerce.

E -Commerce or Electronics Commerce is a methodology of modern business which

addresses the need of business organizations, vendors and customers to reduce cost and
improve the quality of goods and services while increasing the speed of delivery. E-commerce
refers to paperless exchange of business information using following ways.

 Electronic Data Exchange (EDI)

 Electronic Mail (e-mail)

 Electronic Bulletin Boards

 Electronic Fund Transfer (EFT)

 Other Network-based technologies

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Features
E-Commerce provides following features

 Non-Cash Payment: E-Commerce enables use of credit cards, debit cards, smart
cards, electronic fund transfer via bank's website and other modes of electronics
payment.

 24x7 Service availability: E-commerce automates business of enterprises and

services provided by them to customers are available anytime, anywhere. Here 24x7
refers to 24 hours of each seven days of a week.

 Advertising / Marketing: E-commerce increases the reach of advertising of products

and services of businesses. It helps in better marketing management of products /
services.

 Improved Sales: Using E-Commerce, orders for the products can be generated
anytime, anywhere without any human intervention. By this way, dependencies to buy a
product reduce at large and sales increases.

 Support: E-Commerce provides various ways to provide pre sales and post sales
assistance to provide better services to customers.

 Inventory Management: Using E-Commerce, inventory management of products

becomes automated. Reports get generated instantly when required. Product inventory
management becomes very efficient and easy to maintain.

 Communication improvement: E-Commerce provides ways for faster, efficient,

reliable communication with customers and partners.

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Traditional Commerce v/s E-Commerce

Sr.
Traditional Commerce E-Commerce
No.
Information sharing is made easy via
Heavy dependency on
electronic communication channels
1 information exchange from
making little dependency on person to
person to person.
person information exchange.
Communication or transaction can be
Communication/ transaction are
done in asynchronous way.
done in synchronous way.
Electronics system automatically
2 Manual intervention is required
handles when to pass communication
for each communication or
to required person or do the
transaction.
transactions.
It is difficult to establish and A uniform strategy can be easily
3 maintain standard practices in established and maintain in e-
traditional commerce. commerce.
Communications of business In e-Commerce or Electronic Market,
4
depends upon individual skills. there is no human intervention.
Unavailability of a uniform
E-Commerce website provides user a
platform as traditional
5 platform where al l information is
commerce depends heavily on
available at one place.
personal communication.
No uniform platform for
E-Commerce provides a universal
information sharing as it
6 platform to support commercial /
depends heavily on personal
business activities across the globe.
communication.

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 CH APT ER

2
Advantages
This section describes advantages of e-commerce over traditional commerce.

E -Commerce advantages can be broadly classified in three major categories:

 Advantages to Organizations

 Advantages to Consumers

 Advantages to Society

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Advantages to Organizations
 Using E-Commerce, organization can expand their market to national and
international markets with minimum capital investment. An organization can
easily locate more customers, best suppliers and suitable business partners
across the globe.

 E-Commerce helps organization to reduce the cost to create process,

distribute, retrieve and manage the paper based information by digitizing the
information.

 E-commerce improves the brand image of the company.

 E-commerce helps organization to provide better customer services.

 E-Commerce helps to simplify the business processes and make them faster
and efficient.

 E-Commerce reduces paper work a lot.

 E-Commerce increased the productivity of the organization. It supports "pull"

type supply management. In "pull" type supply management, a business
process starts when a request comes from a customer and it uses just-in-time
manufacturing way.

Advantages to Customers
 24x7 support. Customer can do transactions for the product or enquiry about
any product/services provided by a company any time, any where from any
location. Here 24x7 refers to 24 hours of each seven days of a week.

 E-Commerce application provides user more options and quicker delivery of

products.

 E-Commerce application provides user more options to compare and select

the cheaper and better option.

 A customer can put review comments about a product and can see what
others are buying or see the review comments of other customers before
making a final buy.

 E-Commerce provides option of virtual auctions.

 Readily available information. A customer can see the relevant detailed

information within seconds rather than waiting for days or weeks.

 E-Commerce increases competition among the organizations and as result

organizations provides substantial discounts to customers.

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Advantages to Society
 Customers need not to travel to shop a product thus less traffic on road and
low air pollution.

 E-Commerce helps reducing cost of products so less affluent people can also
afford the products.

 E-Commerce has enabled access to services and products to rural areas as

well which are otherwise not available to them.

 E-Commerce helps government to deliver public services like health care,

education, social services at reduced cost and in improved way.

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 CH APT ER

3
Disadvantages
This section describes disadvantages of e-commerce.

E -Commerce disadvantages can be broadly classified in two major categories:

 Technical disadvantages

 Non-Technical disadvantages

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Technical Disadvantages
 There can be lack of system security, reliability or standards owing to poor
implementation of e-Commerce.

 Software development industry is still evolving and keeps changing rapidly.

 In many countries, network bandwidth might cause an issue as there is

insufficient telecommunication bandwidth available.

 Special types of web server or other software might be required by the vendor
setting the e-commerce environment apart from network servers.

 Sometimes, it becomes difficult to integrate E-Commerce software or website

with the existing application or databases.

 There could be software/hardware compatibility issue as some E-Commerce

software may be incompatible with some operating system or any other
component.

Non-Technical Disadvantages
 Initial cost: The cost of creating / building E-Commerce application in-house
may be very high. There could be delay in launching the E-Commerce
application due to mistakes, lack of experience.

 User resistance: User may not trust the site being unknown faceless seller.
Such mistrust makes it difficult to make user switch from physical stores to
online/virtual stores.

 Security / Privacy: Difficult to ensure security or privacy on online

transactions.

 Lack of touch or feel of products during online shopping.

 E-Commerce applications are still evolving and changing rapidly.

 Internet access is still not cheaper and is inconvenient to use for many
potential customers like one living in remote villages.

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 CH APT ER

4
Business Model
This section describes various business models of e-commerce.

E -Commerce or Electronics Commerce business models can generally categorized in following categories.

 Business - to - Business (B2B)

 Business - to - Consumer (B2C)

 Consumer - to - Consumer (C2C)

 Consumer - to - Business (C2B)

 Business - to - Government (B2G)

 Government - to - Business (G2B)

 Government - to - Citizen (G2C)

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Business - to - Business (B2B)
Website following B2B business model sells its product to an intermediate buyer who
then sells the product to the final customer. As an example, a wholesaler places an
order from a company's website and after receiving the consignment, sells the end
product to final customer who comes to buy the product at wholesaler's retail outlet.

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Business - to - Consumer (B2C)
Website following B2C business model sells its product directly to a customer. A
customer can view products shown on the website of business organization. The
customer can choose a product and order the same. Website will send a notification to
the business organization via email and organization will dispatch the product/goods to
the customer.

Consumer - to - Consumer (C2C)

Website following C2C business model helps consumer to sell their assets like
residential property, cars, motorcycles etc. or rent a room by publishing their
information on the website. Website may or may not charge the consumer for its
services. Another consumer may opt to buy the product of the first customer by viewing
the post/advertisement on the website.

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Consumer - to - Business (C2B)
In this model, a consumer approaches website showing multiple business
organizations for a particular service. Consumer places an estimate of amount he/she
wants to spend for a particular service. For example, comparison of interest rates of
personal loan/ car loan provided by various banks via website. Business organization
that fulfills the consumer's requirement within specified budget approaches the
customer and provides its services.

Business - to - Government (B2G)

B2G model is a variant of B2B model. Such websites are used by government to trade
and exchange information with various business organizations. Such websites are
accredited by the government and provide a medium to businesses to submit
application forms to the government.

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Government - to - Business (G2B)
Government uses B2G model website to approach business organizations. Such
websites support auctions, tenders, and application submission functionalities.

Government - to - Citizen (G2C)

Government uses G2C model website to approach citizen in general. Such websites
support auctions of vehicles, machinery or any other material. Such website also
provides services like registration for birth, marriage or death certificates. Main
objectives of G2C website are to reduce average time for fulfilling people requests for
various government services.

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 CH APT ER

5
Payment Systems
This section describes various electronics ways of payment like credit cards, debit cards,
smart cards etc.

E -Commerce or Electronics Commerce sites use electronic payment where

electronic payment refers to paperless monetary transactions. Electronic payment has
revolutionized the business processing by reducing paper work, transaction costs,
labour cost. Being user friendly and less time consuming than manual processing,
helps business organization to expand its market reach / expansion. Some of the
modes of electronic payments are following.

 Credit Card

 Debit Card

 Smart Card

 E-Money

 Electronic Fund Transfer (EFT)

Credit Card
Payment using credit card is one of most common mode of electronic payment. Credit
card is small plastic card with a unique number attached with an account. It has also a
magnetic strip embedded in it which 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 after which he/she can 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

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  The acquirer bank - the merchant's bank

 The card brand - for example, visa or mastercard.

Credit card payment process

Step Description
Bank issues and activates a credit card to customer on his/her
Step 1
request.
Customer presents credit card information to merchant site or
Step 2 to merchant from whom he/she want to purchase a
product/service.
Merchant validates customer's identity by asking for approval
Step 3
from card brand company.
Card brand company authenticates the credit card and paid the
Step 4
transaction by credit. Merchant keeps the sales slip.
Merchant submits the sales slip to acquirer banks and gets the
Step 5
service chargers paid to him/her.
Acquirer bank requests the card brand company to clear the
Step 6
credit amount and gets the payment.
Now card brand company asks to clear amount from the issuer
Step 6
bank and amount gets transferred to card brand company.

Debit Card
Debit card, like credit 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. The major difference between debit card and credit card is that 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 whereas in case of credit card there is no such compulsion.

Debit cards free customer to carry cash, cheques and even merchants accepts debit
card more readily. Having restriction on amount being in bank account also helps
customer to keep a check on his/her spending.

Smart Card
Smart card is again 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 as
they stores information in encrypted format and are less expensive / provide faster
processing. Mondex and Visa Cash cards are examples of smart cards.

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E-Money
E-Money transactions refer to situation where payment is done over the network and
amount gets transferred from one financial body to another financial body without any
involvement of a middleman. E-money transactions are faster, convenient and save a
lot of time.

Online payments done via credit card, debit card or smart card are examples of e-
money transactions. Another popular example is e-cash. In case of e-cash, both
customer and merchant both have to sign up with the bank or company issuing e-cash.

Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank
account to another bank account. Accounts can be in same bank or different bank.
Fund transfer can be done using ATM (Automated Teller Machine) or using computer.

Now a day, internet based EFT is getting popularity. In this case, customer uses
website provided by the bank. Customer logins to the bank's website and registers
another bank account. He/she then places a request to transfer certain amount to that
account. Customer's bank transfers amount to other account if it is in same bank
otherwise transfer request is forwarded to ACH (Automated Clearing House) to transfer
amount to other account and amount is deducted from customer's account. Once
amount is transferred to other account, customer is notified of the fund transfer by the
bank.

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 CH APT ER

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Security Systems
This section describes security concerns of e-commerce.

S ecurity is an essential part of any transaction that takes place over the internet.
Customer will lose his/her faith in e-business if its security is compromised. Following
are the essential requirements for safe e-payments/transactions:

 Confidential - Information should not be accessible to unauthorized person. It

should not be intercepted during transmission.

 Integrity - Information should not be altered during its transmission over the
network.

 Availability - Information should be available wherever and whenever

requirement within time limit specified.

 Authenticity - There should be a mechanism to authenticate user before

giving him/her access to required information.

 Non-Repudiabiity - It is protection against denial of order or denial of

payment. Once a sender sends a message, the sender should not able to deny
sending the message. Similarly the recipient of message should not be able to
deny receipt.

 Encryption - Information should be encrypted and decrypted only by

authorized user.

 Auditability - Data should be recorded in such a way that it can be audited for
integrity requirements.

Measures to ensure Security

Major security measures are following:

 Encryption - It is a very effective and practical way to safeguard the data

being transmitted over the network. Sender of the information encrypts the

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 data using a secret code and specified receiver only can decrypt the data
using the same or different secret code.

 Digital Signature -Digital signature ensures the authenticity of the information.

A digital signature is a e-signature authentic authenticated through encryption
and password.

 Security Certificates - Security certificate is unique digital id used to verify

identity of an individual website or user.

Security Protocols in Internet

Following are the popular protocols used over the internet which ensures security of
transactions made over the internet.

Secure Socket Layer (SSL)

It is the most commonly used protocol and is widely used across the industry. It meets
following security requirements:

 Authentication

 Encryption

 Integrity

 Non-reputability

"https://" is to be used for HTTP urls with SSL, where as "http:/" is to be used for HTTP
urls without SSL.

Secure Hypertext Transfer Protocol (SHTTP)

SHTTP extends the HTTP internet protocol with public key encryption, authentication
and digital signature over the internet. Secure HTTP supports multiple security
mechanism providing security to end users. SHTTP works by negotiating encryption
scheme types used between client and server.

Secure Electronic Transaction

It is a secure protocol developed by MasterCard and Visa in collaboration.
Thereoritically, it is the best security protocol. It has following components:

 Card Holder's Digital Wallet Software - Digital Wallet allows card holder to
make secure purchases online via point and click interface.

 Merchant Software - This software helps merchants to communicate with

potential customers and financial institutions in secure manner.

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  Payment Gateway Server Software - Payment gateway provides automatic
and standard payment process. It supports the process for merchant's
certificate request.

 Certificate Authority Software -This software is used by financial institutions

to issue digital certificates to card holders and merchants and to enable them
to register their account agreements for secure electronic commerce.

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 CH APT ER

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B2B Business Model
This section describes b2b (Business to Business) e-Commerce Model.
Website following B2B business model sells its product to an intermediate buyer who
then sells the product to the final customer. As an example, a wholesaler places an
order from a company's website and after receiving the consignment, sells the end
product to final customer who comes to buy the product at wholesaler's retail outlet.

B2B implies that seller as well as buyer is business entity. B2B covers large number of
applications which enables business to form relationships with their distributors,
resellers, suppliers etc. Following are the leading items in B2B e-Commerce.

 Electronics

 Shipping and Warehousing

 Motor Vehicles

 Petrochemicals

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  Paper

 Office products

 Food

 Agriculture

Key technologies
Following are the key technologies used in B2B e-commerce:

 Electronic Data Interchange (EDI) - EDI is an inter-organizational exchange

of business documents in a structured and machine processable format.

 Internet - Internet represents world wide web or network of networks

connecting computers across the world.

 Intranet - Intranet represents a dedicated network of computers within a

single organization

 Extranet - Extranet represents a network where outside business partners,

supplier or customers can have limited access to a portion of enterprise
intranet/network..

 Back-End Information System Integration - Back End information systems

are database management systems used to manage the business data.

Architectural Models
Following are the architectural models in B2B e-commerce:

 Supplier Oriented marketplace - In this type of model, a common

marketplace provided by supplier is used by both individual customers as well
as business users. A supplier offers an e-stores for sales promotion.

 Buyer Oriented marketplace - In this type of model, buyer has his/her own
market place or e-market. He invites suppliers to bid on product's catalog. A
Buyer company opens a bidding site.

 Intermediary Oriented marketplace - In this type of model, an intermediary

company runs a market place where business buyers and sellers can transact
with each other.

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 CH APT ER

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B2C Business Model
This section describes b2c (Business to Consumer) Business model of e-commerce.

I n B2C model, business Website is a place where all transactions take place
between a business organization and consumer directly.

In B2C Model, a consumer goes to the website, selects a catalog, orders the catalog
and an email is sent to business organization. After receiving the order, goods would
be dispatched to the customer. Following are the key features of a B2C Model

 Heavy advertising required to attract large no. of customers.

 High investment in terms of hardware/software.

 Support or good customer care service

Consumer Shopping Procedure

Following are the steps used in B2C e-commerce:

A consumer

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  determines the requirement

 searches available items on the website meeting the requirement.

 compares similar items for price, delivery date or any other terms.

 gives the order.

 pays the bill.

 receives the delivered item and review/inspect them.

 consults the vendor to get after service support or returns the product if not
satisfied with the delivered product.

Disintermediation and Reintermediation

In traditional commerce, there are intermediating agents like wholesalers, distributors,
retailers between manufacturer and consumer. In B2C website, manufacturer can sell
products directly to consumers. This process of removal of business layers responsible
for intermediary functions is called Disintermediation.

Now-a-days, a new electronic intermediary breed is emerging like e-mall and product
selection agents are emerging. This process of shifting of business layers responsible
for intermediary functions from traditional to electronic mediums is called
Reintermediation.

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 CH APT ER

9
EDI
This section describes concept of EDI.
EDI stands for Electronic Data Exchange. EDI is an electronic way of transferring
business documents in an organization internally between its various departments or
externally with suppliers, customers or any subsidiaries etc. In EDI, paper documents
are replaced with electronic documents like word documents, spreadsheets etc.

EDI Documents
Following are few important documents used in EDI:

 Invoices

 Purchase orders

 Shipping Requests

 Acknowledgement

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  Business Correspondence letters

 Financial information letters

Steps in an EDI System

Following are the steps in an EDI System.

 A program generates the file which contains the processed document.

 The document is converted into an agreed standard format.

 The file containing the document is send electronically on network.

 The trading partner receives the file.

 An acknowledgement document is generated and sent to the originating

organization.

Advantages of an EDI System

Following are the advantages of an EDI System.

 Reduction in data entry errors. - Chances of errors are much less being use
of computer in data entry.

 Shorter processing life cycle - As orders can be processed as soon as they

are entered into the system. This reduced the processing time of the transfer
documents.

 Electronic form of data - It is quite easy to transfer or share data being in

electronic format.

 Reduction in paperwork - As lot of paper documents are replaced with

electronic documents there is huge reduction in paperwork.

 Cost Effective - As time is saved and orders are processed very effectively,
EDI proves to be higly cost effective.

 Standard Means of communication - EDI enforces standards on the content

of data and its format which leads to clearer communication.

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