Introduction

Commerce is basically an economic activity involving trading or the buying and selling
of goods.
For e.g. a customer enters a book shop, examines the books, select a book and pays
for it. To fulfill the customer requirement, the book shop needs to carry out other
commercial transactions and business functions such as managing the supply chain,
providing logistic support, handling payments etc.
As we enter the electronic age, an obvious question is whether these commercial
transactions and business functions can be carried out electronically.
In general, this means that no paperwork is involved, nor is any physical contact
necessary.
This often referred to as electronic commerce (e-commerce).

The earliest example of e-commerce is electronic funds transfer. This allows financial
institutions to transfer funds between one another in a secure and efficient manner.
Later, electronic data interchange (EDI) was introduced to facilitate inter-business
transactions.

E-Commerce
• “E-Commerce or Electronic Commerce, a subset of E-Business, is the purchasing,
selling and exchanging of goods and services over computer networks (such as
Internet) through which transactions are performed”.
• “E-Commerce can be defined as a modern business methodology that addresses the
needs of organizations, merchants and consumers to cut costs while improving the
quality of goods and services and increasing the speed of service delivery by using
Internet”.
• E-Commerce takes place between companies, between companies and their
customers, or between companies and public administration.

FEW EXAMPLES OF E-Commerce are:

• Amazon.com, an online bookstore started in 1995 grew its revenue to more than 600$
million in 1998.

• Microsoft Expedia, an integrated online travel transaction site helps to choose a flight,
buy an airline ticket, book a hotel, rent a car etc. in only a few minutes.

History of E-Commerce
• The history of Ecommerce seems rather short but its journey started over 40 years
ago in hushed science labs

• In the 1960s, very early on in the history of Ecommerce, its purpose was to exchange
long distance electronic data. In these early days of Ecommerce, users consisted of
only very large companies, such as banks and military departments, who used it for
command control communication purposes. This was called EDI, and was used for
electronic data interchange.

Originally, electronic commerce was identified as the facilitation of commercial

transactions electronically, using technology such as Electronic Data Interchange
(EDI) and Electronic Funds Transfer (EFT). These were both introduced in the late
1970s, allowing businesses to send commercial documents like purchase orders or
invoices electronically.

• The growth and acceptance of credit cards, automated teller machines (ATM) and
telephone banking in the 1980s were also forms of electronic commerce

• In 1982 Transmission Control Protocol and Internet Protocol known as TCP & IP was
developed. This was the first system to send information in small packets along
different routes using packet switching technology, like today's Internet! As opposed
to sending the information streaming down one route

• Beginning in the 1990s, electronic commerce would include enterprise resource

planning systems (ERP), data mining and data warehousing.

• In 1995, with the introduction of online payment methods, two companies that we all
know of today took their first steps into the world of Ecommerce. Today Amazon and
ebay are both amongst the most successful companies on the Internet.

Functions

Functions of E-Commerce

• Marketing:- One of the areas it impacts particularly is direct marketing. In the past this
was mainly door-to-door, home parties (like the Tupperware parties) and mail orders
using catalogues or leaflets. This moved to telemarketing and TV selling with the
advance in television technology and finally developed into e-marketing.

• Human Resource Management:- Issues of on-line recruiting, home working and

‘entrepreneurs’ working on a project by project basis replacing permanent employees.
Functions of E-Commerce (Contd.)
• Business law and ethics:- The different legal and ethical issues that have arisen as a
result of a global ‘virtual’ market. Issues such as copyright laws, privacy of customer
information etc.
• Management Information System:- Analysis, design and implementation of e-
business systems within an organization ; issues of integration of front-end and back-
end systems.
• Product Operations and Management:- The impact of on-line processing has led to
reduced cycle time. It takes seconds to deliver digitized products and services
electronically; similarly the time for processing orders can be reduced by more than 90
percent from days to minutes.
• Finance and Accounting:- On-line banking ; issues of transaction costs ; accounting
and auditing implications where ‘intangible’ assets and human capital must be tangibly
valued in an increasing knowledge based economy.
• Economy:- The impact of E-commerce on local and global economies; understanding
the concepts of a digital and knowledge based economy and how this fits into economic
theory.

E-Commerce vs Traditional Commerce

• E- Commerce is about the sale and purchase of goods or services by electronic
means, particularly over the internet. In a pure e-commerce system, transactions take
place via electronic means. In this case, you will access a cyber-book store and
download a digital book from a server computer.

• In a physical or traditional commerce system, transactions take place via contact

between humans usually in a physical outlet such as a bookstore.
For e.g. if you want to buy a book, you will go to a physical bookstore and buy the
physical book from a salesman.

• E-Commerce is more suitable for standard goods, intangible goods; whereas

traditional commerce is more suitable for non-standard goods, perishable goods, and
expensive goods.

• Complex products such as cars are better served by integrating e-commerce and
physical commerce.
• “E-Business is the conduct of business on the Internet, not only buying and selling but
also servicing customers and collaborating with business partners”.
• E-Business means connecting critical business systems directly to customers, vendors
and suppliers- via the Internet, Extranet and Intranets.
• Therefore it means using electronic information to boost performance and create value
by forming new relationships between and among businesses and customers.
• One of the first to use the term was IBM, in October 1997, when it launched a
campaign built around e-business.
E-Business enables organizations to accomplish the following goals:-
• Reach new markets.
• Create new products or services.
• Build customer loyalty
• Make the best use of existing and emerging technologies.
• Achieve market leadership and competitive advantage.
• Enrich human capital.

Advantages of E-Commerce to Customers

• Reduced Prices:- Costs of products are reduced since the stages along the value
chain are decreased. For instance, intermediaries can be eliminated by the company
directly selling to the customers instead of distributing through a retail store.
• 24-Hour Access:- Online businesses never sleep as opposed to brick and mortar
businesses. E-Commerce allows people to carry out businesses without the barriers of
time.
• Global Marketplace:- Consumers can stop anywhere in the world. Currently
according to World Trade Organization (WTO) there are no custom duties put on
products bought and traded globally electronically. This also provides wide selection of
products and services to consumers.
• More Choices:- Provides consumers with more choices. For e.g. before making any
purchase, customer can study about all the major brands and features of any item. It
also provides consumers with less expensive products and services by allowing them to
shop in many places.
Advantages of E-Commerce to Businesses
• Increased potential market share:- The internet enables businesses to have access
to international markets thereby increasing their market share. Companies can also
achieve greater economies of scale.

• Low cost Advertising:- Advertising on the internet costs less than advertising on print
or television depending on the extent of advertisement. .Advertising on the internet itself
is less costly since there is less cost associated with it in terms of printing and limited
television spots.

• Low barriers to Entries:- Anyone can start up a company on the internet. Start-up
costs are a lot lower for companies since there is less need for money for capital.

• Strategic Benefits:- The Strategic benefits of making a business e-commerce

enabled is that it helps reduce the delivery time, labour cost and the cost incurred in
document preparation, data entry, error detection etc.
INTRODUCTION TO E-COMMERCE
1.1 INTRODUCTION
In the past few years, enterprises across the globe have experienced significant
changes in their
business information system. Huge investments were made in enterprise resource
planning system
implementations but still they struggle to get timely information that is needed to
make effective
business decision and to ensure continuous growth of enterprises. Placing "e" in front of
any process
or function seemed to be the magic prescription for never ending story of success and
rapid returns for
enterprises. E-business, e-procurement, e-sales, e-payment, e-banking, e-CRM, e-
CAD, e-delivery are
just a few. Internet, for example is becoming one of the most popular medium in
transmitting various
data. Users can find any kind of information within a shorter time compared with
conventional method
that consumes more time.
The emergence of the Internet throughout the world has been contributing such a
variety medium in
doing business as well as people lifestyle. In fact, Internet is the essential prerequisite
for the existence
of E- commerce. Electronic commerce or e-commerce has been defined as the
ability to perform
transactions involving the exchange of goods or services between two or more parties
using electronic
tools and technique. The explosion of E-commerce has created new phenomena
in our lifestyle
especially in shopping activities. Consumers can easily buy products or services like
magazines and
airlines tickets via Internet.
1.2 DEFINITION
The word commerce is the basic concept for electronic commerce, pertaining to buying
and selling of
goods while ‘commercial’ denotes business practice and activities intended to make
profits. Electronic
commerce, like any other business, deals with the exchange of money for soft
or hard goods and
services.
Kalakota and Whintons in 1997 defined the term E-commerce from different
perspectives. These
perspectives are:
• Communication
• Business Process
• Service
• Online
Communication Perspective: According to this perspective, E-commerce is the
delivery of
information, product/services or payments over telecommunication channels,
computer networks or
any other electronic mode of communication.
Business Process Perspective: This says that E-commerce is the application of
technology towards the
automation of business transactions and work flow.
INTRODUCTION TO E-COMMERCE
1.1 INTRODUCTION
In the past few years, enterprises across the globe have experienced significant
changes in their
business information system. Huge investments were made in enterprise resource
planning system
implementations but still they struggle to get timely information that is needed to
make effective
business decision and to ensure continuous growth of enterprises. Placing "e" in front of
any process
or function seemed to be the magic prescription for never ending story of success and
rapid returns for
enterprises. E-business, e-procurement, e-sales, e-payment, e-banking, e-CRM, e-
CAD, e-delivery are
just a few. Internet, for example is becoming one of the most popular medium in
transmitting various
data. Users can find any kind of information within a shorter time compared with
conventional method
that consumes more time.
The emergence of the Internet throughout the world has been contributing such a
variety medium in
doing business as well as people lifestyle. In fact, Internet is the essential prerequisite
for the existence
of E- commerce. Electronic commerce or e-commerce has been defined as the
ability to perform
transactions involving the exchange of goods or services between two or more parties
using electronic
tools and technique. The explosion of E-commerce has created new phenomena
in our lifestyle
especially in shopping activities. Consumers can easily buy products or services like
magazines and
airlines tickets via Internet.
1.2 DEFINITION
The word commerce is the basic concept for electronic commerce, pertaining to buying
and selling of
goods while ‘commercial’ denotes business practice and activities intended to make
profits. Electronic
commerce, like any other business, deals with the exchange of money for soft
or hard goods and
services.
Kalakota and Whintons in 1997 defined the term E-commerce from different
perspectives. These
perspectives are:
• Communication
• Business Process
• Service
• Online
Communication Perspective: According to this perspective, E-commerce is the
delivery of
information, product/services or payments over telecommunication channels,
computer networks or
any other electronic mode of communication.
Business Process Perspective: This says that E-commerce is the application of
technology towards the
automation of business transactions and work flow.

Disadvantages of E-Commerce
• Hidden Costs:- Although buying online is convenient, the cost of this convenience is
not always clear at the front end. For e.g. on-line purchases are often accompanied by
high shipping and re-stocking fees, a lack of warranty coverage and unacceptable
delivery times. In fact, too many e-commerce companies have developed a reputation
of overcharging for shipping and handling.
• Lack of Security:- One of the main roadblocks to the wide acceptance of e-commerce
by businesses and consumers alike is the perceived lack of adequate security for on-
line transactions.
For e.g. Consumers are growing increasingly worried about providing credit card
information over the Internet. During the past few years, the press has been filled with
reports about hackers breaking into ebusiness
and stealing credit card information.
• Lack of Privacy:- Customers also worry about the privacy implications of data
gathered by organizations of all types and sizes. Even at the simplest data level, sales
information is stored in databases connected to web servers, thus exposing the
information to cyber criminals. Because data gathering on the web is so easy,
databases routinely contain information about customer purchasing habits, credit
information and so on. In many cases, companies sell customer database information to
marketing companies. In turn, the marketing companies engage in massive e-mail
campaigns to attract new customers. It doesn’t take long for the customer’s email box to
be filled with unwanted email (also known as Spam).
• Network Unreliability:- Although the Internet is designed to overcome the single point
of failure problem, there have been several well-publicized incidents of network failures
during the past few years. Network reliability problems may be generated by such
factors as:-
 Equipment failure in the network connection provider.
 Accidental problems caused by nature-such as lightning, floods, earthquakes that
affect communication lines.
 Long response time due to increased network traffic or inadequate bandwidth.

• Low Service Levels:- Another common complaint about doing business online is the
low level of customer service that online companies tend to provide. Although
technology has automated business transactions to a large extent, there remains a real
need for the human touch. Therefore e-commerce websites must provide:-
 A pleasant and problem free pre-ordering and ordering experience. The website
design is an important interface.
 Readily available easily used feedback options.
 Quick complaint resolution.
 Timely and low-cost shipping delivery to customers.

Scope of E-Commerce
• E-Commerce is a general concept covering any form of business transaction or
information exchange executed using information and communication technologies
((ICT’s).

• It includes electronic trading of goods, services and electronic material. It takes place
between companies, between companies and their customers or between companies
and public administrations.

• Electronic Markets:-
An electronic market is the use of information and communication technology to present
a range of offerings available in a market segment so that the purchaser can compare
the prices of the offerings and make a purchase decision
e.g. Airline Booking System
• Electronic Data Interchange:-
 It provides a standardized system for coding trade transactions so that they can
be communicated from one computer to another without the need for printed
orders and invoices & delays & errors in paper handling.
 It is used by organizations that make a large no. of regular transactions.
e.g. EDI is used in the large supermarket chains for transactions with their suppliers.
• Internet Commerce:-
 Information and communications technologies can be used to advertise & make
sales of wide range of goods & services.
 This application is both for business to business & business to consumer
transactions.
e.g. The purchase of goods that are then delivered by post or the booking of tickets that
can be picked up by the clients

E-business Models Based on the Relationship of Transaction Parties

Types of E-Commerce/ E-Commerce Market Models

There are five types of E-Commerce:-
Business To Business (B2B)
Business To Consumer (B2C)
Consumer To Business (C2B)
Consumer To Consumer (C2C)
Business To Government (B2G)

Business To Business (B2B):- Business to Business or B2B refers to e-commerce

activities between businesses. An E-Commerce company can be dealing with suppliers
or distributers or agents. These transactions are usually carried out through Electronic
Data Interchange (EDI). EDI is an automated format of exchanging information between
businesses over private networks.
For e.g. manufacturers and wholesalers are B2B Companies.

By processing payments electronically, companies are able to lower the number of

clerical errors and increase the speed of processing invoices, which result in lowered
transaction fees. In general, B2Bs require higher security needs than B2Cs.

With the help of B2B E-commerce, companies are able to improve the efficiency of
several common business functions, including supplier management, inventory
management and payment management.
 Business To Customer (B2C):- Business to Customer or B2C refers to E-Commerce
activities that are focused on consumers rather than on businesses.
For instance, a book retailer would be a B2C company such as Amazon.com. Other
examples could also be purchasing services from an insurance company, conducting
on-line banking and employing travel services.

Customer To Business (C2B):-

Customer to Business or C2B refers to E-Commerce activities which use reverse pricing
models where the customer determines the prices of the product or services.
In this case, the focus shifts from selling to buying. There is an increased emphasis on
customer empowerment.
In this type of E-Commerce, consumers get a choice of a wide variety of commodities
and services, along with the opportunity to specify the range of prices they can afford or
are willing to pay for a particular item, service or commodity.

Customer To Customer (C2C):-

Customer to Customer or C2C refers to E-commerce activities, which use an auction
style model. This model consists of a person-to-person transaction that completely
excludes businesses from the equation. Customers are also a part of the business and
C2C enables customers to directly deal with each other.
An example of this is peer auction giant ebay.

Business To Government (B2G):- It is a new trend in E-Commerce. This type of

Ecommerce is used by the government departments to directly reach to the citizens by
setting up the websites. These websites have government policies, rules and
regulations related to the respective departments.
Any citizen may interact with these websites to know the various details. This helps the
people to know the facts without going to the respective departments. This also saves
time of the employees as well as the citizens.

E-commerce Sales Life Cycle (ESLC) Model

E commerce lifecycle model, which assess the stages that most ecommerce
businesses go through and reveals how to maintain lasting growth with strategic
solutions:

The three stages of the ecommerce business lifecycle which are the most common
lifecycle growth stages of ecommerce companies, as they move along their journeys:
 Stage 1 – Start-up & fast growth
 Stage 2 – Plateauing growth or consolidation
 Stage 3 – Renewed growth by implementing change (new platforms, features,
resources/people or strategies)
In simple terms, these stages are akin to the way a gazelle jumps. There is a steep
forward jump and then rest, before leaping forward again. The same goes for the growth
patterns of ecommerce businesses; growing fast and then plateauing (resting).

Stage 1: Start-up & fast growth

Most ecommerce businesses go through an initial period of fast and in some cases
unexpected growth. This is usually to do with the popularity of the product they sell or
market demand rather than the implementation of their ecommerce platforms. Many
businesses will choose platforms such as BigCommerce, Shopify or Magento. It’s
important that your business stays agile and responds quickly to change.

You don’t want to get caught up in complicated systems or handcuffed by too much
process. Brands often enjoy quick impact in this honeymoon period, before growth
slows down and progression is halted by a kind of invisible ceiling. This sees
businesses moving into the second stage of the ecommerce lifecycle, which is a growth
plateau.

Stage 2: Plateauing growth or consolidation

I’ve found that many businesses reaching this second stage of the ecommerce lifecycle
tend to panic and look for quick-fix solutions to perceived issues. You need to
understand that it’s natural for there to be a levelling off of growth after the early spike.
Once your business has gained traction, brand awareness and initial momentum, it’s
time to reflect on your progress, analyse your data and gain key insights to make
measured and strategic changes to your ecommerce website and your marketing.

It’s important for business owners to assign ample time and resources to research, to
systemise and strategise to work out the best ways to move to the next level and start
achieving renewed growth.

Stage 3: Renewed growth

As I mentioned, many business owners think that the solution to the issue of plateauing
growth is a quick fix or a swift change of direction, which can be an ecommerce platform
move or, perhaps, the recruitment of a new ecommerce manager.

This is not necessarily thinking strategically. A replatforming indeed be the answer –

perhaps to a more advanced or modern ecommerce platform, like BigCommerce – but
you need to make a clear business case (including extensive research and risk
assessments) before deciding to migrate platforms.

In this third stage of the ecommerce lifecycle, the attempts to reinvigorate your
company’s momentum and growth should always be strategic. The solution to
plateauing growth may only require realigning your business goals with changing
customer trends, keeping up-to-date with new technology and channel strategies.

Research and analysis is required to optimise processes and improve customer

experience. This will steer a strategy. Research may reveal issues and one might find
that they need to replatform, but there needs to be sound reasoning behind decisions to
implement technology and tools.

Summary

Getting to know these key stages of the ecommerce lifecycle will help you envisage
your brand’s growth as a cyclical process, identify critical questions to ask at each stage
and understand why an agile approach to ecommerce strategy is so crucial to lasting
success. This ecommerce process bucks the trend of solving issues with quick fixes
and quick wins, focusing instead on regularly revisiting and refreshing your ecommerce
strategy for long-term results.
ELECTRONIC PAYMENT SYSTEMS

Electronic payment systems are central to on-line business process as companies look
for ways to serve customers faster and at lower cost. Emerging innovations in the
payment for goods and services in electronic commerce promise to offer a wide range
of new business opportunities.
Electronic payment systems and e-commerce are highly linked given that on-line
consumers must pay for products and services. Clearly, payment is an integral part of
the mercantile process and prompt payment is crucial. If the claims and debits of the
various participants (consumers, companies and banks) are not balanced because of
payment delay, then the entire business chain is disrupted. Hence an important aspect
of e-commerce is prompt and secure payment, clearing, and settlement of credit or
debit claims.

Electronic Payment Systems

Electronic payment systems are becoming central to on-line business transactions
nowadays as
companies look for various methods to serve customers faster and more cost
effectively. Electronic commerce brings a wide range of new worldwide business
opportunities. There is no doubt that electronic payment systems are becoming more
and more common and will play an important role in the business world. Electronic
payment always involves a payer and a payee who exchange money for goods or
services. At least one financial institution like a bank will act as the issuer (used by the
payer) and the acquirer (used by the payee).

Awareness of risks Electronic Payment Systems

Security, legal certainty and trust are important elements, influencing the acceptance of
commerce by both individuals and businesses. Furthermore, sociological and cost
factors play a significant role. Several reports on awareness of risks are related to the
non-transparent legal background for both companies and consumers. In this context,
e-commerce reluctance appears to be more pronounced in firms than in customers. The
main reason for firms to be reluctant may be insecurity caused by the lack of legal rules
determining when a transaction is legally binding. For customers, in addition to this, the
security of on-line payment methods may be decisive. An important issue is credit card
acceptance by retailers in Europe. The credit cards were offered to merchants originally
on the grounds, that authorized transactions would be honoured. Now the system is
established, banks in some countries charge traders for fraudulent transactions, which
cause tensions. Some large retailers still refuse to take credit cards because of the
terms of business. The result has been a move towards debit cards - which use the
same infrastructure but have different contractual terms.

Properties of Electronic Cash (e-Cash)

There are many ways of implementing an e-cash system. Specifically, e-cash must
have the following four properties: monetary value, interoperability, retrievability, and
security. E-cash must have a monetary value; it must be backed by either cash
(currency), a bank authorized credit, or a bank-certified cashier’s cheque. When e-cash
created by one bank is accepted by others, reconciliation must occur without any
problems. Stated another way, e-cash without proper bank certification carries the risk
that when deposited, it might be returned for insufficient funds.

E-cash must be interoperable, that is, exchangeable as payment for other e-cash, paper
cash, goods or services, lines of credit, deposits in banking accounts, bank notes or
obligations, electronic benefits transfers, and the like. Most e-cash proposals use a
single bank. In practice, multiple banks are required with an international clearing house
that handles the exchange ability issues because all customers are not going to use the
same bank or even be in the same country.

E-cash must be storable and retrievable. Remote storage and retrieval (e.g. from a
telephone or a personal communications device) would allow users to exchange e-cash
(e.g. withdraw from and deposit into banking accounts), from home or office or while
travelling. The cash could be stored on a remote computer’s memory, in smart cards, or
in other easily transported standard or special-purpose devices. Since it is easy to
create counterfeit cash that is stored in a computer, it is preferable that cash is stored
on a dedicated device that cannot be altered. This device should have a suitable
interface to facilitate personal authentication using passwords or other means and a
display so that the user can view the card’s contents. One example of a device that can
store e-cash is the Mondex card (Mondex was a smart card electronic cash system,
implemented as a stored-value card owned by Mastercard.)—a pocket-sized electronic
wallet.

E-cash should not be easy to copy or tamper with while being exchanged. This includes
preventing or detecting duplication and double-spending. Counterfeiting poses a
particular problem, since a counterfeiter may, in the Internet environment, be anywhere
in the world and consequently be difficult to catch without appropriate international
agreements. Detection is essential in order to audit whether prevention is working or
not. Then there is the tricky issue of double spending. For instance, you could use your
e-cash simultaneously to buy something in Japan, India, and England. Preventing
double-spending from occurring is extremely difficult if multiple banks are involved in the
transaction. For this reason, most systems rely on postfact detection and punishment.

Smart Card Cash Payment System

In the early 1990s, a payment system for low value amounts using smart cards was first
introduced in Europe. Most of these methods are known as stored value cards or
electronic purse system. Units of prepayment or currency value are electronically stored
on an IC chip imbedded in these cards. When purchases are made, the payment is
effected through these units of electronic value. Smart cards are credit and debit cards
and other card products enhanced with microprocessors, capable of holding more
information than the traditional magnetic stripe. The chip, at its current state of
development, can store significantly greater amounts of data, estimated to be 80 times
more than a magnetic stripe.
The smart card technology was widely used in countries such as France, Germany,
Japan and Singapore to pay for public phone calls, transportation, and shopper loyalty
programmes. The idea has taken longer to catch on in the United States, since a highly
reliable and fairly inexpensive telecommunications system has favoured the use of
credit and debit cards. Smart cards are basically of two types: relationship-based smart
credit cards and electronic purses. Electronic purses, which replace money, are also
known as debit cards and electronic money.

Credit Cards as e-Payment Systems

Without doubt, the basic means of payment used and initiated via the Internet for
consumer transactions till date is the credit card. Credit cards have proved popular for a
number of reasons as the following:
1. The system is familiar to users and was widely used before the advent of e-
commerce, thus bolstering the users’ confidence.
2. Transaction costs are hidden from users (i.e. basically met by sellers, and passed on
to all customers, not just credit card users).
3. Payment is simple anywhere and in any currency, thus matching the global reach of
the Internet.
4. The credit-issuing company shares the transaction risk; helping overcome
consumers’ fear and reluctance to buy goods they have not actually seen, from sellers
they do not know (in the physical world this function was important because it enabled
sellers to take payment from buyers they do not know; online this trust relationship is
needed in both directions). The disadvantages of credit cards for e-commerce include
the fact that they cannot be used directly for small value payments or peer-to-peer
transactions.

Disadvantages of Credit Cards

Credit cards have their own disadvantages. First, the relatively high transaction cost
makes them impractical for small-value payments. Second, they cannot be used directly
by individuals to make payments to other individuals (peer-to-peer transactions). Third,
protecting the security of transactions is vital, especially in the virtual world where there
is no payment guarantee to the merchant by a bank. Users’ fears about security issues
seem to be a consequence of the newness and relative unfamiliarity of the medium,
rather than the real risks involved in the system.

e-Payments in India

India’s payment system is evolving to support e-payments in tandem with paper-based

payments after the Reserve Bank of India started promoting automation in the banking
industry in the 1990s. The RBI initially set up an electronic clearing service (ECS) to
clear low-value, large volume payments such as direct credits and debits within four
days, and this drive succeeded despite the varying automation levels of India’s banks.
Just recently, the RBI also built out the national EFT system for a special EFT (SEFT)
system to act as a key component of India’s e-payment system and to resolve last-mile
connectivity issues between entities, according to FinanceAsia.com.

Payment systems such as ECS and SEFT will in turn promote credit and debit card use
in India, while the issuance of chip-based payment cards is expected to take off quickly.
Once the RBI rolls out its real-time gross settlement system (RTGS), India’s banks and
businesses will be better able to use the Internet to realize the value of e-payments to
their operations. For greater automation in India’s payment system, the RBI has also
linked clearing houses via Infinet (Indian Financial Network, a telecom network), set up
a centralized funds management system (CFMS), and centralized the payments and
settlement systems.

While India is unlikely to achieve a national e-payment infrastructure in the immediate

future, “banks that do not invest or are unable to upgrade their technology will be at a
significant disadvantage”, according to FinanceAsia.com. New e-payment systems will
enable banks to offer their clients value-added services and support the propagation of
e-payments to their suppliers. Banks doing so optimize the management of their funds
and boost their productivity, while enterprises improve their receivables management for
greater payments efficiency, reduced operating costs and better risk management.

Risk and e-Payment Systems

In the below figure, the risks of e-commerce model are shown. There are three major
risks:

1. Data Protection—The abuse of data related to users

2. Data Reliability—The authentication of parties involved
3. Taxation—Issues related to tax.
Related to the above main issues is the type of legal framework in which this model
works. Fraud, financial misdemeanours, and tax avoidance are not found just in
electronic commerce, but e-commerce presents new ways to commit old crimes.
Electronic commerce is difficult to regulate for two main reasons:
1. The scope of electronic commerce, and the technology involved changes rapidly.
Traditionally, the formulation of the law has been an evolutionary process, adapting to
suit the needs of society. Where electronic commerce is concerned, the pace of change
is and has been too great for this process to take place. This result in a situation where
there is a choice of either applying current legislation or enacting new legislation
specifically formulated to meet the challenge of electronic commerce.

2. The very nature of the technology involved means that it is transnational. This leads
to problems as to which legal system has jurisdiction over e-commerce transactions.
Figure of Risk of E – Payments

Electronic Data Interchange:-

1. It is used for regular repeat transactions.
2. It takes quite a lot of work to set up systems.
3. Mature use of EDI allows for a change in the nature of the product or service.
e.g. Applications are sending test results from the pathology laboratory to the hospital
or dispatching exam results from exam boards to school.
Electronic data interchange (EDI) is the process used by organizations in order to
transmit the data between organizations by electronic means. It is used to transfer
electronic documents or business data from one computer system to another computer
system, i.e. from one trading partner to another trading partner without human
intervention.

Here, are two major parties i.e. Customer & Merchant,

• Customer firstly order for the required product. Trading party then give confirmation,
Delivery note, Invoice & Acknowledgements for the product status. At the end, customer
pays for the product.
• Here, We have shown the basic overview but EDI is somewhat complex.
EDI is used by organizations for transactions that occur on regular basis to a predefined
format.
• Organizations that send or receive documents between each other are referred to as
"trading partners" in EDI terminology. The trading partners agree on the specific
information to be transmitted and how it should be used.
• EDI is also known as paperless trading.

• “The transfer of structured data, by agreed message standards, from one

computer system to another, by electronic means.”

EDI has four elements, each of them essential to an EDI system:

• Structured Data: EDI transactions are composed of codes, & short pieces of text.
Each Element with a strictly defined purpose. Fore.g An order has codes for the
customer & product & values such as quantity ordered.
• Agreed Message Standards: The EDI transaction has to have a standard format.
The standard is not just agreed between the trading partners but is a general standard
agreed at national or international level. A purchase order will be one of a number of
agreed message standards.
• From one computer system to another: The EDI message sent is between two
computer applications. There is no requirement for people to read the message or re-
key it into a computer system. For e.g. The message is directly between the customer’s
purchasing system & the supplier’s order processing system.
• By electronic means: Usually this is by data communications but the physical
transfer of magnetic tape or floppy disc would be within the definition of EDI. Often
networks specifically designed for EDI will be used.

Main Features of EDI:

• EDI’s use structured formatted messages that are based on agreed standards - in this
way the messages can be read by any system that understands the rules they are
governed by. However, this is not always as simple as it seems, as there are also the
provision of EDI translation software packages.
• Required to set up an interface between the company computer and the EDI
sent/received document.
• EDI provides a relatively fast delivery of electronic documents from sender to receiver.
• EDI provides direct communication between applications, rather than between
computers.
• EDI includes data management and networking capabilities, data processing, the
efficient capture of data into electronic form, the processing and retention of data,
controlled access to it, and efficient and reliable data transmission between remote
sites.

Benefits of EDI:

• Reduced paperwork: Even when paper documents are maintained in parallel with
EDI exchange, e.g. printed shipping manifests, electronic exchange and the use of data
from that exchange reduces the handling costs of sorting, distributing, organizing, and
searching paper documents.

• Cost cutting: The use of EDI can cut costs. These include the costs of stationary &
postage but these will probably be fully matched by the costs of running the EDI service.
EDI and similar technologies allow a company to take advantage of the benefits of
storing and manipulating data electronically without the cost of manual entry.

• Reduced Errors: Another advantage of EDI is reduced errors, such as shipping and
billing errors, because EDI eliminates the need to rekey documents on the destination
side. Keying an information into the computer system is a source of errors & keying
paper orders into order processing system is no exception. EDI eliminates this source of
errors. On the down side, there is no order entry clerk who might have spotted errors
made by the customer- the customer will get what the customer asked for.

• Faster Response: With paper orders it would be several days before the customer
was informed of any supply difficulty, such as the product is out of stock. With EDI the
customer can be informed straight way giving time for an alternative product to be
ordered or an alternative supplier to be used.

• Improved funds transmission: Due to this increased efficiency of non-paper

accounts, cash flow will improve as electric fund transmission is able to begin much
earlier than previously.
• Improved Shipping Service: Shipping is also improved as EDI provides quick and
efficient information as it relies on barcode information to communicate. It is able to
track inventory and eliminates the incidence of lost packages due to their isolation from
the larger shipping order. EDI greatly improves accuracy of data as it is all automated.

• EDI payment: Payment can also be made by EDI. The EDI payment system can also
generate an EDI payment advice that can be electronically matched against the relevant
invoices, again avoiding query & delay.