Professional Documents
Culture Documents
E Commerce
E Commerce
8. Efficiency:
Cost per transaction should be near to Zero.
9. Reliability:
It should avoid single point of failure.
E-cash
E-check
Smart card
Debit card
Encrypted
Third party
1. E- Token:
New form of financial instrument is called E-token in the form of e-cash, e-money, Echeck. E-tokens are equivalent to cash that is backed by bank. These can be of three types:
Cash/real time: Transactions are settled with the exchange of electronic currency.
Debit/prepaid: User pay in advance for the privilege to get information.
Credit/post paid: Server authenticates the customer and verifies with the bank that funds are
adequate before purchase.
(a) Electronic Cash:
Electronic cash combine computerized convenience with security and privacy that improve
on paper cash. E-cash present some interesting characteristic that should make it an attractive
alternative for payment over internet. E-cash focuses on weak less cash as the principle
payment mode in consumer oriented e-payment.
Cash remains the dominant form of payment for three reasons:
Lack of consumer trust in the banking system;
Ineffective clearing and settlement of non cash transactions
Negative real interest rates paid on bank deposits.
Electronic payment system needs to have some cash like qualities that current credit and debit
cards lack.
Cash is legal tender meaning that the payee is obligated to take it.
Cash is a bearer instrument meaning that possession is proof of ownership.
Cash can be held and used by anyone even those without a bank account.
Finally cash places no risk on the part of the acceptor.
Monetary value:
It must be backed by cash, bank authorized credit, or a bank certified cashier
check. When cash created by one bank is accepted by others, reconciliation must
occur without any problems.
Interoperability:
Digital cash must be interoperability or exchangeable as payment for other
digital cash, paper cash, goods or services, lines of credit, deposits in banking
accounts.
Storable and retrievable:
Remote storage and retrieval would allow users to exchange digital cash from
home or office or while traveling, the cash could be stored on a remote computers
memory, in smart cards.
Security:
Digital cash should not be easily to copy or tamper with while it is being
exchanged. For this reason most system relies on post fact detection and punishment.
Electronic or digital cash combines computerized convenience with security and privacy
that improve on paper cash. The versatility of digital cash opens up a host of new markets
and applications. Digital cash attempts to replace paper cash as the principal payment
vehicle in online payments. Although it may be surprising to some, even after thirty years
of developments in electronic payment systems, cash is still the most prevalent consumer
payment instrument. Cash remains the dominant form of payment for three reasons: lack
of consumer trust in the banking system; inefficient clearing and settlement of noncash
transactions; and negative real interest rates on bank deposits. These reasons behind the
prevalent use of cash in business transactions indicate the need to re-engineer purchasing
processes. In order to displace cash, electronic payment systems need to have some cashlike qualities that current credit and debit cards lack. For example, cash is negotiable,
meaning that it can be given or traded to someone else. Cash is legal tender, meaning that
the payee is obligated to take it. Cash is a bearer instrument, meaning that possession is
proof of ownership. Cash can be held and used by anyone, even those without a bank
account. Finally, cash places no risk on the part of the acceptor; the medium is always
good. In comparison to cash, debit and credit cards have a number of limitations. First,
credit and debit cards cannot 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. A really novel electronic payment method needs to do more
than recreate the convenience that is offered by credit and debit cards; it needs to create a
form of digital cash that has some of the proper-ties of cash.
Properties of Electronic Cash
Any digital cash system must incorporate a few common features. Specifically, digital
cash must have the following four properties: monetary value, interoperability,
retrievability, and security.
Digital cash must have a monetary value; it must be backed by cash (currency), bankauthorized credit, or a bank-certified cashiers check. When digital cash created by one
bank is accepted by others, reconciliation must occur without any problems Without
proper bank certification, digital cash carries the risk that when deposited, it might be
returned for insufficient funds.
Digital cash must be interoperable or exchangeable as payment for other digital cash,
paper cash, goods or services, lines of credit, deposits in banking accounts, bank notes or
obligations, electronic benefits transfers, and the like. Most digital cash proposals use a
single bank .In practice, not all customers are going to be using the same bank or even be
in the same country, and thus multiple banks are necessary for the widespread use of
digital cash.
Digital cash must be storable and retrievable. Remote storage and retrieval (such as via a
telephone or personal communications device) would allow users to exchange digital cash
(withdraw from and deposit into banking accounts) from home or office or while
travelling. The cash could be stored on a remote computers memory, in smart cards, or
on other easily transported standard or special-purpose devices. As it might be
easy to create and store counterfeit cash in a computer, it is preferable to store cash on an
unalterable dedicated device. This device should have a suitable inter-face to facilitate
personal authentication using passwords or other means, and a display for viewing the
cards contents. Digital cash should not be easy to copy or tamper with while it is being
exchanged. It should be possible to prevent or detect duplication and double-spending of
digital cash. Double spending, the electronic equivalent of bouncing a check, is a
particularly tricky issue .For in-stance, a consumer could use the same digital cash
simultaneously to buy items in Japan, India, and England. It is particularly difficult to
prevent double-spending if multiple banks are involved in the transactions.
For this reason, most systems rely on post-fact detection and punishment.
Payer
send check
Verify check
Payee
statement
Notify
Accounting server
Payee bank
Electronic checks are designed to accommodate the many individuals and entities that
might prefer to pay on credit or through some mechanism other than cash. Electronic
checks are modelled on paper checks, except that they are initiated electronically, use
digital signatures for signing and endorsing, and require the use of digital certificates to
authenticate the payer, the payers bank, and bank account. The security/authentication
aspects of digital checks are supported via digital signatures using public-key
cryptography.
Ideally, electronic checks will facilitate new online services by: allowing new payment
flows (the payee can verify funds availability at the payers bank); enhancing security at
each step of the transaction through automatic validation of the electronic signature by
each party (payee and banks); and facilitating payment integration with widely used EDIbased electronic ordering and billing processes.
Electronic checks are delivered either by direct transmission using telephone lines, or by
public networks such as the Internet. Electronic check payments (deposits) are gathered
by banks and cleared through existing banking channels, such as automated clearing
houses (ACH) networks. This integration of the existing banking infrastructure with
public networks. This integration provides an implementation and acceptance path for
banking, industry, and consumers to build on existing check processing facilities.
Benefits of Electronic Checks
Electronic checks have the following advantages: Electronic checks work in the same
way as traditional checks thus simplifying customer education. By retaining the basic
characteristics and flexibility of paper checks while enhancing the functionality,
electronic checks can be easily understood and readily adopted.
Electronic checks are well suited for clearing micro payments; the conventional
cryptography of electronic checks makes them easier to process than systems based on
public-key cryptography (like digital cash). The payee and the payees and payers banks
can authenticate checks through the use of public-key certificates.
Digital signatures can also be validated automatically. Electronic checks can serve
corporate markets. Firms can use electronic checks to complete payments over the
networks in a more cost-effective manner than present alternatives. Further, since the
contents of a check can be attached to the trading partners remittance information, the
electronic check will easily integrate with EDI applications, such as ac-counts receivable.
Electronic checks create float, and the availability of float is an important requirement for
commerce. The third-party accounting server can earn revenue by charging the buyer or
seller a transaction fee or a flat rate fee, or it can act as a bank and provide deposit
accounts and make money from the deposit account pool.
Electronic check technology links public networks to the financial pay-ments and bank
clearing networks, leveraging the access of public net-works with the existing financial
payments infrastructure.
Online Credit Card-Based Systems
Credit card payment negotiation involves two steps: The merchant presents the customer
with product/ service price, order confirmation and status, de-livery notifications, and
payment options accepted by the merchant; and the buyer presents the merchant with
payment choice and associated information in a secure manner. As of yet, there is no
standard way of sending secure payment instructions over the Web.
Currently, consumers can shop-look at content and read product descriptions-in the
Web environment, but have to go off-line in order to use their credit cards to actually
make their purchases.
Recently, several companies, including Cyber Cash, VISA, and First Virtual, have
implemented payment systems. Different vendors have lined up behind different proposed
security measures, each fighting to be the dominant standard. As vendors continue to
wage security standards battles, it is perfectly reasonable for consumers to be cautious
about making online purchases. Until consumers feel as comfortable using heir credit
cards online as they do over the telephone, Web based commerce will languish rather than
flourish.
The different payment schemes require customers to set up special ac-counts, and/or buy
or download and install special software for their personal computers. However, not all
banks can handle different payment systems. In order to avoid losing customers by
selecting one payment method over another,
transit riders, university students, telephone customers and retail customers. Smart cards,
also called stored value cards, use magnetic stripe technology or integrated circuit chips
to store customer-specific information, including electronic money. The cards can be used
to purchase goods or services, store information, control access to accounts, and perform
many other functions. Smart cards offer clear benefits to both merchants and consumers.
They reduce cash-handling expenses and losses caused by fraud, expedite customer
transactions at the checkout counter, and enhance consumer convenience and safety. In
addition, many state and federal governments are considering stored value cards as an
efficient option for dispersing government entitlements. Other private sector institutions
market stored value products to transit riders, university students, telephone customers,
vending customers, and retail customers. One successful use of stored value cards is by
New Yorks Metropolitan Transportation Authority (MTA). The MTA is the largest
transportation agency in the United States and, through its subsidiaries and affiliates,
operates the New York City subway and public bus system, the Long Island Railroad and
Metro-North commuter rail systems, and nine tolled intrastate bridges and tunnels. These
facilities serve four million customers each workday. In 1994, the MTA began the
operation of an automated fare-collection system based on a plastic card with a magnetic
stripe. The Metro Card is either swiped through a card reader at subway stations or dipped
into a fare box onuses are the fare is decremented. All 3,600 MTA buses became
operational in 1996. The full complement of 467 subway stations is expected to be
operational by mid-1997. By 1999, he MTA anticipates more than 1.2 billion electronic
fare collection transactions a year on subway and bus lines. The management challenges
created by smart card payment systems are formidable. Institutions such as the MTA have
made a considerable investment in the stored value card processing network, and to get a
good return on investment must identify new and innovative ways to achieve additional
operating efficiencies and value. For example, many commuters in the New York area use
two or three different mass transit systems to get to and from work. Each of these systems
bears the expense of maintaining its own proprietary network. In addition, the customer
ends up having to manage two or three different fare media, and make two or three times
as many free purchase transactions. New regional initiatives will be necessary to integrate
the multiple networks, and to make it cost effective and possible to implement a region
wide transportation fare payment system that will link all of the transit providers in that
region.
The Federal Reserve recently created Payments System Research group to define the key
public policy issues related to the evolution of the smart card payments system. Some of
the questions being studied include: When is an account deposit insured? Is the account
still insured when the value has been loaded on a smart card? Is the value on a smart card
considered cash? Is a smart card more like a travellers check or a credit card? one reason
for the success of stored value cards is that the application focus is narrow and they build
upon existing infrastructure such as: credit, debit, and ATM cards; funds clearing and
settlement mechanisms; regional and national ATM networks; and retail, corporate, and
government customer relationships. It remains to be seen how the integration between
smart cards and online commerce will takes place.
Benefits that can be delivered via EBT generally fall into three categories:
Federally funded, but state administered benefits
State funded and state administered benefits
Benefits that are both federally funded and federally administered.
The following seven steps process captures the essence of the first virtual system:
The consumer acquire an account number by filling out a registration form which
gives FV a customer profile that is backed by a traditional financial instrument such
as a credit card.
To purchase an article product to other information online the consumer requests the
item from the merchant by quoting her FV account number. The purchase can take
place in one of two ways: the consumer can automatically authorize the merchant via
browser settings to access her FV account and bill her or she can type in the account
information.
The merchant contacts the first virtual payment server with the customers account
number.
The first virtual payment server verifies the customers account number for the vendor
and checks the sufficient funds.
The first virtual payment server sends an electronic message to the buyer. This
message could be an automatic www form or a simple e-mail.
If the first virtual payment server gets a Yes from the customer, the merchant is
informed and the customer allowed downloading the material immediately.
First virtual will not debit the buyers account until it receives confirmation of
purchase completion. Buyers who receive information or a product and decline to pay
must have their accounts suspended.
company
that
has
implemented
the
preceding
process
isCyberCash
process works in the following manner: The consumer selects items for purchase and fills out
the merchants order form, complete with necessary shipping information. The merchant
server presents an invoice to the consumer and requests payment. The consumer is given the
option to launch the Cyber Cash Wallet, a software program that does the encryption, if they
al-ready have it. When then consumer clicks on the PAY button, the Cyber Cash software
on the merchant server sends a special message to the consumers PC that awakens the Cyber
Cash Wallet. The consumer simply chooses which credit card to pay with and clicks on it.
The rest of the process is a series of encrypted automatic messages that travel between the
three parties on the Internet and the conventional credit card networks that are connected
directly to the Cyber Cash servers. Since the Cyber Cash Wallet is a separate piece of
software, the consumer can use virtually any browser to shop at a merchant on the Web.
Cyber Cash can also be used for micro payments, that is, people pay small change-usually a
nickel or a dime-as they click on icons, which could be information or files. The process is an
offshoot of Cyber Cashs Wallet technology. Currently, users download free Wallet software
to their PC and load it up electronically with a credit card cash advance. The plan for micro
payments is to create a small change version, which would dip from a checking account as
well as a credit card. After selecting a game to play or item to buy, an invoice comes on
screen. The consumer clicks on a Pay button, and a transaction is encrypted that transfers
money out of a coin purse icon and into the vendors account, which is-set up on a Cyber
Cash server. Cyber Cash will make its money by selling the technology as well as by offering
payment authentication and aggregation services. The company believes it can process
payments as low as ten cents. Secure Electronic Transactions (SET) Secure electronic
transactions is a protocol for encrypted credit card payment transfers. Announced in February,
1996, by VISA and MasterCard, SET establishes a single technical standard for protecting
payment card purchases made over the Internet and other open networks. Participants in the
SET consortium include Microsoft, Netscape, GTE, IBM, SAlC, Terisa Systems, and
Verisign. SET is based on public-key encryption and authentication technology from RSA
Data Security. The objectives of payment security are to: pro-vide authentication of
cardholders, merchants, and acquirers; provide confidentiality of payment data; preserve the
integrity of payment data; and define the algorithms and protocols necessary for these
security services.
payments. Merchant authentication is ensured by the use of digital signatures and merchant
certificates.
Interoperability
The SET specifications must be applicable on a variety of hardware and software platforms,
and must not prefer one over another. Any consumer with compliant software must be able to
communicate with any merchant software that also meets the defined standard.
Interoperability. By the use of standard protocols and message formats. For the technical
underpinnings of the SET standard, please see the latest information published on Visas Web
site, http://www.visa.com/.
Benefits that can be delivered via EBT generally fall into three categories:
federally funded, but state administered benefits (such as food stamps, Aid to Families
with Dependent Children programs);
state-funded and
Through EBT, existing networks and technologies can provide benefit recipients with online
access to their funds at pas devices and ATMs. In an EBT process, no paper changes hands,
except for the receipt printed for the purchaser by the pas device or the ATM. Recipients can
access cash through any number of establishments, including grocers, drugstores, and
financial institutions, as well as ATMs. Certain cash payments can also be facilitated by
installing pas devices in housing authority and utility company offices to accept rent and bill
payments. Electronic benefits transfer has several advantages over paper based, benefit
distribution systems. First, EBT is less costly.
Currently, many recipients of federal and state benefits must pay significant fees (three or
more dollars) to cash their checks. EBT systems are designed to provide no-cost or low-cost
access methods. Second, EBT is more convenient than paper methods. EBT eliminates the need to carry food
stamp coupons, stand in long lines to cash checks, or accept the entire benefit amount at one
time. EBT programs also provide recipients with toll-free customer service lines and
multilingual support to handle questions or problems. EBT is safer than cash or coupons,
which can be lost or stolen. In EBT, benefits are stored electronically, and can be used only
when needed and in the amounts required. Recipients control all ac-cess to their benefits
through their cards and PIN s. They can also deactivate lost or stolen cards immediately and
request a replacement card by a toll free phone call.
Third, EBT is convenient for retailers. It eliminates the time consuming task of handling food
stamp coupons, making grocery checkout procedures faster and easier. By eliminating checks
and coupons, EBT reduces losses associated with theft, forgery, and fraud.
Finally, EBT is convenient for the government. Its inherent audit and tracking advantages
enhance investigations into suspicious conduct by retailers. EBT improves benefit program
management by creating an audit trail and record of benefit usage, ensuring that programs are
working properly and effectively.
Cardholder account authentication through the use of digital signature and certificates.
or the receiver of the message. If mutual authentication is used , authentication of the client is
possible but this is not a standard practice today. Both protocols provide confidentiality of
data transmitted over the internet via encryption. The SET protocol mandates the use of
digital certificate that are tied to the purchasers financial institution to help identify
authorized purchasers and their accounts. It also use digital certificates that are tied to the
merchants financial institutions and their accepted methods of payment brands. The SET
protocol used dual signatures on the digital certificates to allow the user to transmit only
necessary information to the merchant which is not always inclusive of credit card account
information.
Version 1.0
The strong authentication provided by the SET protocol requires some mechanism for
identification and verification of the customer, merchant and banks. The SET protocol
requires that all parties involved in the transaction hold a valid digital certificate and use
either digital signature or message digest. This means that both the buyer and seller must
have a registered certificate from an approved certificate authority. A simplified depiction of
the SET credit card purchase model consist five entity types which are:
Cardholder, merchant, payment gateway, certificate authority and certificate trust chain.
Payment gateway:
An acquirer or some other designed third party is necessary in order to authorize and process
the transaction. The third party that performs these functions is called the payment gateway.
Some credit card services that are owned by financial institutions may perform more than one
role such as issuing the credit card and cardholder certificates and serving as the
acquirer/payment gateway. Some institutions may outsource some of these functions to a
third party and thus many different models are available.
Certificate issuance:
The two certificate authorities depicted the scenario in which the merchant and customer
certificates are signed by different certificate authorities; however the cardholder and
merchant could have received their certificated from the same certificate authority. The credit
card company or a third party agency representing the credit card company issues certificates
to the cardholders that are digitally signed by a financial institution. The account number
expiration date of the card and a secret value determined by the cardholder similar to a
personal identification number (PIN) are encoded in the certificate using a one way hashing
algorithm so that the information cannot be revealed by verified.
Certificate trust chain:
A hierarchy of trust us used to verify the certificate used in SET transaction.
The hierarchy of trust chain is traversed to locate the next appropriate certificate
authority for authentication. SET Co makes the root key certificates available to
approved software. The SET root certificate authority is off line and performs four
main functions:
Generate and securely store the SET root certificate authority public
and private keys
Generate and self sign the SET root certificate authority certificates.
Cryptography methods:
The set protocol used both randomly generated symmetric keys and public private key
pairs. The combination of these two methods is frequently used to combine the efficiency of
symmetric key encryption for the encoding of messages and the power of public private keys
to provide authentication. The customer payment message is encrypted using a randomly
generated symmetric key. Because the random key is needed to decrypt the payment
information it is encrypted using the public key of the merchant acquirer. Both the encrypted
message and the encrypted key are sent from the customer to the merchant in what is called a
digital envelope. This combination of methods:
Assures that only the intended recipient can decode the digital envelope;
Dual signatures:
The SET protocol used a unique application of dual signature. Dual signature incorporates the
use of the generation of two messages one for the acquirer and one for the merchant. Each
message contains only the information that is essential to that particular party in order to
protect privacy of as much information as possible. The message to the acquirer contains
account information and payment authorization in the case that the auction house accepts.
Both messages are encrypted and a message digest is created for each message. To provide an
authentication procedure both of the message digest are encrypted with private key. The
acquirer is also sent the dual signature. The dual signature is created by combining the two
messages digest and creating a new digest the dual signature message digest.
Compliance testing:
Compliance testing is necessary for each SET component. The four SET components are:
Cardholder wallet: this wallet holds the cardholder digital certificate and card account
information. This component performs the authentication of the cardholder and
provides secure transmission of cardholder data.
Merchant server: this component performs the authentication of the merchant and its
accepted payment brand.
Payment gateway: this component provides the security of data transmission to/from
the acquirer and processed the payment request and authentication process.
Certificate authority: this component issues and manages the cardholders merchant
and root key certificates.
Electronic money (also known as e-money, electronic cash, electronic currency, digital
money, digital cash or digital currency) refers to money or scrip which is exchanged only
electronically. Typically, this involves use of computer networks, the internet and digital
stored value systems. Electronic Funds Transfer (EFT) and direct deposit are examples of
electronic money. Also, it is a collective term for financial cryptography and technologies
enabling it.
While electronic money has been an interesting problem for cryptography (see for example
the work of David Chaum and Markus Jakobsson), to date, use of digital cash has been
relatively low-scale. One rare success has been Hong Kong's Octopus card system, which
started as a transit payment system and has grown into a widely used electronic cash system.
Singapore also has an electronic money implementation for its public transportation system
(commuter trains, bus, etc), which is very similar to Hong Kong's Octopus card and based on
the same type of card (FeliCa). A very successful implementation is in the Netherlands,
known as Chipknip.
Digital library
A digital library is a library in which collections are stored in digital formats (as opposed to
print, microform, or other media) and accessible by computers.[1] The digital content may be
stored locally, or accessed remotely via computer networks. A digital library is a type of
information retrieval system.
The first use of the term digital library in print may have been in a 1988 report to the
Corporation for National Research Initiatives[2] The term digital libraries was first
popularized by the NSF/DARPA/NASA Digital Libraries Initiative in 1994.[3] The older
names electronic library or virtual library are also occasionally used, though electronic
library nowadays more often refers to portals, often provided by government agencies, as in
the case of the Florida Electronic Library. The DELOS Digital Library Reference Model[4]
defines a digital library as:
An organization, which might be virtual, that comprehensively collects, manages and
preserves for the long term rich digital content, and offers to its user communities specialized
functionality on that content, of measurable quality and according to codified policies.
SMART CARD
A smart card, chip card, or integrated circuit card (ICC), is any pocket-sized card with
embedded integrated circuits which can process data. This implies that it can receive input
which is processed by way of the ICC applications and delivered as an output. There
are two broad categories of ICCs. Memory cards contain only non-volatile memory storage
components, and perhaps some specific security logic. Microprocessor cards contain volatile
memory and microprocessor components. The card is made of plastic, generally PVC, but
sometimes ABS. The card may embed a hologram to avoid counterfeiting. Using smartcards
also is a form of strong security authentication for single sign-on within large companies and
organizations.
Benefits
Smart cards can be used for identification, authentication, and data storage.[1]
Smart cards provide a means of effecting business transactions in a flexible, secure, standard
way with minimal human intervention.
Smart card can provide strong authentication[2] for single sign-on or enterprise single sign-on
to computers, laptops, data with encryption, enterprise resource planning platforms such as
SAP, etc.
merchant's acquiring bank. Data from the card is obtained from a magnetic stripe or chip on
the card; the latter system is in the United Kingdom and Ireland commonly known as Chip
and PIN, but is more technically an EMV card.
Other variations of verification systems are used by eCommerce merchants to determine if
the user's account is valid and able to accept the charge. These will typically involve the
cardholder providing additional information, such as the security code printed on the back of
the card, or the address of the cardholder.
Each month, the credit card user is sent a statement indicating the purchases undertaken with
the card, any outstanding fees, and the total amount owed. After receiving the statement, the
cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing
Act for details of the US regulations). Otherwise, the cardholder must pay a defined
minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the
entire amount owed. The credit provider charges interest on the amount owed if the balance is
not paid in full (typically at a much higher rate than most other forms of debt). Some
financial institutions can arrange for automatic payments to be deducted from the user's bank
accounts, thus avoiding late payment altogether as long as the cardholder has sufficient funds.
modal information), engineering and construction, etc. In some cases, EDI will be used to
create a new business information flow (that was not a paper flow before). This is the case in
the Advanced Shipment Notification (856) which was designed to inform the receiver of a
shipment, the goods to be received and how the goods are packaged.
Organizations that send or receive documents from 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. This is done in human readable specifications
(also called Message Implementation Guidelines). While the standards are analogous to
building codes, the specifications are analogous to blue prints. (The specification may also be
called a mapping but the term mapping is typically reserved for specific machine readable
instructions given to the translation software.) Larger trading "hubs" have existing Message
Implementation Guidelines which mirror their business processes for processing EDI and
they are usually unwilling to modify their EDI business practices to meet the needs of their
trading partners. Often in a large company these EDI guidelines will be written to be generic
enough to be used by different branches or divisions and therefore will contain information
not needed for a particular business document exchange. For other large companies, they may
create separate EDI guidelines for each branch/division.
Advantages of EDI over paper systems
EDI and other similar technologies save company money by providing alternative to or
replacing information flows that require a great deal of human interaction and materials such
as paper documents, meetings, faxes, etc. 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. 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 or scanning.
Barriers to implementation
There are a few barriers to adopting electronic data interchange. One of the most significant
barriers is the 1. Accompanying business process change. Existing business processes built
around slow paper handling may not be suited for EDI and would require changes to
accommodate automated processing of business documents. For example, a business may
receive the bulk of their goods by 1 or 2 day shipping and all of their invoices by mail. The
existing process may therefore assume that goods are typically received before the invoice.
With EDI, the invoice will typically be sent when the goods ship and will therefore require a
process that handles large numbers of invoices whose corresponding goods have not yet been
received.
Another significant barrier is 2 The cost in time and money in the initial set-up. The
preliminary expenses and time that arise from the implementation, customization and training
can be costly and therefore may discourage some businesses. The key is to determine what
method of integration is right for your company which will determine the cost of
implementation. For a business that only receives one P.O. per year from a client, fully
integrated EDI may not make economic sense. In this case, businesses may implement
inexpensive "rip and read" solutions or use outsourced EDI solutions provided by EDI
"Service Bureaus". For other businesses, the implementation of an integrated EDI solution
may be necessary as increases in trading volumes brought on by EDI force them to reimplement their order processing business processes.
The key hindrance to a successful implementation of EDI is the perception many businesses
have of the nature of EDI. Many view EDI from the technical perspective that EDI is a data
format; it would be more accurate to take the business view that EDI is a system for
exchanging business documents with external entities, and integrating the data from those
documents into the company's internal systems. Successful implementations of EDI take into
account the effect externally generated information will have on their internal systems and
validate the business information received. For example, allowing a supplier to update a
retailer's Accounts Payables system without appropriate checks and balances would be a
recipe for disaster. Businesses new to the implementation of EDI should take pains to avoid
such pitfalls.
Increased efficiency and cost savings drive the adoption of EDI for most trading partners. But
even if a company would not choose to use EDI on their own, pressures from larger trading
partners called hubs often force smaller trading partners to use EDI.
longer feasible. Everyone who works in a business organization where hundreds and
thousands of standard forms, (e.g. invoices) and received and responded to, knows how
difficult it is to manage this task. These forms should be entered in the computer for
processing, and response, should be generated and posted to the concerned parties. The whole
process is time-consuming and prone to human errors during data entry and expensive to
operate. Electronic Data Interchange (EDI) is the electronic exchange of business documents
in a standard, computer process able, and universally accepted format between-trading
partners. EDI is quite different from sending electronic mail, messages or sharing files
through a network. In EDI, the computer application of both the sender and the receiver,
referred to as Trading Partners (TPs) have to agree upon the format of the business document
which is sent as a data file over an electronic messaging services. Refer figure 5.1, it
illustrates how EDI messages can be used to totally automate the procurement process
between two trading partners.
The two key aspects of EDI that distinguish it from other forms of electronic communication,
such as electronic mail, are: The information transmitted is directly used by the recipient
computer without the need for human intervention is rarely mentioned but often assumed that
EDI refers to interchange between businesses. It involves two or more organization or parts
of organization communicating business information with each other in a common agreed
format. The repeated keying of identical information in the traditional paper-based business.
Communication creates a number of problems that can be significantly reduced through the
usage of EDI. These problems include: Increased time
Low accuracy
High labour charges
Increased uncertainty.
To take full advantage of EDIs benefits, a company must computerize its basic business
applications. Trading partners are individual organization that agrees to exchange EDI
transactions. EDI cannot be undertaken unilaterally but requires the cooperation and active
participation of trading partners. Trading partners normally consists of an organizations
principal suppliers and wholesale customers. Since large retail stores transact business with a
large number of suppliers they were among the early supporters of EDI In the manufacturing
sector, EDI has enabled the concept of Just-In-Time inventory to be implemented. JIT
reduces inventory and operating capital requirements.
Costs and Benefits
Wherever the EDI has been implemented, computers electronically exchange business
documents with each other, without human intervention. This only reduces the operating
costs, administrative errors, and delivery delays. The benefits accruing from EDI
implementation can be broadly classified into direct benefits and long-term strategic benefits.
Direct Benefits
The transfer of information from computer to computer is automatic.
Cost of processing EDI documents is much smaller than that of processing paper
documents.
Customer service is improved. The quick transfer of business documents and marked
decrease in errors allow orders to be fulfilled faster.
Information is managed more effectively.
There is an improved job satisfaction among the data entry operators, clerks etc. When
redeployed in more creative activities.
Strategic Benefits
Customer relations are improved through better quality and speed of services.
Competitive edge is maintained and enhanced.
Reduction in product costs can be achieved.
Business relations with trading partners are improved.
More accurate sales forecasting and business planning is possible due to information
availability at the right place at the right time.
Networking Infrastructure for EDI
For the successful functioning EDI, it assumes availability of a wide area network to which
organization can subscribe. All organization that is willing to join EDI services must
subscribe to the common network. In addition, all organization participating in a EDI servicegroup that they will use, and load appropriate EDI software on their compute systems. This
software is responsible for providing translation services. EDI services and network access
services as shown in figure 5.2.
When a senders computer system produces a message and passes it to the translation service
software. This translates the message into the common agreed structure and passes it to EDI
service software. EDI service software executes necessary functions and procedures to send
the message, track it in the network and ensure that it reaches its destination. EDI services, in
addition, may include procedures to ensure security functions, billing and accounting
functions and generate necessary logs for auditing purposes. Network access services are
responsible for actually controlling the interaction with the network that transports messages
from one site to another. The transport network provides a powerful electronic messaging
service to support EDI services. Transport network uses a store and forward mechanism
and messages are sent to mail boxes that are managed by the network service provider. The
originator can send his messages at any time independent of the recipients system status, Le.
whether or not it is ready for receiving. The recipient systems periodically check their
mailboxes and transfer messages from network mailboxes to their own memory. Thus a
transfer cycle is completed. The receiving computer applies necessary translator and converts
the received message into a format understandable by its application software. The
application software is programmed to recognize various messages and take necessary
actions such as generating response to receive messages and updating other database.
Functioning of EDI
Any organization using EDI communicates with their Trading
partners, in one of the two ways:
Exchange of date with several trading partners directly. Interaction with multiple companies
through a central informationclearing house.
without worrying about the proprietary system audit trails, variables transmission speeds,
and general computer compatibility.
EDI Works in the Following Manner:
Prior to any computer work, representatives of two companies interested in exchanging data
electronically meet to specify the application in the EDI standards, which they will
implement.
The two companies exchange data electronically in the standard formats.
Each company-adds EDI program to its computer to translate the company data into
standard formats for transmission, and for the reverse translation in the data it receives.
The sender transmits the database formatted in the EDI standards tot he receiver who then
translates the formatted message to a computer record to be processed and used internally. All
transmission is checked both electronically and functionally and the protocol includes
procedure for the error detection and correction. Once a company has established
standardized communications with another company, it is now in a position to communicate
with any other company that is also using the EDI standards.
The Flow of Information in EDI is as Follows
Collection of data for its own operational or statistical requirements, which is edited to be
added to its own database.
Extraction of Pertinent information by the company from its database, summarized if
necessary and constructed into
EDI transaction sets, and finally it is transmitted to the company or organization requiring it
for valid reasons. The frequency of preparing this information is determined by the
operational requirements of each recipient.
A communication link for transmission is established according to the standard
communication protocol.
The Receiver receives the information transmission, checks for its physical characteristics
(parity, checks character, transmission mode), and requests for retransmission if an error is
detected in the physical characteristics of the transmission.
Checking the functional characteristics of the data by the receiver and an acknowledgement
sent to the original sender for receiving the transmission and to identify any errors detected.
To process the information received by the receiver according to its own internal procedures
and timing requirement.
EDI Components
A typical EDI system converts generic EDI messages (in
EDIFACT or any other EDI standards) format to RDBMS
format and from RDBMS format to EDI format. RDBMS
database contains the data to be translated into EDI format and
where EDI data to be converted (and written) to. EDI
configuration programs do these translations.
There are three main components of an EDI system as shown
in figure 5.4.
1. Application Service.
2. Translation Service
3. Communication Service
EDI Services
The three EDI services all performs three different tasks.
Application Service
The Application Service provides the link between a business
application and EDI. It allows us to send document to, and
receive documents from an EDI system.
A set of callable routines is used to transfer documents from
the business application into EDI. Documents destinations can
is either intra-company or to external companies, Le., trading
partners.
The EDI Application Service holds each incoming and outgoing
Translation Service
Refer figure 5.6, where Translation service:
Converts outgoing documents from an internal format file to
an agreed external format. Translates incoming documents from
an external format to the EDI internal format file.
The external document standards that an EDI system supports
are EDIFACT, X12, TDCC, and ODETTE.
For outing documents:
The Translation Service receives a document in the internal
format file from the Application Service. It converts the internal
format file from the Application Service. It converts the internal
format file to the appropriate external standard (either
EDIFACT,X12, TDCC, or ODETTE) to the internal format
file.
The file is now an internal format file.
The Translation Service combines one or more external format
file into a transmission file.
The Translation Service now sends the transmission file to the
communication Services.
Communication Service
The communication Service sends and receives transmission
files to and form the trading partners either directly or by using
a third party service called a Value Added Network (VAN).
The list below describes what happens in the Communication
Service:
For outgoing Documents:
The Communication Service receives a transmission file
the system..
Internal Format File (IFF)
External Format File (EFF)
Transmission File (TF)
Internal Format File
Internet Format File (IFF) contains a single document for a
single trading partner. Internal Format File is principally for
EDIs own use.
External Format File
External Format File (EFF) contains the same data as the
internal format file translated into the appropriate standard
document format.
Transmission File
Transmission file contains. one or more documents for the
same trading, partner. Documents of the same type are
packaged together in functional groups. The functional groups
going to one trading partners are packaged into an interchange
set. An interchange set contains one or more functional groups
of documents with the same sender and receiver. Refer figure
5.8, it represents a transmission file.