E-commerce is electronically enabled transactions between a business and its customers.

E-
business is a broader concept that includes not only electronic trading with customers, but also
servicing customers and vendors, trading information with customers and vendors, and electronic
recording and control of internal processes.

E-business is the use of electronic means to enhance business processes. E-business

encompasses all forms of online electronic trading, consumer-based e-commerce, and business to
business electronic trading and process integration, as well as the use of IT and related
technologies for process integration inside organizations.

The common term for business-to-consumer e-commerce is B2C.

. The common term for business-to-business electronic sales is B2B.

b. E-commerce is a subset of e-business

Concept Check
1 Which of the following statements is true?
a. E-business is a subset of e-commerce.
b. E-commerce is a subset of e-business.
c. E-business and e-commerce are exactly the

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same thing.
d. E-business and e-commerce are not related.
2 An electronic hardware device that is located at the
gateway between two or more networks is a
a. packet switch
b. URL
c. router
d. protocol
3 The type of organization that serves as the main
trunk line of the Internet is called a
a. local ISP
b. regional ISP
c. global ISP
d. backbone provider
4 Which of the following is not a direct advantage for
the consumer from e-commerce?
a. Access to a broader market
b. More shopping convenience
c. Reduced order-processing cost
d. Information sharing from the company
5 Each of the following represents a characteristic of
B2B commerce except
a. electronic data interchange
b. electronic retailing
c. data exchanges
d. preexisting business relationships
6 Each of the following represents an application of
B2C commerce except
a. software sales
b. electronic retailing
c. data exchanges

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d. stock trading
7 Before forwarding customer data, an organization
should receive explicit or implicit consent of the
customer. This describes which of the AICPA Trust
Services Principles online privacy practices?
a. Consent
b. Use and retention
c. Access
d. Onward transfer and disclosure
8 Which of the following processes within a supply
chain can benefit from IT enablement?
a. All processes throughout the supply chain
b. Only internal processes within the supply chain
c. Only external processes within the supply chain
d. Exchange processes between a company and
its suppliers
9 When a company has an e-business transaction with a
supplier, it could be using
a. the Internet
b. an intranet
c. an extranet
d. either the Internet or an extranet
10 Intranets are used for each of the following
except
a. communication and collaboration
b. business operations and managerial monitoring
c. Web publishing
d. customer self-service
11 When there is no necessity for a preexisting relationship between the buyer and the seller, that
transaction is more likely to be classified as
a. B2B

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b. B2C
c. B2E
d. either B2B or B2C
12 Which of the following IT controls would not be
important in an extranet?
a. Encryption
b. Password
c. Antivirus software
d. Penetration testing
e. All of the above are important IT controls.

CHAPTER THREE

INTRODUCTION TO ELECTRONIC BUSINESS

3.1Introduction

3.2 What is Electronic Commerce?

3.3 What is Intranet? Extranet?

3.4 Types of Electronic Commerce

3.5 Interchange (EBDI)

3.6 Electronic Payment System and Electronic Fund Transfer

3.7 Conventional and Electronic Payment Prior to Internet

3.8 Online Payments

3.9 E-Cash

3.10 Cryptography and Public Key Infrastructure

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 Summary

Answers to Check Your Progress

Glossary

3.1. Introduction

The word electronic now days, has become a prefix of many activities. Such as E government, E
administration, E justice… but from these, one is prevalent. That is E commerce. A great many of the
business transactions in today's business environment are transmitted over some type of electronic
network. The network may be very small and involve only a handful of computers within a single
business, or it may be so large that it encompasses the entire globe. Either way, electronic networks are
groups of computers that are connected together electronically. They make it possible for companies to
conveniently assemble transaction data and distribute information across multiple physical locations.
This unit provides accountants with a basic understanding of data communications and network
technologies so that they can actively participate in planning, designing and managing the use of
networks to carry out electronic commerce.

Dear Learner, after careful reading of the unit, you should must be able to:

 Describe what electronic commerce is and discuss its effect on business processes
 Describe the information technology components required to conduct electronic commerce
 Describe intranets and explain how they are made secure.

3.2. What Is Electronic Commerce?

3.2.0 Overview

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The term "electronic commerce" has evolved from its meager notion of electronic shopping to mean all
aspects of business and market processes enabled by the Internet and the World Wide Web
technologies.

Electronic commerce could be defined from different angles according to its uses and applications.

3.2.1 Objectives

After reading, this section the reader must be able to

 understand what electronic commerce is and describe how it works.

3.2.2 Electronic Commerce as Online Selling

Narrowly defined, electronic commerce means doing business online or selling and buying products and
services through Web storefronts. Products being traded may be physical products such as used cars or
services (e.g. arranging trips, online medical consultation, and remote education). Increasingly, they
include digital products such as news, audio and video, database, software and all types of knowledge-
based products. It appears then electronic commerce is similar to catalog shopping or home shopping
on cable TV.

3.2.3 Electronic Commerce as a Market

Electronic commerce is not limited to buying and selling products online. For example, a neighborhood
store can open a Web store and find the world in its door step. But, along with customers, it will also
find its suppliers, accountants, payment services, government agencies and competitors online. This
online or digital partner’s demand changes in the way we do business from production to consumption,
and they will affect companies who might think they are not part of electronic commerce. Along with
online selling, electronic commerce will lead to significant changes in the way products are customized,
distributed and exchanged and the way consumers search and bargain for products and services and
consume them.

In short, the electronic commerce revolution is in its effects on processes. Process-oriented definition of
electronic commerce offers a broader view of what electronic commerce is. Within-business processes

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(e.g. manufacturing, inventorying, corporate financial management, operation), and business-to-
business processes (e.g. supply-chain management, bidding) are affected by the same technology and
network as are business-to-consumer processes. Even government functions, education, social and
political processes undergo changes.

Learning activity 1

1. What is electronic commerce?

_____________________________________________________________________________________
_________________________________________________________________

3.3. What Is Intranet? Extranet?

3.3.0 Overview

Intranets and extranets have become en vogue. Intranets and extranets share the common protocol
(TCP/IP) and Web technologies with the Internet. Intranet is a closed, business-wide network, but it uses
open standards such as TCP/IP instead of proprietary protocols traditionally used for LANs (local area
networks, usually hard-wired) and WANs (wide area networks, usually LANs connected by cable,
telephone and wireless networks). Extranet is a private WAN running on public protocols. That is, an
extranet is a virtual private network among private parties based on open network and protocols. To
assure security and privacy, an extranet relies on secured channel using tunneling protocols and digital
ID. In a way, extranet is a private street built on public land (although costs may be borne by private
parties).

3.3.1 Objectives

After careful reading of this section, the reader must be able to:

 understand the intranets and extranets

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3.3.2 What is the electronic marketplace?

Electronic markets ordinarily refer to online trading and auctions, for example, online stock trading
markets, online auction for computers and other goods. The electronic marketplace refers to the
emerging market economy where producers, intermediaries and consumers interact electronically or
digitally in some way. The electronic marketplace is a virtual representative of physical markets. The
economic activities undertaken by this electronic marketplace collectively represent the digital
economy. Electronic commerce, broadly defined, is concerned with the electronic marketplace. The
electronic marketplace resembles physical markets (the one we know) in many aspects. As in physical
markets, components of the digital economy include:

 players (market agents such as firms, suppliers, brokers, shops and consumers)
 Products (goods and services ;) and processes (supply, production, marketing, competition,
distribution, consumption, etc.).

The difference is that, in the electronic marketplace, at least some of these components are electronic,
digital, virtual or online (whichever is convenient). For example, a digital player is someone with an
email or a Web page. Purely "physical" sellers may be selling a digital product, e.g. digital CD-ROM. One
that sells physical products at a physical store may offer product information online (thereby allowing
consumers to "search online"), while production, ordering, payment and delivery are done
conventionally. Currently, the emphasis is on the core of the electronic marketplace where everything
(i.e. all value chains or business activities) is online. But, if any aspect of your business or consumption
dwells upon the digital process, you are already part of the electronic marketplace. That is, almost all of
us are already players in the electronic marketplace!

3.3.3 How is the electronic marketplace different from physical markets?

On the surface, the electronic marketplace appears to be something of a perfect market, where there
are numerous, worldwide sellers and buyers, who in turn have bountiful information about the market
and products, and where no intermediaries are necessary. Such a market is very competitive and
efficient (with no need to regulate or intervene arbitrarily).

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However, closer looks indicate that consumer searches are not very efficient (due to the cost of
having a complete, easily searchable database, and because sellers may not provide all
information necessary). Although wholesalers and retail outlets may not be needed, other types
of intermediaries appear to be essential for the electronic market to function adequately (e.g.
certification authorities, electronic malls who guarantee product quality, mediators for bargaining
and conflict resolution, etc.). All these brokers add transaction costs. Will prices be lower?

Digital products are highly customizable due to its transmutability, i.e. easy to revise, reorganize and
edit. With information about consumer tastes, products will be differentiated (or "customized", e.g.
custom news). The number of potential sellers may be low, or even only one, in a highly differentiated
and segmented market, and the price will tend to approach the maximum price the buyer is willing to
pay. (In economic terms, sellers practice "first degree or perfect" price discrimination, which is exact
opposite to the result we get in a perfectly competitive market.)

Electronic market also results in “zero marginal cost". That is to say that digital product will be priced at
zero (given out free) because their reproduction costs will be minimal. But this is true only if (1) the
marginal cost is really approaching zero and (2) there is effective competition among sellers. In short,
the marginal cost of a digital product may be substantial. Even when it is close to zero, prices in a non-
competitive market will be determined more by demand (or the buyer's willingness to pay) than by
marginal cost. Unless we think all information and digital products are of no value, they will never be
priced at zero by sellers with market power. (Giving out free products today does not mean that sellers
are doing it because the costs are zero or that they will continue to do so when they monopolize the
market.)

Learning activity 2

1. What is intranet?

________________________________________________________________________
__________________________________________________________________

2. What is extranet?

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________________________________________________________________________
__________________________________________________________________

3.4. Types of Electronic Commerce

3.4.0 Overview

Electronic commerce takes different forms depending on the nature of parties those who take part in
the transaction process. Some of the common types of E commerce are discussed as follows:

3.4.1 Objectives

After careful reading of this section the reader must be able to :

 understand the common types of electronic commerce

3.4.2 Business-to-Consumer (B2C)

When most people think of electronic commerce, they think of business-to- consumer relationships.
Indeed, you may regularly participate in this form of electronic commerce, buying books or music from a
company like Amazon.com. Businesses-to-consumer electronic commerce receives a great deal of
attention in the press, and it is a large and ever-growing market.

Business-to-consumer electronic commerce transactions are relatively simple. For example, a consumer
will visit a company's web site, browse through their offerings, place an order, and pay for the purchase
at the same time the sale occurs, usually with a credit card. The company then ships the goods and the
transaction is completed.

An important issue in business-to-consumer electronic commerce is trust. Consumers want to know that
a company's web site represents that the company has procedures in place to safeguard their personal

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information. In responses to such concerns, a number of organizations offers services designed to
provide assurances about the company behind a web site describe one such service, called Web Trust,
which was developed by the AICPA.

3.4.3 Business-to-Business (B2B)

Electronic commerce is not limited to business-to-consumer transactions, however. Indeed, the volume
of business-to-business electronic commerce is many times larger than that of business-to-consumer
transactions. Moreover, although there are many similarities between business-to-consumer and
business -to-business electronic commerce, there are also some important differences. First, with the
exception of miscellaneous purchase, most business engages in transactions with companies with whom
they have established ongoing relationships. For example, automobile manufacturers have preferred
suppliers for such items as car seats, brakes, and tires. Thus, because most transactions take place
between companies that know each other, there is less need in business-to-business electronic
commerce for web assurance service like Web Trust.

Business-to business electronic commerce also differs from business-to-consumer electronic commerce
in its emphasis on accountability and control. As result, a business transaction between companies have
traditionally involved the exchange of a number of documents, such as purchase orders, bills of lading,
receiving reports, and invoices. Various approval steps are also built in to the process. Buyers and
sellers may have relationships with different transportation companies and, therefore, may have to
negotiate which carrier to use. Sellers frequently extend direct credit to the costumer, and often bill
them periodically for all sales transactions made during that time period. Customers remit payments to
the seller, who must then reconcile the payments received against outstanding sales invoices.

All of this adds complexity. Traditionally, it also involves the processing of large volumes of paper
documents. Business-to-business electronic commerce still requires much of the same information to be
exchanged between companies, but now that information is exchanged electronically instead of via
paper documents. Thus, business-to-business electronic commerce requires electronic data interchange
capabilities.

Learning activity 3

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1. What are the common types of electronic commerce?

_____________________________________________________________________________________________
_______________________________________________________________________________________

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