Chapter 3:

E-Commerce Payment Systems

By CJ
 MEANING
• EPS (Electronic payment system) is an online business
process used for fund transfer using electronic
means, i.e Personal computers and Mobile phones

• “Any transfer of funds initiated through an electronic

terminal , telephonic instrument or computer or
magnetic tape so as to order, instruct or authorize a
financial institution to debit or credit an account.”
Benefits of Electronic Payment Systems
1. Speed and Convenience
2. Safety
3. Accept Online Payments
4. Cut Costs
5. Reduce Late Payments
6. Environment Friendly
Limitations of Electronic Payment Systems
1. Lack of Security
2. Lack of Applicability
3. High Usage Costs for Merchants
4. Unsuitability
Types of Electronic Payment System
. Credit/Debit Card payment System
There are four parties involved in credit/debit card transactions
1. A customer who owns a Credit/Debit Card
2. A merchant who accepts a Credit/Debit Card
3. A bank which issues the card to the customer. The bank
guarantees payment to merchants and collects money from
its customers
4. An acquirer which is normally another bank which
establishes an account with a merchant. The acquirer
normally charges a commission on each sale from the
merchant.
 What is SSL ?
SSL stands for Secure Sockets Layer. It provides a secure
connection between internet browsers and websites,
allowing you to transmit private data online. Sites secured
with SSL display a padlock in the browsers URL and
possibly a green address bar if secured by an EV
. Electronic Cheque Payment System
It is a system that transfers money electronically from buyer’s
account to the seller’s bank account. An electronic cheque
is an electronic version of a paper cheque. The payment
process also resembles the functions of a paper cheque,
but offers greater security and more features.
In an E- cheque payment system five parties are involved
1. Purchaser
2. Vendor
3. Purchaser’s bank
4. Vendor’s bank
5. Automated Clearing House (ACH)
ACH is an intermediary in clearing electronic cheque .
The process of Electronic Cheque Payment System
1. When the invoice of the items purchased is received online
from the vendor , the purchaser prepares an e cheque. It
contains name of the bank , his bank , his account number,
name of the payee and amount of cheque. Instead of hand
written signature , a Digital signature is added. It is a
computer number authenticating the cheque’s account
owner. Then the whole document is encrypted & sent to the
vendor
2. The vendor decrypts the information to check the details.
Then he digitally signs all the above information. This is
encrypted with the public key of his bank and then forwarded
to the bank.
Cont’d
3. The vendor’s bank decrypts the information. It takes out the e-
cheque and sent to ACH in an encrypted form the whole
document is encrypted and sent to the vendor
4. The ACH decrypts the cheque and forwards it to the
purchaser’s bank encrypting with purchaser banks public key
5. The purchaser bank decrypts and authorises payment. If it is ok
6. ACH debits purchaser banks’s account and credits vendor
bank’s account. It also informs the vendor bank that the
cheque is cleared
7. The vendor’s bank credits the amount to the vendor’s
account
8. The purchaser’s bank deducts the amount from the purchase’s
accounts.
Electronic Cash Payment System
E-Cash or Digital Cash is a method that allows buyers to
pay for goods or services online by transmitting over the
internet a unique electronic number or other identifier
that carries a specific value.
The user , first must have an e-cash software program
and an e-cash bank account from which e-cash can be
withdrawn or deposited. The user withdraws cash from
the account to his computer and spends it in the
internet.
Cont’d
The user withdraws cash from the account to his computer and
spends it in the internet.
1. A customer applies to a bank for e-cash by paying an amount in
cash or by cheque.
2. The bank issue e-coins from its currency server. It assigns a random
number as ID to each coin. Bank digitally signs each coin with its
private key. E-coin have an expiry date also. The bank maintains a
data base also. The bank maintains a data base of all e-coins issued.
E-coins are stored by the customer in an e-coin data base called e-
purse.
3. When the customer buys products online he can pay e-coin from his
e-purse. The coin is send to the merchant using http protocol to
ensure security. At the same time , the customer’s computer marks
that coin as spent in its e-purse.
 Cont’d

4. The merchant sends the e-coin to the bank’s currency

server using SSL connection. The currency server verifies
the digital signature in the e-coin. Then the e-coin is
accepted and merchant’s account is credited with the
approved amount, after deducting commission.
5. Information passed on to the merchant, and the
merchant in turn, delivers the goods to the customer.
B2C Digital Payment Systems

 Digital Wallets
 Digital Cash
 Digital Accumulating Balance Payment Systems
 Digital Credit Card Payment Systems
 Digital Checking Payment Systems
Cont’d

Digital Wallets
• Authenticates the consumer through the use of digital
certificates or other encryption methods, stores and
transfers value, and secures the payment process from
the consumer to the merchant.
Digital Cash
• Also called e-cash
• Digital forms of value storage or value exchange that
have limited convertibility into other forms of value and
require intermediaries to convert
Cont’d

Digital Accumulating Balance Payment Systems

• Allow users to make micropayments and
purchases on the Web, accumulating a debit
balance for which they are billed at the end of
the month
Digital Credit Card Payment Systems
• Seek to extend the functionality of existing credit
cards for use as online shopping payment tools
B2B Payment Systems
• The definition of business-to-business payments or B2B payments is
the transfer of value denominated in currency from buyer to
supplier for good or services supplied.
• B2B payments can be a one time or recurring transaction
depending on the contractual agreement made between the
buyer and supplier.
• B2B payments are more complex than business-to-consumer or
B2C payments, since B2B payment processing requires more time
to approve and settle the transaction which can take days or
weeks. Whereas in B2C payment processing, the transaction is
typically settled on the spot.
• More complex than B2C systems
5 most common B2B payment methods

• Checks
• ACH
• Credit Cards
• Wire transfer
• Electronic Funds Transfers
ACH
• An ACH is essentially the electronic version of writing a
check.
• In this transaction, the payment is pulled from the buyer’s
bank account and deposited into the seller’s account.
• This works well with scheduled recurring payments
between businesses.
• Authorization must be obtained from the buyer in order
to establish this system
• ACH can be set up with companies who do not want
scheduled payments, but regular purchases on an as-
needed basis.
Wire transfer
• Wire transfers involve money moved from one
bank account to another through a “wire.”
• While safe, as far as ensuring sufficient funds
are available is concerned, wire transfers
require many steps to set up and execute.
• Wire transfers do not typically have currency
limits on transaction exchanges.
Electronic Funds Transfers
• A growing payment method, the electronic funds
transfer (EFT) is a digital payment.
• The function is not different from an ACH or wire
transfer – in fact, those two payment options are
forms of an EFT.
• EFT is a payment solution that efficiently transfers
funds at a lower cost, a faster rate than wire or ACH
transactions because it is entirely digital.
• As automation rises, payment solution providers
favor EFT.
 CHAPTER 4
E Commerce Marketing Concepts

By CJ
 Introduction
• The main difference between digital and
traditional marketing is the medium
through which an audience encounters a
marketing message.
• While traditional marketing uses traditional
media like magazines and newspapers,
• Digital marketing uses digital media, such
as social media or websites.
By CJ
Internet Audience and Consumer Behavior
• Some demographic groups have much higher
percentages of online usage than other groups
• Demographics to examine include:
 Gender
 Age
 Ethnicity
 Community Type
 Income
 Education

By CJ
A General Model of Consumer Behavior
• Attempt to predict/explain what consumers purchase and where,
when, how much and why they buy.
• Consumer behavior models based on background demographic
factors and other intervening, more immediate variables

By CJ
The Purchasing Decision

• Five stages in the consumer decision process:

 Awareness of need
 Search for more information
 Evaluation of alternatives
 Actual purchase decision
 Post-purchase contact with firm

By CJ
The Consumer Decision Process and Supporting
Communications

By CJ
Why More People Don’t Shop Online

• Major online buying concerns:

• Security
• Privacy
• Shipping costs
• Return policy
• Product availability
• Shipping issues/delays
By CJ
Basic Marketing Concepts
• Marketing: The strategies and actions firms take to
establish a relationship with a consumer and encourage
purchases of products and services

• Internet marketing: Using the Web, as well as traditional

channels, to develop a positive, long-term relationship
with customers, thereby creating competitive
advantage for the firm by allowing it to charge a higher
price for products or services than its competitors can
charge
By CJ
Basic Marketing Concepts (cont’d)
• Firms within an industry compete with one another
on four dimensions:
Differentiation
Cost
Focus
Scope
• Marketing seeks to create unique, highly
differentiated products or services that are
produced or supplied by one trusted firm (“little
monopolies”)
By CJ
Products, Brands and the Branding Process
• Brand: A set of expectations that consumers have when
consuming, or thinking about consuming, a product or
service from a specific company
• Branding: The process of brand creation
• Closed loop marketing: When marketers are able to
directly influence the design of the core product based on
market research and feedback
 E-commerce enhances the ability to achieve
• Brand strategy: Set of plans for differentiating a product
from its competitor, and communicating these differences
to the marketplace
• Brand equity: estimated value of the premium customers
are willing to pay for a branded product versus unbranded
competitor By CJ
Market Entry Strategies
• For new firms:
Pure clicks/first mover
Mixed “clicks and bricks”/alliances
• For existing firms:
Pure clicks/fast follower
Mixed “bricks and clicks”/brand
extensions

By CJ
Customer relationship management consists of four elements
'What criteria 'How can we
determine who will acquire this
be our most customer in the
profitable most efficient and
customers?' 1 2 effective way?'
Customer Customer
selection acquisition

Customer
relationship
management cycle
4 3

'How can we Customer Customer 'How can we keep

increase extension retention this customer for
the loyalty and the as long as
profitability of this possible?'
customer?'
By CJ
Establishing the Customer Relationship
• Permission marketing: Obtain permission before sending
consumer information or promotional messages.

• Viral marketing: Process of getting customers to pass along a

company’s marketing message to friends, family & colleagues

• Blog marketing: Using blogs to market goods through

commentary and advertising

• Social network marketing: Similar to viral marketing

• Brand leveraging: Process of using power of an existing brand

to acquire new customers for a new product or service
By CJ
Differences between relational and transactional marketing

Transactional paradigm Relational paradigm

Market segment Individual customer
Transaction duration Lifetime
Margin Lifetime value
Market share Most valued customers
and customer share
Mass market broadcast Dialogue and tailored
communications
Passive consumers Empowered clients
By CJ
5Is for CRM
• Identification – can the customer be recognized for
different channel contacts?
• Individualization – can communications and
products be tailored?
• Interaction – are communications two-way?
• Integration – is there a 360 degree view of the
customer?
• Integrity – is the relationship built on trust?

By CJ
CRM data

• Personal and profile data

• Contact details
• Preferences
• Transaction data
• Sales history
• Communications data
• Campaign history
• Research / Feedback / Support queries
• Contact reports (B2B)

By CJ
Customer Retention:
Strengthening the Customer Relationship

• Mass market-personalization continuum ranges from mass

marketing to direct marketing to micromarketing to
personalized, one-to-one marketing

• One-to-one marketing: Involves segmenting the market on

a precise and timely understanding of an individual’s
needs, targeting specific marketing messages to these
individuals and then positioning the product vis-à-vis
competitors to be truly unique

By CJ
Other Customer Retention Marketing Techniques
• Customization: Changing the product (not just the
marketing message) according to user
preferences

• Customer co-production: Allows the customer to

interactively create the product

• Transactive content: Results from the combination

of traditional content with dynamic information
tailored to each user’s profile
By CJ
E-Marketing
E-Marketing is the process of considering marketing activities and achieving marketing
objectives through electronic medium.

It may be defined a process that involves the use of computer, internet and other
electronic systems and network, whereby the goods or services are exchanged and their
values in terms of price are determined.

• Is a set of actions which are used to strengthen business position according to 4P model,
incorporating interactivity and its elements, but not excluding them as separate elements
and evaluating when making marketing decisions.

• In e-marketing key elements of marketing are implemented –product, price, distribution,

communication/promotion.

• All other elements such as interactivity, image and so on are considered as

complementary to the basic elements, although they are sometimes distinguished as
separate elements.
By CJ
Product
Products in a virtual environment are divided by nature:

• Physical products – tangible goods – household appliances, books,

cars, etc. Drawback –when buying on the Internet there is no possibility
to test them.

• Digital products – goods existing only in cyberspace. They include

software, e-books, pictures, audio and video e-products, etc.

• Services – this product cannot be separated from the service provider,

it is intangible, they are used and supplied at the same time when two
parts, i.e. the service provider and the user, are present. These services
include travelling, distance learning, virtual games and so on.

• IT allows the customer to save money, time, and this in turn contributes
By CJ
to a higher value of goods on the Internet.
Net Pricing Strategies
• Pricing (putting a value on goods and services) an integral
part of marketing strategy

• Traditionally, prices based on:

 Fixed cost
 Variable costs
 Market’s demand curve

• Price discrimination: Selling products to different people

and groups based on their willingness to pay.

By CJ
Net Pricing Strategies (cont’d)
• Free products/services: Can be used to build market
awareness

• Versioning: Creating multiple versions of a good and selling

essentially the same product to different market segments at
different prices

• Bundling: Offers consumers two or more goods for one price

• Dynamic pricing:
 Auctions
 Yield management

By CJ
Pricing.
• The Internet is seen as an efficient market, since it is marked by such features as
lower prices, increased price flexibility, frequent but less significant changes in
prices.

• Lower costs of commercial activities on the Internet lead to lower prices – reduces
need for staff, no expenses for premises rent and maintenance, etc.

• The internet allows for a much more dynamic approach to pricing products and
services.

• Dynamic pricing refers to a market where prices can be updated instantly in

response to changes in market conditions.

• Potential new customers can be targeted with discounts, free gifts, or other
incentives to buy online from a particular website.

• The more information firms have on customers the more able they are to customize
prices towards individual customers or groups of customers.

By CJ
Cont’d
Price on the Internet can be;

• Tangible price – it is physical, i.e. price shown in figures next to the product on a
website. According to this type of price, the Internet user knows the value of the
product.

• Intangible price – it is a price that is usually attributed to cyber products. The Internet
user has an impression that the information online is free, but in reality the company
providing the product receives in return user’s attention and consumers traffic. Thus it is
possible to direct user’s attention to the online advertisement, which is paid by a
company which ordered to put it on a website offering free information for a user. The
core point of this price type strategy is to attract as many users as possible and make
them spend a lot of time on the website.

• United price – it is use of both tangible and intangible price strategy. On informative
websites a part of information is free, the other – not. (e.g. www.vz.lt)
By CJ
Cont’d
Internet pricing strategy can be,

• Penetration price – to enter easier and occupy the biggest part of

a market a lower price for a new product is set.

• Market skimming – to attract consumers who like Internet

innovations a high price is set. Subsequently, the price is gradually
lowered.

• Estimated profit and cost recovery – pricing is based on a simple

methodology – markup is added to the price of a product.

By CJ
Distribution
• In e-marketing similarly to traditional marketing there are channel intermediaries –
wholesalers (buy product from manufacturers and sell to retailer), retailers
(purchase products from wholesalers and sell them online directly to customers),
brokers (help to conduct transactions between buyers and sellers) and agents (help
to conduct e-transactions, but unlike brokers they represent either buyer or seller).

• These channels include a communications channel (e.g. e-mail), a distribution

channel to intermediaries (e.g. to customers via wholesalers) or direct selling to
customers (disintermediate middlemen in the supply chain).

• Firms will have a website that is an electronic version of a storefront.

• The website has a communications facility that allows information to flow between
seller and buyer and vice-versa.

• Firms can use the internet to take orders from customers and then use
intermediaries such as wholesalers and distributors to deliver the products or services
By CJ
to customers.
Channel Management Strategies
• Channel: Refers to different methods by which goods can
be distributed and sold

• Channel conflict: Occurs when a new venue for selling

products or services threatens or destroys existing venues
for selling goods

• Examples: online airline/travel services and traditional

offline travel agencies

• Some manufacturers are using partnership model to avoid

channel conflict By CJ
Promotion
• Promotion is the element of the marketing mix that involves the communication
with customers regarding products and services.

• The internet represents another channel for communication with customers.

• The promotion of products and services can be undertaken using a number of

different methods including branding, advertising, public relations, sales
promotions, in-store displays, web promotion, sales promotions and personal selling.

• Digital promotion uses social media, phones, and other electronic devices to
advertise or sponsor a product or service.

• Digital advertising is any visual ad, written or video, that you see on the
internet.

• This includes pop ups that appear before you can log a given account or
information that comes into your Facebook feed.
By CJ
 E-marketing plan
The e-marketing plan is part of a wider ranging plan put in place by firms to achieve stated
objectives.

• The e-marketing contribution forms part of the e-business strategy for achieving
objectives and includes market research and communications with customers or
customer groups using the internet.

• The e-marketing plan is designed to identify and set out ways of achieving e-marketing
objectives.

• The plan consists of analysis of the demand function and competitors.

• These form the basis for developing and implementing strategies for target markets.

• The marketing mix is the tactic used to target markets.

• Finally, there is an element of performance measuring and evaluation of the e-marketing

plan.

By CJ
By CJ
Demand analysis
Demand analysis

Demand analysis focuses on a number of key issues including

• The level of connectivity to the internet by customers;

• The level of interactivity by those with internet access;

• The number of customers who purchase products or services

via the internet;

• The number of customers who access websites but who do not

purchase via the internet;

• Identifying the barriers to using the internet for purchasing

purposes By CJ
 Competitor analysis
• Building knowledge of competitors is an integral part of
developing a strategy for both traditional and e-businesses.

• Sometimes referred to as ‘competitor intelligence’, the analysis

involves gathering information on a wide range of criteria
including who the competitors are, what products and services
they produce, their market performance, the communications
channels used, and their marketing strategies.

• Competitor analysis helps to determine the impact that the

actions of a rival will has on the performance of a business.

By CJ