a) Explain electronic data interchange

It consists of standardized electronic-message formats for business documents such as

purchase orders and invoices. EDI enables firms to exchange business information
faster, more cheaply and more accurately than is possible using paper-based systems.
The benefits of EDI are as follows:
● Improvement in overall quality through better record keeping, fewer errors in
data, reduced processing time, and less reliance on human interpretation of
data.
● Reduced Inventory; EDI permits faster and more accurate filling of orders,
helps reduce inventory and assists in JIT inventory management
● Better information management for decision making. EDI provides accurate
information and audit trails of transactions, enabling businesses to identify
areas offering the greatest potential for efficiency improvement or cost
reduction.
In spite of its proven benefits, EDI has not seen a widespread acceptance because of
the following limitations:
● EDI applications are costly to develop and operate. The high development cost
increases the price and the entry barrier for new entrants
● EDI applications limits accessibility since the do not allow consumers to
communicate or transact with vendors easily
● Rigid requirements; EDI applications usually require highly structured
protocols, previously established arrangements and unique proprietary
bilateral information exchanges
● Partial solutions; EDI applications automate only a portion of the transaction
process, and the supporting accounting and inventory information, payment
and actual funds transfer tends to lag. This time lag increases the likelihood of
discrepancies which requires expensive and time consuming reconciliation.
Ideally an electronic commerce application should enable real-time links to
record keeping and accounting systems.

b) Discuss value added network based electronic data interchange

Value Added Networks (VANs) facilitate the exchange of electronic data by
accepting data in a variety of formats and by converting the incoming data to a format
usable by the receiver of the information. VANs also manage transmission schedules
and hold data until receivers are ready to accept them. The choices businesses make
are based on differences in transmission costs, the extent to which the two trading
partners are able to exchange business documents electronically and the types of
electronic payment services offered by their banks
There are three types of VANs:
1. One-to-One
The one-to-one network is a connection between two businesses exchanging data.
2. One-to-Many
A single business connected to multiple other businesses, e.g., a major retailer
connected to its different suppliers.
3. Many-to-Many
Multiple businesses connected to one another. This is the most common type of
network used in the financial markets since there are many market participants
connected to each other via a single venue.

Benefits of VANs include:

1. Error correction
VANs help in error correction, as they reduce human involvement, and improve
recordkeeping. They can perform checks at the transaction level and ensure minimal
error.

2. Improved exchange
The exchange of data becomes real-time with VANs. This improves decision-making
and record-keeping and provides essential business intelligence to generate insights
about operations.

3. Secure
Electronic data transfers can be made securely using encryption. All communication
between businesses can be encrypted to protect business secrets.

4. Standardized
VANs transfer data using standard formats, such as XML and CSV. They allow the
data to be read by the various Enterprise Resource Planning (ERP) software used by
 companies. They also enable the use of newer technologies without making changes
to existing technology.

Challenges of VANs:
1. Building costs
As stated before, VANs are standalone networks, which means a company would
need to hire specialized individuals to build the network, as well as pay for the
infrastructure. On the other hand, internet-based systems come with most of the
infrastructure already in place and need only the software work to be done.

2. Maintenance and upgrade

Technical and specialized staff is required to keep the network running. Moreover,
upgrading is also difficult due to the unique nature of the networks. In comparison,
internet-based technologies are much easier to maintain without requiring a very high
degree of technical sophistication.

c) Analyze the relationship between intranet and extranet commerce

Intranet is a private network within a single company using internet standards to
enable employees to share information using email and web publishing. Information
is restricted to employees within the organization.
Extranet is formed by extending anh intranet beyond a company to customers,
suppliers and other collaborators.
Intranet is highly secure in nature and it is configured in the firewall under the 100
security level, whereas extranet establishes a very secure connection rusing the VPN
technology over the level of internal medium security.
d) Discuss secure payment protocols
They are also known as Secure Electronic Transactions (SET), which establishes a
single technical standard for protecting payment card purchases made over the
internet and other open networks. The objectives of payment security are to; provide
authentication of card holders, merchants and acquirers, provide confidentiality of
payment data, preserve the integrity of payment data, and define algorithms and
protocols necessary for these security services.
SET enables users to tap into information around the clock from just about anywhere
in the world. However, on the flip side, it poses some practical drawbacks since the
potential for fraud and deception is far greater online.
The following objectives are addressed by SET specifications:
● Confidentiality of information. To facilitate and encourage financial
transactions, it will be necessary for merchants and banks to assure consumers
that their payment information is safe and accessible only by the intended
recipient. SET provides confidentiality by the use of message encryption.
● Integrity of information. SET ensures that message content is not altered
during the transmission between originator and recipient. If any component is
altered in transit, the transaction will not be processed accurately. Information
integrity is ensured by the use of digital signatures.
● Consumer account authentication. Digital signatures and digital certificates
ensure consure account authentication by providing a mechanism that links a
consumer to a specific account number. This will help merchants to verify that
a consumer is a legitimate user of a valid account number. SET designates a
third party called a certificate authority to authenticate the sender and receiver.
● Merchant authentication. SET specifications provide a way for consumers to
confirm that a merchant has a relationship with a financial institution that
allows them to accept bank card payments. This 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. This
is ensured by the use of standard protocols and message formats.
REFERENCES
Kalakota, R. & Whinston, A.B. (1997). Electronic Commerce , A Manager’s Guide.

Chaffey D. (2007). E-Business and E-Commerce Management

https://corporatefinanceinstitute.com/resources/knowledge/other/value-added-network-van/

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