Definitions of Electronic Commerce

Electronic commerce is the

business environment in
information for the buying, selling and which
transportation goods and services
of
moves electronically." -S. Jaiswal
Ecommerce comprises core business processes of
goods, services and information over the intermet."- buying and selling
P.T Joseph
Business activities conducted
technologies, such as those used on theusing electronic data transmission
Intemet and the World Wide
-

Gary P. Schneider Web."

According to the World Trade
electronic commerce, it is Organisation's work programme on
understood mean the production,
to
marketing, sale or distribution,
delivery of goods and services by electronic
Broadly defined, electronic commerce means.
transactions that are concluded over encompasses all kinds of commercial
an electronic
essentially, the internet. medium or network,
The OECD (Organization
for Economic Co-operation and
Development) detines "e-commerce transactions as the sale or
goods or services, between purchase of
governments, and other public or businesses,
private
households, individuals,
Computer-mediated networks. The goods and organisations, conducted over
services are ordered over those
networks, but the payment and the ultimate
may be conducted on or off-line." delivery of the good or service
ELECTRONIC COMMERCE AND TRADITIONAL COMMERCE
Electronic commerce is very much
involves an exchange of like traditional commerce. It also
online. Technologies such goods. But the exchange of goods is tconductea
as e-mail, electronic
electronic fund transfer are used to track data interchange and
transactions and receive paymen
The following figure depicts the buying process involved between m
business and the consumer in
traditional and electronic commerce.
 US 1dentify
Uers: A
credit cards to Consumer or 1dentify
pay merchants. a
corporate purchaser who
2.
2. The
merchant: The entity that uses
or
services in accepts credit cards and
3. The
exchange for
payments. offers
card issuer: A goods
financial institution
establishes an account for
4.
(usually bank) that
cardholders and issues a
The acquirer: A credit cards.
financial institution
establishes an account for merchants (usually a
bank) that
authorized sales slips. and acquires
the vouchers
5. The card brand: Bank card
(like Visa and associations of issuers and
MasterCard), which are created
acquirers
advertise the card brand.
to protect and
POPULAR ELECTRONIC PAYMENT METHODs
The popular electronic payment
methods are discussed below:
Credit cards: Credit cards are the plastic cards that allow customers to
carry transactions through electronic data processing system. A credit card
S1SSued by an agency such as Master or Visa. It gives pre-determined
Spending limit to the holder of the card. Credit cards can have revolving
r a n g e m e n t s . Consumers actually pay after a transaction on a credit

arrangements allow customers to make

a minimum
Kevolving credit
ayment in each billing cycle.
institution
Debit cards: Debit cards are issued by a bank or a financial
to
in enables consumers
which the card holder has an account. The card
consumer actually pays
access the count for a variety of transactions. The

Immediately
mediata for a transaction in anon-line debit card.
A debit checkbook or cash.
card 1s an alternative to carrying a
Advantages
of

features of a
debit card.
Many ATM cards
c a r d s have the
ng debit cards
are listed below a credit
card.
than obtaining
Obtaining a debit card is uch easier
cheques
saves you
from

Using a debit card instead of writing

Bhowing personal identification.
 debit card frees you from carrying
Using a cash,
cheques, or a chequebook. traveler's
accept debit cards readily than
Merchants
in other countries.
more
cheques, especially
Debit card purchases can have less protection than
that are never
credit card
delivered or defective. Returnin
purchases for items
or cancelling services purchased with a debit card is treated a od
purchases were made with cash or cheque. When a customer uses a debit the
card, however, no fee is charged to the merchant. So, there is a ebit
incentive for merchants to offer discounts to encourage paying by debit c
instead of credit card.

Charge cards : Charge cards have a short-term, fixed-period, credit

arrangement. With charge cards, the consumer must fully pavy pay the
outstanding balance at the end of the one-month charge or billing period.
Smart cards : Smart cards are plastic cards with a microchip. A
smart
card is a stored vallue card. Smart card allows electronic money to be
stored
in a secure medium. It is a credit card with a built-in
microprocessor and
memory. It can store large amount of information. A smart card can
simultaneously be an ID, a credit card, a stored-value cash card, and a
repository of personal information such as telephone numbers or medical
history. Smart cards can be electronic key rings. They enable the bearer the
ability to access information and physical places without any need for
online connections. The smart cards are
and dispenses electronic cash. It is
portable. Mondex Smart Card holds
It requires specific
developed by MasterCard International.
card reader, called Mondex terminal, for a merchant or a
customer to use card over Internet. It also
supports micropayments.
Stored Value Cards : Stored value
cardsare issued by financial and
non-financial institutions. Consumers
a stored-value card. It is actually pay before the transaction on
a
plastic
Some of the stored value cards are
card which has got magnetic
strip on it.
prepaid
value cards may also be smart cards if card and bus cards. Some stored
The integrated chip can store value they contain an integrated microchipP
and perform other
consumer authentication. functions, such as

E-Cash: E-cash is equivalent to cash. It

acts ás a substitution for is issued by
an electronic
physical currency. E-cash is the private entities.t
account. It helps to carry out money available in
the internet. E-cash electronic business
to carry
provides
cash with them. to transaction on
convenience customers as they do not have
It is very
E-cash is available in advantageous for small cash
Money can be transactions.
an E-Cash account.
drawn from the
B-Payment 14.8

Or it may be loaded onto smart card. The customer has to provide

acCount
coundentity like dig
identity like digital signature. The functions of e-cash are quite
proof

to
fund transfers that take place between banks. The user
fur
electronic

lar
cimilarave
have a
fist musa
cash so
a cash software program and a bank account. From this
fist he can withdraw or deposit e-cash. The user can withdraw the e
account, h e c a n

from the account with the help of computer. The recipients of the e-
send the money to their bank account like depositing "real" cash.
Cashctronic cash
ash inv
involves lower transaction cost. It does not require any
authorization.like credit cards. The disadvantage is that it can lead to
specia
m o n e yl a u n d e r i n g ,

Flectronic cheque
Electronic cheques : Electronic cheques are also known as e-cheques.
w can
Can bebe used
used in any transactions where normal cheques are used.
Cloetronic cheques can help to complete payments over the networks ina
effective manner. The payer writes the e-cheque through a computer.
He uses a digital signature. He sends it through the Internet. The payee
oeives it. He verifies the signature and endorses it. The endorsed cheque is
then sent over internet to the payee's bank for deposit. The Bank official
verifies the signatures and credits the deposit. Then he clears and settles the
cndorsed e-check by sending it on to the payer's bank.The signatures are
once again verified and the amount of the e-cheque
is debited from the
payer's account. The cryptographic certificates help a payee to determine
the validity and identity of the signatures.
Eleetronic wallet: Electronic wallet is like physical wallet. An electronic
wallet has the memory for storing the balance of an account in a financial

nstitution. It can hold credit cards, e-cash, owner's identification and

address. Electronic wallets make online shopping a convenient one.
ACUstomer can click on electronic wallet to order items quickly. Electronic
side
wallet has been classified into two categories. They are server
IEctronic wallet and side electronic wallet. A client e-wallet
customer
e-wallet stores
rES Customer's information on user's computer. A server
Cr'S information on a remote server. The remote server may belong
oa
merchant or wallet publisher.
SYSTEMS
oECURITY SCHEMBS IN ELECTRONIC PAYMENT
Four essential security requirements for safe electronic payments are:
before
A4hentication: A method to verify the buyer's identity
payment is authorized.
2.
of making messages unreadable except by
cryption: A process
nose who have an authorized decryption key.
3. will not be intentionally or
egriy: Ensuring that information transmission.
unintentionally altered or destroyed during
 issuing digital certill CAS.

pioneering
o n e the
VeriSign is
certificate. ONLINE TRANSACTION PROTOCOLS

: Secure
Sockets Layer (SSL) protocoliis
(SSL)
Secure Sockets Layer
method for
performi secure transactions on the
used cliernts including Netscape
the most widely most Web
s e r v e r s and

Web. It is supported
by SSL is an
and Microsoft's
Internet Exp!Explorer.
is converte
message
encryption
Navigator 1hat IS the
It scrambles a message.
technology. understa.
the receiver can
unintelligible form. Only
by RSA Secrit
or
unreadable format
It uses technologies developed
the scrambled message.
increases the volume of online
online transaction risk, 1t
SSL reduces customers. To use SST. a
sense of security to
transaction and it provides a
SSL feature.
web-server must enable its
particular
The Secure Sockets Layer (SSL) protocol provides several features,
convenient for use in e-commerce
These features make it suitable and
transactions.

(a) I ensures privacy: Privacy is guaranteed through encryption.

Though data can be intercepted by a third party, they will be not be
able to read it. This is because they have no access to the

encryption key, a
(6) Integrity is also ensured through encryption: If a message receive
does not decrypt properly, the receiver knows that the informatmon
has been tampered during transmission.
(c) Authentication is ensured through digital certificates: Digital
cares provide the basis for secured electronic transactions.
helps the participants in a transaction to quickly and easIly
the identity of the sender of
the message.
 14.12
Electronic
Secure Ele Transaction (SET) : SET is the
protocol. IIt is developed by Visa and
Transactic protocol. Secure Electronic
for abling secure credit card MasterCard specifically
becifically
transactions on the web. It uses
tificates to ensure the identities of all parties involved in a digital
card information before sending it across the transaction. It
ypts credit ca
Internet. SET
Dublic key cryptography and digital certificates for validating both
sender and receiver.

SET allows the merchane's identity to be authenticated through digital

icates. SET allows the merchant to request users to authenticate
certificates.

themselves through digital certificates. Thus, it prevents someone to use a

stolen credit card. It Provides privacy and data integrity.
Electronic Transaction
Process of Secure
A Consumer makes purchase by sending encrypted financial
website transfers
information along with digital certificate. The Merchant's
center. A Certification
the information to a payment card processing
certifies digital certificate. The OPayment card-processing center
Authority The Merchant receives
issuer for approval.
routes transaction to credit card transaction amount
card is charged. OMerchant adds the
approval and credit merchant to
account. SET does not
allow the
for deposit into merchant's
card numbers. Thus, it helps eliminate fraud.
access to credit

SUMMARY
understanding the
helps you in
A reading of this chapter
following involves any kind ofnon-cash
electronic payment intermet and other
*E Payment: An transfer money
over

It allows to systems companies

payment. payment
Electronic payments
electronic networks. transactions.
Electronic

network for all transactions.

Goods
operate through
completion of
e-commerce

are integral to the

procured through internet.
and Services can
be electronic
The emergence of
E-payment
: methods.
and new payment
buyers and
-shopping necessitated
Internet has remote
n e P P i n g

on the f
n a y m e n t
between hecome the