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 to a higher
value of goods on the Internet.
By CJ
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 to customers.

By CJ
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