Introduction to E-Commerce

E-commerce, or electronic commerce, is the exchange of money and data via electronic
networks, mainly the Internet, as well as the purchasing and selling of goods and services. It
encompasses a range of transaction kinds, including consumer-to-business, business-to-
business, business-to-consumer, and consumer-to-business. The terms e-business and e-
commerce are sometimes used synonymously, with e-tail mainly referring to online retail
operations.
E-Commerce or Electronics Commerce is a methodology of modern business, which
addresses the need of business organizations, vendors and customers to reduce cost and
improve the quality of goods and services while increasing the speed of delivery. E-commerce
refers to the paperless exchange of business information using the following ways:

• Electronic Data Exchange (EDI)

• Electronic Mail (e-mail)
• Electronic Bulletin Boards
• Electronic Fund Transfer (EFT)
• Other Network-based technologies

Features of E-Commerce
E-Commerce provides the following features:

1. Non-Cash Payment: E-Commerce enables the use of credit cards, debit cards,
smart cards, electronic fund transfer via bank's website, and other modes of
electronics payment.
 2. 24x7 Service availability: E-commerce automates the business of enterprises
and the way they provide services to their customers. It is available anytime,
anywhere.

3. Advertising/Marketing: E-commerce increases the reach of advertising of

products and services of businesses. It helps in better marketing management
of products/services.
4. Improved Sales: Using e-commerce, orders for the products can be generated
anytime, anywhere without any human intervention. It gives a big boost to
existing sales volumes.

5. Support: E-commerce provides various ways to provide pre-sales and post-sales

assistance to provide better services to customers.

6. Inventory Management: E-commerce automates inventory management.

Reports get generated instantly when required. Product inventory management
becomes very efficient and easy to maintain.

7. Communication improvement: E-commerce provides ways for faster, efficient,

reliable communication with customers and partners.

Traditional Commerce v/s E-Commerce

Traditional Commerce E-Commerce

Information sharing is made easy via
Heavy dependency on information exchange electronic communication channels
from person to person. making a little dependency on person to
person information exchange.
Communication/transactions are done in
Communication or transactions can be
synchronous way. Manual intervention is
done in asynchronous way. The whole
required for each communication or
process is completely automated.
transaction.
A uniform strategy can be easily
It is difficult to establish and maintain standard
established and maintained in
practices in traditional commerce.
ecommerce.
Communications of business depends upon In e-commerce, there is no human
individual skills. intervention.
Unavailability of a uniform platform, as E-commerce websites provide the user a
traditional commerce depends heavily on platform where all the information is
personal communication. available at one place.
E-commerce provides a universal
No uniform platform for information sharing, as platform to support
it depends heavily on personal communication. commercial/business activities across
the globe.
Advantages of E-commerce

The advantages of e-commerce can be broadly classified into three major categories:

• Advantages to Organizations
• Advantages to Consumers
• Advantages to Society

Advantages to Organizations

1. Using e-commerce, organizations can expand their market to national and

international markets with minimum capital investment. An organization can
easily locate more customers, best suppliers, and suitable business partners
across the globe.
2. E-commerce helps organizations to reduce the cost to create process, distribute,
retrieve and manage the paper based information by digitizing the information.
3. E-commerce improves the brand image of the company.
4. E-commerce helps organizations to provide better customer service.
5. E-commerce helps to simplify the business processes and makes them faster
and efficient.
6. E-commerce reduces the paper work.
7. E-commerce increases the productivity of organizations. It supports "pull" type
supply management. In "pull" type supply management, a business process
starts when a request comes from a customer and it uses just-intime
manufacturing way.

Advantages to Customers

1. It provides 24x7 support. Customers can inquire about a product or service and
place orders anytime, anywhere from any location.
2. E-commerce application provides users with more options and quicker delivery
of products.
3. E-commerce application provides users with more options to compare and select
the cheaper and better options.
4. A customer can put review comments about a product and can see what others
are buying, or see the review comments of other customers before making a final
purchase.
5. E-commerce provides options of virtual auctions.
6. It provides readily available information. A customer can see the relevant detailed
information within seconds, rather than waiting for days or weeks.
7. E-Commerce increases the competition among organizations and as a result,
organizations provides substantial discounts to customers.

Advantages to Society
1. Customers need not to travel to shop a product, thus less traffic on road and low
air pollution.
2. E-commerce helps in reducing the cost of products, so less affluent people can
also afford the products.
 3. E-commerce has enabled rural areas to access services and products, which are
otherwise not available to them.
4. E-commerce helps the government to deliver public services such as healthcare,
education, social services at a reduced cost and in an improved manner.

Disadvantages of E-Commerce

The disadvantages of e-commerce can be broadly classified into two major categories:

• Technical disadvantages
• Non-technical disadvantages

Technical Disadvantages

1. There can be lack of system security, reliability or standards owing to poor

implementation of e-commerce.
2. The software development industry is still evolving and keeps changing rapidly.
3. In many countries, network bandwidth might cause an issue.
4. Special types of web servers or other software might be required by the vendor,
setting the e-commerce environment apart from network servers.
5. Sometimes, it becomes difficult to integrate an e-commerce software or website
with existing applications or databases.
6. There could be software/hardware compatibility issues, as some ecommerce
software may be incompatible with some operating system or any other
component.

Non-Technical Disadvantages

1. Initial cost: The cost of creating/building an e-commerce application inhouse

may be very high. There could be delays in launching an eCommerce application
due to mistakes, and lack of experience.
2. User resistance: Users may not trust the site being an unknown faceless seller.
Such mistrust makes it difficult to convince traditional users to switch from
physical stores to online/virtual stores.
3. Security/ Privacy: It is difficult to ensure the security or privacy on online
transactions.
4. Lack of touch or feel of products during online shopping is a drawback.
5. E-commerce applications are still evolving and changing rapidly.
6. Internet access is still not cheaper and is inconvenient to use for many potential
customers, for example, those living in remote villages.

E-COMMERCE BUSINESS MODELS

E-commerce business models can generally be categorized into the following categories.

1. Business - to - Business (B2B)

2. Business - to - Consumer (B2C)
 3. Consumer - to - Consumer (C2C)
4. Consumer - to - Business (C2B)
5. Business - to - Government (B2G)
6. Government - to - Business (G2B)
7. Government - to - Citizen (G2C)

1. Business- to - Business
A website following the B2B business model sells its products to an intermediate buyer
who then sells the product to the final customer. As an example, a wholesaler places an order
from a company's website and after receiving the consignment, sells the end-product to the
final customer who comes to buy the product at one of its retail outlets.

2. Business- to - Consumer
A website following the B2C business model sells its products directly to a customer. A
customer can view the products shown on the website. The customer can choose a product
and order the same. The website will then send a notification to the business organization
via email and the organization will dispatch the product/goods to the customer.

3. Consumer- to -Consumer
A website following the C2C business model helps consumers to sell their assets like
residential property, cars, motorcycles, etc., or rent a room by publishing their information
on the website. Website may or may not charge the consumer for its services. Another
consumer may opt to buy the product of the first customer by viewing the post/advertisement
on the website.
4. Consumer- to -Business
In this model, a consumer approaches a website showing multiple business organizations
for a particular service. The consumer places an estimate of amount he/she wants to spend
for a particular service. For example, the comparison of interest rates of personal loan/car
loan provided by various banks via websites. A business organization who fulfills the
consumer's requirement within the specified budget, approaches the customer and provides
its services.

5. Business- to - Government
B2G model is a variant of B2B model. Such websites are used by governments to trade
and exchange information with various business organizations. Such websites are accredited
by the government and provide a medium to businesses to submit application forms to the
government.
6. Government - to - Business
Governments use B2G model websites to approach business organizations. Such websites
support auctions, tenders, and application submission functionalities.

7. Government - to - Citizen
Governments use G2C model websites to approach citizen in general. Such websites
support auctions of vehicles, machinery, or any other material. Such website also provides
services like registration for birth, marriage or death certificates. The main objective of G2C
websites is to reduce the average time for fulfilling citizen’s requests for various government
services.

E-COMMERCE PAYMENT SYSTEMS

E-commerce sites use electronic payment, where electronic payment refers to paperless
monetary transactions. Electronic payment has revolutionized the business processing by
reducing the paperwork, transaction costs, and labor cost. Being user friendly and less time-
consuming than manual processing, it helps business organization to expand its market
reach/expansion. Listed below are some of the modes of electronic payments:

1. Credit Card
2. Debit Card
3. Smart Card
4. E-Money
5. Electronic Fund Transfer (EFT)

1. Credit Card
Payment using credit card is one of most common mode of electronic payment. Credit card
is a small plastic card with a unique number attached with an account. It has a magnetic
strip embedded in it that is used to read the credit card via card readers. When a customer
purchases a product via credit card, the credit card issuer bank pays on behalf of the
customer and the customer has a certain time period after which he/she can pay the credit
card bill. It is usually in the credit card monthly payment cycle.
Following are the actors in the credit card system.

• The card holder - Customer,

 • The merchant - seller of product who can accept credit card payments,
• The card issuer bank - card holder's bank,
• The acquirer bank - the merchant's bank,
• The card brand - for example, Visa or MasterCard.

Credit Card Payment Process

Step Description
Step 1 Bank issues and activates a credit card to the customer on his/her request.
The customer presents the credit card information to the merchant site or to the
Step 2
merchant from whom he/she wants to purchase a product/service.
Merchant validates the customer's identity by asking for approval from the card
Step 3
brand company.
Card brand company authenticates the credit card and pays the transaction by
Step 4
credit. Merchant keeps the sales slip.
Merchant submits the sales slip to acquirer banks and gets the service charges
Step 5
paid to him/her.
Acquirer bank requests the card brand company to clear the credit amount and
Step 6
gets the payment.
Now the card brand company asks to clear the amount from the issuer bank
Step 7
and the amount gets transferred to the card brand company.

2. Debit Card
Debit card, like credit card, is a small plastic card with a unique number mapped with
the bank account number. It is required to have a bank account before getting a debit card
from the bank. The major difference between a debit card and a credit card is that in case of
payment through debit card, the amount gets deducted from the card's bank account
immediately and there should be sufficient balance in the bank account for the transaction
to get completed; whereas in case of a credit card transaction, there is no such compulsion.
Debit cards free the customer to carry cash and cheques. Even merchants accept a debit
card readily. Having a restriction on the amount that can be withdrawn in a day using a debit
card helps the customer to keep a check on his/her spending.

3. Smart Card
Smart card is again similar to a credit card or a debit card in appearance, but it has a
small microprocessor chip embedded in it. It has the capacity to store a customer’s work-
related and/or personal information. Smart cards are also used to store money and the
amount gets deducted after every transaction. Smart cards can only be accessed using a PIN
that every customer is assigned with. Smart cards are secure, as they store information in
encrypted format and are less expensive/provides faster processing. Mondex and Visa Cash
cards are examples of smart cards.

4. E-Money
E-Money transactions refer to situation where payment is done over the network and the
amount gets transferred from one financial body to another financial body without any
involvement of a middleman. E-money transactions are faster, convenient, and saves a lot of
time.
Online payments done via credit cards, debit cards, or smart cards are examples of e-money
transactions. Another popular example is e-cash. In case of e-cash, both customer and
merchant have to sign up with the bank or company issuing e-cash.

5. Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank account
to another bank account. Accounts can be in the same bank or different banks. Fund transfer
can be done using ATM (Automated Teller Machine) or using a computer.
Nowadays, internet-based EFT is getting popular. In this case, a customer uses the website
provided by the bank, logs in to the bank's website and registers another bank account.
He/she then places a request to transfer certain amount to that account. Customer's bank
transfers the amount to other account if it is in the same bank, otherwise the transfer request
is forwarded to an ACH (Automated Clearing House) to transfer the amount to other account
and the amount is deducted from the customer's account. Once the amount is transferred to
other account, the customer is notified of the fund transfer by the bank.