Unit -2 Lesson -1 Online Business Transactions Rationale of Transacting Online Notes
E-COMMERCE
Unit -2. Lesson -1
Online Business Transactions Rationale of Transacting Online
Online Business Transactions Rationale of transacting online
E-commerce is an internet initiative which transforms business relationship. There are various models of e-commerce, which are being proposed to establish an electronic link between the business and consumers. These models have brought business and consumer closer to each other & transformed the way of conducting the business. Business to Consumer commerce (B2C) provides direct sale between supplier and consumer. B2C involves what is known as electronic retailing or e-tailing. Electronic storefront refers to a single company web site where products and services are sold. Customers can browse online catalogs or electronic storefronts when it best suits them.
E-commerce applications in various industries (banking, insurance, payment of utility bills and others)
Advantage of Internet auctions: Bidders can stay at the home or office and still participate in the bidding just as in traditional auctions. Disadvantages include potential for fraud and lack of physical inspection of goods.
Banking: Transfer of money from one bank to another using various methods
(i) NEFT - The acronym "NEFT" stands for National Electronic Funds Transfer. Funds are transferred to the credit account with the other participating Bank using RBI's NEFT service. RBI acts as the service provider and transfers the credit to the other bank's account.
(ii) RTGS-The acronym "RTGS" stands for Real Time Gross Settlement. The RTGS system facilitates transfer of funds front accounts in one bank to another on a "real time" and on "gross settlement" basis. The RTGS system is the fastest possible inter bank money transfer facility available through secure banking channels in India.
Payment of Insurance Instalments, Payment of utility bills and others can be easly done using various methods:
1. Debit Card 2. Credit Card.
3.UPI App. 4. Cash.
5. NEFT. 6. RTGS
Problems with the traditional payment systems
1. Lack of Convenience: Traditional payment systems require the consumer to either send paper cheques by snail- mail or require him/her to physically come over and sign papers before performing a transaction. This may lead to annoying Circumstances sometimes.
2. Lack of Security: This is because tile consumer has to send all confidential data on a paper, which is not encrypted, that ton by post where it may he read by anyone
3. Lack of Coverage: When will talk in terms or current businesses, they span many countries or states. These business houses need faster transactions everywhere This is not possible without the bank having branch near all of the companies offices. This statement is self-explanatory.
4. Lack of Eligibility: Not all potential buyers may have a hank account
5. Lack of support for micro-transactions: Many transactions done 011 the Internet are of very low cost though they, involve data flow between two countries in two countries The same if done on paper may not be feasible at all.
ELECTRONIC PAYMENT SYSTEM (EPS)
Electronic payment systems are online payment systems. The goal 01' their development is to create analogs of checks and cash on the internet. An EPS implements all or some of the following features:
1. Protecting customers from merchant's fraud by keeping credit card numbers
2. Allowing people without credit cards to engage in online transactions.
3. Protecting confidentiality of customers.
4. In some cases providing anonymity of customers ("electronic cash").
Types of Electronic Payment Systems
1. Electronic Tokens: An electronic token is a digital analog of "carious forms of payment backed by a hank or financial institution. There are two types of tokens:
(a) Real Time Tokens (Pre-paid tokens): These are exchanged between buyer and seller, their users pre-pay for tokens that serve as currency. Transactions arc settled with the exchange of these tokens. Examples of these are DigiCash, Debit Cards etc.
(b) Post Paid Tokens: These are used with fund transfer Instructions between the buyer and seller. Examples Electronic cheques. Credit card data etc.
2. Electronic or Digital Cash : Cash is still the dominant form of payment as: The consumer still mistrusts the banks. The non-cash transactions are inefficiently cleared. In addition due to negative real interests rates on bank deposits. Debit and Credit Cards are identification cards owned by the issuer & restricted to one e user.
Properties of Digital Cash:
Digital cash is based on cryptographic systems called "Digital Signatures" Similar to the signatures used by banks on paper cheques to authenticate a customer. Digital cash could be stored on a remote computer's memory, in smart cards, or on other easily transported standard or special purpose devices. Users could exchange digital cash from home or office or while traveling.
3. Electronic Cheques: Electronic cheques are modeled on paper checks, except that they are initiated electronically. They use digital signatures for signing and require the use of digital certificates to authenticate the payer, the bank and bank accounts. They are delivered either by direct transmission using telephone lines or by public networks such as the internet.
4. Credit Card: A credit card is an instrument of payment that enables the cardholder to obtain either goods or services from merchants. The outstanding amount is payable by the card holder to the bank over a specified period which carries a fixed amount of interest also. It is a source of revolving credit and takes about 30 to 40 days to process.
How Credit Card Works ?
Credit cards work in all e-government application as they work in the physical world. Citizens enter credit card information into a Web application to pay for good or services. Government credit card application should invoke required data and business-rule edits to validate online data elements. Some of the edits could include user name, password, merchant ID, account number. expiration date, amount, and customer-billing data. Once the validity of required data has passed the credit card application edits, the authenticity of the cardholder's card Il and account number must be validated. and the, Transaction amount must be within the cardholder's credit limits. Processor- required elements could could include merchant ID, account number, expiration date, amount. Customer-billing data, card type, and Card Verification Value (CVV). When all required edits are passed, the transaction is transmitted to the credit card processor and associated networks for authorization. The credit card-processing network returns an authorization approval, which indicates that the credit card is valid and the allotment IS within the cardholder's credit limit. A denial code will be returned when the credit card cannot be authenticated or credit limits have been exceeded. The opportunity to use another card or some other payment option might be offered.
5. Debit Card: Debit cards are also known as check cards, Debit cards look like credit cards or Automated Teller Machine (ATM) cards, but they operate like cash or personal checks. Money' is quickly deducted from the related checking or savings account. "Online" debit cards are usually enhanced ATM cards that work in the same manner an ATM transaction.
Advantages of Electronic Payment System
1. Decreasing Technology Cost :- As a result, computers are dirt-cheap and Internet access is becoming free almost everywhere in the world. The technology used in today's networks is decreasing day by day and the amount of data carried on them has also decreased.
2. Reduced operational & processing cost :- Due to reduced technology cost the processing cost of various commerce activities becomes very less A very simple reason to prove this is the fact that in electronic transactions we save both and time.
Risk Associated With Electronic Payments
The notion of security of payment is clearly insufficient 10 provide appropriate conceptual framework for technical and institutional design of Internet payment systems. There is a need for a broader approach of risk management that recognizes that electronic payment entails a series of interrelated risks. Some of those risks are generic to banking business, others are specific to electronic payments.
1. Operational Risk : Operational risk arises from the potential for loss due to significant deficiencies in system reliability or integrity. Banks may be subject to external or internal attacks on their systems of products. Operational risk can also arise from customer misuse, and from inadequately designed or implemented electronic banking and electronic money systems.
2. Credit Risk : Credit risk is the risk that a counter party will not settle an obligation for full value. Banks engaging in electronic banking activities may extend credit via non-traditional channels, and expand their market beyond traditional geographic boundaries. Inadequate procedures to determine the creditworthiness of borrowers applying for credit via remote banking procedures could heighten credit risk.
3. Legal Risk : Legal risk can arise from violations of: or non-conformance with laws, rules, regulations. or prescribed practices, or when the legal rights and obligations of panics to a transaction arc are not well established. Given the relatively new nature of many retail electronic banking and electronic money activities, rights and obligation of parties to such transactions are, in some cases, uncertain.
Banks may face increased difficulties in applying traditional methods to prevent and detect criminal activity. Customers who have not been adequately informed about their rights and obligations may bring suit against a bank. Banks linking their Internet sills to other of a, risk management sites also can face legal risks.
Risk Management Options for E-Payment :
Supervisors expect banks to have processes that enable bank management to respond to current risks, and to adjust to new risks. Banks may employ such a process when committing to new electronic banking and electronic money activities. Prior to any new activity being commenced a comprehensive review should be conducted so that senior management call ensure that the risk management process is adequate.
Assessing Risks : Bank management should form a reasonable and defensible judgments of the magnitude of any risk with respect to both the impact it could have on the bank (including the maximum potential impact, and the probability that such an event will occur). A second step in assessing risk is for the board of directors or senior management to determine the bank's risk tolerance.
Managing & Controlling Risks : Banks increase their ability to control and manage the various risks inherent in any activity when policies and procedures are set out in written documentation. Senior management should ensure that staff responsible for enforcing risk limits have authority independent from the business unit undertaking the electronic banking or electronic money activity.
Security & Policies : Security measures are combinations of hardware and software tools, and personnel management. Banks can choose from a variety of security measures to prevent or mitigate external and internal attacks and misuse of electronic banking and electronic money. Proper security relies on the development and implementation of adequate security policies and security measures.
Monitoring Risks : Monitoring electronic banking and electronic money activities is particularly important because the nature of the activities are likely to change rapidly as innovations occur. Some products rely heavily on the use of open networks such as the Internet, and this means they need to be monitored in real-time.
Two important-elements of monitoring are :
System testing & surveillance : Penetration testing is an attempt to identify and fix flaws in the design and implementation of security mechanisms through controlled attempts to penetrate a system outside normal procedures. Surveillance is a form of monitoring in which software and auditing applications are used to track activity on a computer network.
Auditing : Auditing (internal and external) provides an important independent control mechanism for detecting deficiencies and minimizing risks in the provision of electronic banking and electronic money services. Audit personnel must have sufficient specialized expertise to perform an accurate review. An internal auditor should be separate and independent from employees making risk management decisions.
Identification, confidentiality and payment integrity
Payments on the Internet need to three major broad conditions:
Firstly, each party involved ill the transaction must he sure that its counterpart is exactly what she tells She is in other words, people involved must be identified.
Secondly, data exchanged between buyers and sellers must remain confidential.
Finally, buyers must be certain that the information they get about the payment (regardless of the underlying value) are reliable.
The main issue there is the migration from private to public key cryptography. Advantages of the public key system are well known: it is possible for a user to receive encrypted messages from an entity he has not met and with whom he has no on-going relationship.
Unit-2 Lesson-2 E-marketing-e-tailing
The summary of Unit -2 Lesson -1 Online Business Transactions Rationale of Transacting Online summarise from the content of Book of School of Open Learning. © School of Open Learning
