LP For E-Commerce by Sreenu

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LECTURE PLAN OF MODULE 1 AND 2
Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Module -1 Lecture # 1
1) Synopsis: Introduction to E- Commerce, E-Commerce Framework, Anatomy of ECommerce Applications, 2) Target: At the completion of this lecture you should be able to answer questions like (a) What are the advantages and drawbacks of E-Commerce? (b)What are the Electronic Commerce applications? (c) Identify the generic framework for electronic commerce.. 3) Introduction Electronic commerce is the ability to perform transactions involving the exchange of goods or services between two or more parties using electronic tools and techniques. Long employed by large businesses and financial service organizations, several factors are now converging to bring electronic commerce to a new level of utility and viability for small businesses and individuals -- thereby promising to make it part of everyday life. 5.1) E-Commerce Introduction Electronic commerce, commonly known as e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown dramatically since the spread of the Internet. A wide variety of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as well. A small percentage of electronic commerce is conducted entirely electronically for "virtual" items such as access to premium content on a website, but most electronic commerce involves the transportation of physical items in some way. Online retailers are sometimes known as e-tailers and online retail is known as e-tail. 5.2) The building blocks in the infrastructure Common business services, for facilitating the buying and selling process
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Messaging and information distribution, as a means of sending and retrieving information Multimedia content and network publishing, for creating a product and a means to communicate about it The Information Superhighway the very foundation for providing the highway system along which all e-commerce must travel
5.3) E-Commerce Framework The two pillars supporting all E-commerce applications and infrastructure are Public policy, to govern such issues as universal access, privacy, and information pricing Technical standards, to dictate the nature of information publishing, user interfaces, and transport in the interest of compatibility across the entire network Any successful e-commerce application will require the I-way infrastructure in the way that regular commerce needs the interstate highway network to carry goods from point to point. On this I-way vehicles are transporting information or multimedia content. This information and multimedia content determines what type of vehicle is needed. The multimedia content is stored in the form of electronic documents. These documents are digitized, compressed and stored in computerized libraries or multimedia storage ware houses called servers that are linked by transport networks to each other and to the s/w or h/w clients that allow customers to access them. Building the various highways is not enough. Transport vehicles are needed. routing issues must be addressed, and of course the transportation costs must be paid. The information and multimedia content determines what type of vehicle is needed. The final pillar on which the e commerce framework rests is technical standards, without which the impact of this revolution would be minimized. Standards are crucial in the world of global e-commerce, to ensure not only seamless and harmonious integration across the transportation network. 5.4) Anatomy of E-Commerce Applications Although no one knows what applications of electronic commerce will be successful in the long run, the potential payback for those who hold the winning numbers is a powerful driving force behind the development of the infrastructure and the convergence of numerous industries.It is important to understand that applications can be found at all levels of the infrastructure itself.In the following subsections we will revisit many parts of the infrastructure .We will examine electronic commerce applications ,multimedia Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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content,and multimedia storage servers as well as the information delivery system,the network service providers that serve as access points,and the devices that function as interfaces for various e-commerce applications.
Multimedia content for e-com applications Multimedia content can be considered as both fuel and traffic for e-com applications. Technical definition is the use of digital data in more than one format, such as combination of text, audio, video and graphics in a computer file or document. It has come to mean a combination of computers, television and telephone capabilities in a single device. Goal of multimedia is to increase the utility of all information through the processing and distribution of new forms such as images, audio and video. Traditional separate divisions of industry no longer hold in multimedia. For e.g. an e-book contains not only text, but photographs, voice, video clips and animation. Multimedia storage servers and e-com applications E-com requires robust servers to store and distribute large amounts of digital content to customers. these multimedia storage servers are large information warehouses capable of handling various contents ranging from books, newspapers, movies etc. these servers serve information upon request, must handle large-scale distribution, guarantee security and complete reliability Client-server architecture in e-com All e-com applications follow the client-server model. Clients are devices pus software that request information from servers. it replaces traditional mainframe based models, which meant dumb terminals to a computer. It is too costly and slow to cope with new data types like audio and video. Client-server architecture links PCs to a storage server, where most of the computing is done on clients. The client-server model allows client to interact with the server through a request reply sequence known as message passing. Server manages application tasks, handles storage and security and provides scalability: ability to add customers as needed. Internal processes of multimedia Servers Internal processes involved in the storage, retrieval and management of multimedia data objects are integral to e-com applications. A multimedia server is a hardware and software combination that converts raw data into usable information and then dishes out where and when users need it. Most provide a core set of functions to display, crate and manipulate multimedia documents to transmit and receive multimedia documents over network. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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The technical challenges are: (1) The data differ radically. (2) The computing platforms pose bottlenecks when trying to deliver large pieces of complex data. (3) Most compelling technical challenge is the management of enormous storage capacity required for the new forms data (such as digital video). Certain video compression standards such as MPEG are used for economical storage and manipulation of digital video. To solve these technical challenges, new types of video servers are being developed. Video servers and E-com E-com applications related to digital video includes telecommuting and videoconferencing. Video servers are an important link between content providers (entertainment and media) and transport providers (telecom and wireless) Difference between video servers and current client-server computer systems is that video servers are designed to deliver information to hundreds of consumers simultaneously via public telecommunications and cable network. Video servers tackle the simultaneous overlapping supply problem that arises when providing on-demand services to large no. of homes. Numerous homes may want to watch film either simultaneously or at overlapping times. In hardware solutions servers can acquire the power of massive parallel architecture .i.e.; using thousands of inexpensive microprocessors that are interlinked to create the illusion of one large computer. Each processor acts as a video pump and distributes a portion of the film. [Refer textbook for the block diagram of a generic video-on-demand system] Information Delivery/Transport and E-com applications. Transport providers are telecommunications, cable and wireless industries, computer network including commercial network and public network such as Internet. Distribution of information has become a competitive market with a combination of offense and defense. On defense are telephone and cable-TV companies. On offense are computer companies that offer new hard ware capabilities and software programs. Another threat is wireless communications, known as personal communications services-bypasses traditional telecommunication companies. Consumer Access devices This includes-Which devices provide access to consumer/Will it be the existing ones? What OS will be in these devices? A no. of devices exists - videophones, PCs capable of handling multimedia, personal digital Assistants (PDA) television capable of two-way transmission etc. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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The choice of OS depends on which transport highway consumers ride and user interface they prefer. If on-line services are used, high probability that PC-based access may dominate. 6.0) Summary In this lecture we covered the Framework and applications of E-commerce. 7.0) Exercise questions 1. Illustrate the anatomy of e-commerce applications. 2. Explain the E-commerce framework.
Lecture # 2
1) Synopsis: E-Commerce Consumer & Organization Applications.. 2) Target: At the completion of this lecture you should be able to answer questions like (a) What Do Consumers Really Want? b) What Are Consumers Willing To Spend? 3) Introduction In this lecture we plan to explore the following. 2. 3. 4. 5. 6. 7. 8. 9. 1. Consumer Applications and Social Interaction Changing Business environment E-Com and the Retail industry Marketing and E-Com Inventory management and organizational Applications Just in Time manufacturing JIT purchasing Quick Response Retailing Supply Cain Management a) Supplier management
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4) Revision / Prerequisites Please refer to pages 22 to 41 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston. . 5.1) Consumer Applications and Social Interaction The e-commerce application winners will be those that can change the way consumers think and the way they do business. One example might be applications oriented toward social interaction. Television, the most successful technological miracle since the automobile, quickly became so vital that people, even those who couldnt even afford shoes, bought sets in the millions. Penetration was slower for the telephone than for TV because o f the effort needed to set up the wiring infrastructure. The impact of the telephone on business and social communications is without doubt one of the most significant events of the twentieth century. The same is true for the influence of television on consumer behavior and entertainment habits. In sum, the most successful marketplaces are expected to be those that cater to consumers loneliness, boredom, education, and career. For the social interaction, one can add video on- demand, adult entertainment (sports, gambling), electronic malls, grocery shopping, and local news to that list. Newspaper publishers with on-line services have already found a successful niche: the personal ads. In addition to developing e-commerce applications, packaging and distribution must be considered. 5.2) Changing Business environment The traditional business environment is changing rapidly as customers and businesses seek the flexibility to change trading partners, platforms, carriers and networks at will. To shape their business strategies, companies are looking outside as well as within the organization. These activities include establishing private electronic connections to customers, suppliers, distributors, to increase the efficiency of business communications, to help expand market share, and to maintain long term viability in todays business environment. The information Superhighway will allow businesses to exchange information among constantly changing sets of customers, suppliers etc.
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Traditional firms and financial institutions fear that their vision of business no longer applies. A company doing well suddenly finds itself stagnating and frustrated as fleetfooted competitors take away market share. The root cause is not that things are done poorly; indeed right things are being done, but fruitlessly. It is because the assumption on which the firm is being run no longer fits reality. Eg: Take the classic cases of IBM and Digital equipment Corporation (DEC) in the computer industry. IBM based its philosophy on mainframe computers and DEC to its VAX series of minicomputers. The companies managements changed their theories of business and shifted to new foundations with the PC revolution. Now, E-Commerce is bringing about another revolution that no one can miss. In general, firms utilize consumer and market research to shape its strategy, dictate decisions about what to do and what not to do, and define what it considers meaningful results. Companies are restructuring, To be Lean and Mean is what companies desire. Organizations see major work force reductions or downsizings as the way to gain operational efficiency and agility. The need for faster reaction times to customer requests, competitive new products results in a decrease in middle management and line employees.
5.3) E-Com and the Retail industry Consumers are demanding lower prices, better quality, a large selection of in-season goods. Retailers are struggling to fill the order. They are slashing back-office costs, reducing profit margins, reducing cycle times and making huge investments in technology. They make sure that warehouse costs are down by reducing their average inventory levels and co-coordinating consumer demand and supply patterns. In the push to reduce prices, more and more retailers are turning to overseas suppliers, because of cheap labor costs. Retailers are in much pressure and they are putting it on the manufacturing and supplier end of the pipeline. Pressure experienced by manufacturers and suppliers can be seen in disappearance of jobs, mergers and increase in business failures in the manufacturing sector. E-markets can provide a solution by promising customers more convenience and merchants greater efficiency and interactivity with suppliers. 5.4) Marketing and E-Com E-com is forcing companies to rethink the existing ways of doing target marketing (isolating and focusing on a segment of the population), relationship marketing (building and sustaining a ling term relationship), and even event marketing (setting up a virtual booth where interested people come and visit). Consider the case of direct marketers, who devote some 25% of their revenue to costs such as printing and postage for catalogs. Interactive marketing help cut such expenses and may even deliver better results. Interactive marketing is accomplished in e-markets via interactive multimedia catalogs that give the same look and feel as shopping channel. Users find moving images more Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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appealing than still images and listening more appealing than reading text on a screen. These are 2 reasons why text-based and still picture based interactive experiment like videotext has failed in the past. Ideally an interactive shopping program should produce full motion demo of the selected products, but such a practical and economical technology has yet to be developed. Consumer information services are a new type of catalog business. Eg: CUC intl. The companys primary mission is not to sell products but to provide information people need to shop. CUC maintains databases with detailed information on some 250,000 products. In return for an annual fee, each of the services 30 million customers get unlimited access to information usually by dialing a number and speaking to a person who consults the computer database. Those who wish to order products can do so by phone or computer. Company relays the order to manufacturer. According to the companys CEO, This is virtual- reality inventory. We stock nothing, but we sell everything. 5.5) Inventory management and organizational Applications Manufacturers know that need to catch on quickly to better ways of doing international business. Adaptation would include moving toward computerized paperless operations, to reduce trading costs and facilitate adoption of new business processes. One often targeted business process is inventory management. Solution for these processes goes by different manner. In manufacturing industry it is known as Just- In Time Inventory system. 5.6) Just in Time manufacturing It is viewed as an integrated management system consisting of a number of different practices, dependent on the characteristics of specific plants. JIT management system, an evolution of Japanese approach to manufacturing introduce in Toyota, It was based on two principles: eliminate waste and empowering workers. The first one refers to elimination of all wastes (time, materials, labor, and equipment) in the production cycle. The following principles are also associated- focused factory, reduced set-up time, totals production time, group technology, and total productive maintenance. 5.7) JIT purchasing Allows a manufacturer to incorporate its suppliers effort toward eliminating waste. It focuses in reduction of inventories throughout the logistical system of manufacturing firms involved and provides a careful audit of the production process. It optimizes supplier and customer relations. In a production plant, needed materials are to be supplied Just In Time. Production costs will decrease as required level of stock is reduced. Materials from suppliers will be ordered only if production plant can sell its product. Quality control of production is enhanced. All stages of production are closely monitored Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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5.8) Quick Response Retailing It is a version of JIT purchasing for retailers. Most often, keeping a store filled with merchandise is a task most shoppers never consider, until the product they want is out of stock. Failure to stock merchandise that matches customer demand can be extremely costly. To reduce the risk of being out of stock, retailers are implementing quick response (QR) system. It provides for a flexible product ordering and lowers costly inventory levels. QR retailing focuses on market responsiveness while maintaining low levels of stock. Creating a closed lop containing retailers, vendors and consumers. As consumers make purchases, the vendor automatically orders new deliveries from the retailer through its computer network. Bar-coded articles are logged by cash registers at the point of sales; inventory system of the store then determines the needed supply and transmits an order to the retailer. Eg: Wal-Mart invested half a billion dollars in computer and satellite networks, barcode systems, scanners and other QR equipment linking each point of sale terminal to distribution centre and headquarters. It enabled the company to become number one in the US retail business. [Refer text book for the block diagram of QR chain.] 5.9) Supply Cain Management Inventory management strategies were implemented through very expensive computer system and private networks. Cost was a barrier for many small businesses and new business strategies created many side effects. E.g.: because of vast investments to implement JIT/QR, manufacturers/retailers tended to reduce the number of suppliers and move towards single sourcing. What manufacturer/retailer need is a large supplier base in order to be competitive. One solution is to implement a common network infrastructure such as I-way. Using Inventory management solutions (JIT/QR) may not be feasible, if a company depends on unresponsive supplier for key components. E.g.: a manufacturing company may develop the capability to assemble products quickly in response to customers order, but that is constrained by suppliers long lead times. What is required is a technique for managing unanticipated problems in the supply chain. SCM extending- means integrating the internal and external partners on the supply and process chains to get raw materials to manufacturers and finished products to customers. Product excellence alone fails to guarantee corporate success. Customers expect many services- prompt delivery of products to precise locations with near- perfect administration and physical quality. SCM include following functions: Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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1. Supplier management - Goal is to reduce the number of suppliers and get them to become partners in business. Benefits are reduced purchase order processing costs. Increased no. of POs processed fewer employees and reduced order processing cycle times. 2. Inventory management (IM) - Goal is to shorten order- bill- ship cycle. Partners are e- linked, information is sent instantly. Documents can be tracked to ensure they were received. IM solution should enable reduction of inventory levels, improve inventory turns and eliminate out of stock occurrences. 3. Distribution management - Goal is to move documents related to shipping and transport quickly. The paperwork took days to cycle, now sent in moments and contain more accurate data. 4. Channel management- Goal is to quickly disseminate information about changing operational conditions to trading partners. Technical, product and pricing information that once required repeated telephone calls can now be posted to e-bulletin boards, providing instant access. 5. Payment management- Goal is to link the company and suppliers and distributors, so payments can be sent and received electronically. This increases the speed of computing invoices, reducing clerical errors, lowering transaction fee and costs. 6. Financial management- Goal is to enable global companies to manage their money in various foreign exchange accounts. 7. Sales Force Productivity- Goal is to improve communication and flow of information among the sales force with regional and corporate offices. This establishes greater access to market intelligence and competitive information that can be funneled into better customer service and service quality.
6.) Summary During the course of this lecture, we discussed e-commerce as a new way of conducting, managing, and executing business transactions using computer and telecommunications networks. 7.0) Exercise questions 1. What is SCM & what are its functions? 2. What is the importance of marketing in E-com?
Lecture 3
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1) Synopsis: E-Commerce and World Wide Web-Internet Service Providers 2) Target: At the completion of the lecture you should be able to answer questions like a) What does the Web Encompass? b) What is the technology behind the Web that used by information providers? 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: a) b) c) d) Transparency Transaction Security and Management Distributed Object Management and Services Internet Service providers i. Evaluating and selecting a national/regional ISP ii. Setting up a local technology infrastructure iii. Setting up software and Dial-up connection lines iv. Technical support and help desk management
4) Revision Please refer to pages 225 to 250 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Transparency It implies that users should be unaware that they are accessing multiple systems. It is essential for dealing with higher-level issues than physical media and interconnection. E.g.: virtual network- a collection of work group, departmental, enterprise and inter-enterprise LANs that appear to the end user to be a seamless and easily accessed one. Middleware facilitates a distributed computing environment that gives users and applications transparent access to data, computation and other resources across heterogeneous system. Theoretical benefit of architecture can be realized with transparency. Users need not spend time trying to understand where something is. The exact location of resource should not be put into code. Goal is for the application to send a request to middleware layer, which satisfies it. 5.2) Concept # 2: Transaction Security and Management Support for transaction processing is fundamental to success in e-com market. At the transaction security level, 2 general categories of security services exist. They are authentication and authorization. Transaction integrity must be given for businesses that Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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cannot afford any loss or inconsistency in data. For e-com, middleware provides the qualities expected in a standard transaction processing system-ACID properties (Atomicity, Consistency, Isolation, and Durability) 5.3) Concept # 3: Distributed Object Management and Services Object orientation is becoming fundamental to network based applications. The reason is its too hard to write a network based application without a technology that camouflages the intricacies if the network. An object is a combination of data and instructions acting on the data. It is an evolution of the traditional concept of functions and procedures. A natural instance of an object in e-com is a document. It carries data and often instructions about the actions to be performed on the data. Object is used interchangeably with document resulting in a new form of computing document oriented computing. The trend is to move away from single data-type documents such as text, pictures or video towards integrated documents known as compound document. Document orientation provides ability to build application from applets. It also provides necessary ease of development through reuse and customization. Middle ware acts as integration for the various standard protocols already in use. These include TCP/IP, distributed computing environment and emerging distributed object computing framework for creating compound documents such as CORBA, OLE. 5.4) Concept # 4: Internet Service providers Commercial Internet service providers (ISPs) exist to provide for pay access to the various Internet applications and resources for both companies and individuals. There are four general categories of ISP: telco/cable/on-line companies, national independents, regionals and local ISPs.
Telco/cable/on-line companies These are long distance telephone companies (AT &T, MCI, and Sprint), Cable TV, and on-line service operators (CompuServe, America Online, Prodigy). Their common factor is company size, with balance sheets of billions of dollars. National Independents These are commercial, for-profit entities offering connectivity services nationwide or internationally in some cases, which are positioned to compete in the evolving commercial marketplace. PSI &UUNET are among the firms competing in the market. Regionals
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Certain nonprofit university-affiliated enterprises that offered services within 1 state or within regional intestate areas started entering into the commercial market places with the elimination of NSF subsidies. Examples are SURAnet, NEARnet, NYSERnet, and BARRnet. Local Service Providers Commonly called mom and pop shops, these are small businesses that support 101000 customers. They operate in one location and offer services to business an individual consumers within a single metropolitan area. National Independent ISPs The major U.S service providers include Performance Systems International (PSI), Advanced Networks and Services (ANS) and UUNET Technologies. One goal of the ISP vendors is to provide all customers of their collective markets the ability to communicate with each other without restrictions imposed by the Acceptable Usage Policy. A common point of interconnection has been deployed: the Commercial Internet Exchange (CIX). Like a border checkpoint, CIX serves as an entry point for traffic into the Internet. [Refer text book for the diagram of Architecture of national level ISP] National Independent ISPs are dominant in the internet access hierarchy and provide other smaller service providers with backbone connectivity. They provide connections (points of presence, POP), which are a direct linkage to backbone network. These POPs are usually equipped with routers for dedicated connections and modems for dial-up connections, Users simply connect to the nearest switching facility. The national ISP then transport the internet traffic across its own network to a router with a connection into the rest of the world. At regional level are tens of thousands of organizations of every kind. Most of these small networks are operated by organizations that provide internet access to their internal staff. Along with high bandwidth connection, comes the need for customer premises equipment. It is too complicated to configure and manage. This is where system integration and consultancy services could become key criteria in service provider selection. They offer several advantages that may lead a firm to connect all its corporate sites to a national ISP instead of maintaining internally. It is a WAN, in star topology. It requires only one leased line from each corporate location to the nearest ISP hub, rather than leased dedicated phone connection. Using an ISP to manage a geographically dispersed WAN, an organization can obtain cost savings in staff reduction and need to purchase equipment. By off-loading network management responsibility to ISPs skilled personnel, companies can reduce overhead and Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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increase reliability of network. They also offer value added services such as news and information. ISPs offer gateways that load non-IP traffic into IP packets for transmission across internet, allowing it to be used as a transparent connection between non TCP/IP systems. E.g.: companies can route traffic destined for internet across internal backbone network using an existing backbone protocol to host computer that has a direct connection to an ISP. Users can then use an internal or ISP provided gateway to connect the traffic to IP, which would be routed across Internet. Usage policy must be laid if extensive commercial activity is involved. E.g.: a firm connected to a commercial ISP, desired to work with some university connected to an academic network. This network has policies restricting their usage to research and education. It would be inappropriate for the firm to exchange invoices and purchase orders. Logistics of being an ISP To become an ISP, which means providing t consumers with PCs and modems the ability to communicate with one another. Step 1: Evaluating and selecting a national/regional ISP First and foremost thing any local ISP need is access to Internet backbone. For this, determine which national/regional ISP has a POP in that area. The choice depends on the speed of the connection needed and reputation of vendor that provides the service. Some criteria for selection: a) Network Topology- It is the most important criteria. The issues related with this criterion are how vulnerable the network is to outages, how much capacity is available when network is loaded more heavily and how ell the provider understands WAN. Most will provide details of their network topology and explain what services can be expected in various times. Also look at the external links provided to other network providers. The more number of connections the better. b) Cost to connect to the backbone. c) Most ISPs claim a large number of POPs. Evaluate what constitute a POP for them. Some claim a POP anywhere they deliver service. Find out, whether the POPs are single customers at the end of low speed lines or if there are high-end routers linked by high speed connection. Most POPs offer internet connectivity in the range of 14.4kbps to 45 Mbps. To determine which is right for you, use the guide lines: estimate number of customers who will be using the link, the type of applications they will be using and frequency with which they will be send and receive data. d) The bandwidth required depends upon the type of usage. E.g.: an e-mail contains 10 to 20 kb of data. This will be transmitted over a connection at 14.4kbps in just 2 sec. So a large number of users can share it for e-mail only. But a picture contains 500-1000KB of data. It will take 5 minutes to be transmitted in 14,4 kbps, 20 sec in 56kbps and 1 sec in 1.5 Mbps. Take the estimate; multiply by the number of users Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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simultaneously transmitting, divide by the connection speed, this will give the transmission time. Always settle on a type that meets your requirements. e) Evaluate what level of customer service they are offering. Whether they provide often documentation, consultation and ongoing support. Finally do some comparison and a price/benefit analysis. Some providers may be priced less than others. Also seek customer reference. See what their complaints are. The most important statistic- how many of their customers have switched from other providers. Step 2: Setting up a local technology infrastructure. There are plenty of commercial quality routers, switches etc that are available. Part of the hardware decision depends upon what software is being run on it. The most important part of the architecture is the operating platform or server. A local ISP needs servers that can handle 30 customer systems. 3major items that are required are router, terminal server and a modem farm. Selecting a router: As size of the local ISP increases, there is need for an on-site router that connects to the POP. It is often a box with a modem, network interface card and a small PC running router software. Information comes in packets, like envelopes each with its own header, bearing the address of its destination. When the packets come, the router sends them to the destination, based on the packet header. The additional functions are providing network security, manages traffic through adaptive routing, which permits information to flow over multiple paths and reroute automatically upon failure. Selecting a Terminal server: It is used to route traffic between a user at home and, server or host computer at service providers side. There are different types, ranging from one-port to hundred ports. The features to examine are; types of protocols supported, simultaneous access to multiple hosts, the number of ports, types of connections, scalability and user interface. Host Protocols: The basic decision you have to make here is which network host protocols are needed. Host protocols let the terminal server communicate with the computer systems on the network. The dominant protocols are Telnet, SLIP/PPP, and ISDN. Serial Line Internet Protocol (SLIP) designed for host-to-host, host-to-router, router-torouter or workstation-to-host communications over synchronous or asynchronous, leased or dial up serial lines. It allows network services that use TCP/IP to run over a serial line. An alternate is PPP, designed to overcome SLIPs shortcomings and provide a mechanism for transporting multi-protocol datagrams over point-to-point links. Telnet is used between a terminal server and a host system.
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Terminal Ports: The number of ports required must be determined. Each port determines one dial-up user. It must be decided whether modem control on the serial ports is required. If you are connecting local terminal users or LAN PCs through a terminal server, modem control is not required. Terminal Sessions: The provider must evaluate the maximum number of sessions for the entire terminal server. A manufacturer may not specify a limit, but a limit does exist, generally determined by the amount of memory in the device. One feature of terminal servers is that they let users at a single terminal simultaneously log on to many hoist systems. It also has ability to allow maximum no. of simultaneous sessions per port. Terminal Connections: it deals with speed and reverse connections. Most support serial connections at speeds of at least 19.2kbps and some have extremely high speed-115.2 kbps. Some also support reverse connection, where the connection originates from the host system. Selecting a modem farm: Customer computers cannot connect to the terminal server without a modem on the service providers side. Modems come with all types of capabilities and speeds in two basic forms- Synchronous-establish an end-to-end connection (like a telephone call) and begin sending information. Asynchronous- send information in small blocks, then check to make sure that there are no errors before sending the next block of information. The type of modem selected is related to telephone charge which can dominate the cost of access to the internet. Step3: Setting up software and Dial-up connection lines The most basic service gives customer access to all internet services such as e-mail, FTP etc. Other services include: Gopher server service: allow customers to display information files on providers gopher server. It can be used to display information about customer product, business or service. WWW server service: allows displaying hypertext documents on the web server. They can display pictures, animation and sound. FTP archive service: gives customer an archive directory on the anonymous FTP server. Mailing list service: allows to set-up a mailing list. Step4: Technical support and help desk management There is great variation in the level of quality of service ISPs offer. Some provide customer support as recorded message in answering machine and an extended call back. On the other end are full service providers who have a customer assistance hotline and proactive support in the form of user meetings, workshops and newsletters. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
T 803 There are 5 basic areas that a customer should evaluate:-
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1. Documentation: Does the ISP have a user manual? Does it explain how to use all the functionalities that are provided? 2. Telephone support: Is there someone to call if customer runs into problems or has questions? At what time is it available? Is there any additional charge for it? 3. Training and workshops: Are they willing to provide start-up training? Will they conduct any general and specialized workshops focusing on resource available on the internet? 4. Ongoing Communication: Most publish an ongoing newsletter or memos that discuss state of the system and include information about new resources on the internet 5. Technical enhancements: Does the ISP have a track record of enhancing the system to make it easier to use? When changes are made, how are users kept informed? Step5: Targeting and Keeping Customers All kind of users, large and small companies use the Internet for their business, communicate with each other etc. These are customers who will find Internet indispensable once connected. The challenges for ISPs Quality of service, coverage, support, ease of use and value-added service. To address them, develop strong marketing strategies and programs to support future growth. 6.) Summary We see the applications of electronic commerce are being built on a foundation of global hypertext such as WWW. The Web provides a totally different and unique method of accessing information. 7.0) Exercise questions 1. Describe how the growth of internet and the worldwide web have stimulated the emergence of E-commerce.
Lecture 5
1) Synopsis: Architectural Framework for Electronic Commerce Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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2) Target: At the completion of the lecture you should be able to answer questions like a) What are the Middleware services? b) What are the different application service layers of e-commerce? 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: a) b) c) d) e) f) g) Architectural Frame work for E-Commerce E-com application Services Information Brokerage and management Interface and support services Secure messaging and structured document interchange services Middleware services World Wide Web (WWW) as the architecture
4) Revision Please refer to pages 215 to 227 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Architectural Frame work for E-Commerce In general a framework is intended to define and create tools that integrate the information found in todays closed systems and allows the development of e-commerce applications. The e-commerce application architecture consists of six layers of functionality or services: (1) applications (2) brokerage services, data or transaction management (3) interface and support layers (4) secure messaging, security, and electronic document interchange (5) middleware and structured document interchange (6) network infrastructure and basic communications services Refer the block diagram in the text. 5.2) Concept # 2: E-com application Services E-com applications are based on several elegant techniques. But only when they are integrated, do they provide powerful solutions. There are 3 distinct classes: 1) Customer- Business transaction: Also known as market place transaction. Here customers learn about products differently through electronic publishing, buy them Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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differently through e-cash and have they delivered differently. Traditional concepts of brand differentiation do not hold. 2) Business Business Transaction: Also known as market-link transaction. Businesses, government and other organizations depend on computer-to-computer communications as a fast, economical and dependable way to conduct business transactions. B-@-B transactions include the use of EDI and e-mail for purchasing goods and services, buying information and consulting services etc. Eg: the current accounts payable process occurs through the exchange of paper documents. Trading partners exchange millions of invoices, cheques, POs etc. Most are in electronic form at the point of origin, but are printed and key-entered at the point of receipt. This process is costly, time consuming and error prone. So small businesses are looking towards e-com as a way. 3) Intra-organizational transactions: also known as market driven transaction. A company becomes market driven by dispersing throughout the firm information about its customer and competitors, by spreading strategic and tactical decision making so that all units can participate and by continuously monitoring their customer commitment. To maintain the relationship management must pay close attention to service, both before and after sales. 3 major components are customer orientation through product and service customization, cross-functional coordination through enterprise integration and advertising, marketing and customer service.
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Classic EDI Procurement, Distribution and logistics
Engineering and research Private Commerce
Manufacturing and Production Internal Publishing
Accounting, finance and management
Advertising, Sales Customer service Prepared by Ms. Sreenu.G, Department of Computer Science, RASET service Consumer oriented
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Classic EDI Procurement, Distribution and logistics
Engineering and research Private Commerce
Manufacturing and Production Internal Publishing Customer service
Accounting, finance and management
Advertising, Sales service
Consumer oriented Electronic commerce Customers
Different Types of electronic commerce applications 5.3) Concept # 3: Information Brokerage and management The second layer is used to represent an intermediary, who provides service integration between customers and information providers, given some constraints such as low price, fast service or profit maximization for a client. Information brokers for instance are becoming necessary in dealing with large amount of information on the network. As the on-line databases migrate toward consumer information, information professionals have to keep up with the knowledge and ownership of these systems. Whos got what? How do you use it? What do they charge? Most have trouble keeping track of files on one or more databases. It will have to be software programs-information brokers or software agents that act on searchers behalf. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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It also adds value to the information it retrieved. eg: in foreign exchange trading, information is retrieved about the latest currency exchange rates to hedge/protect currency holdings to minimize risk and maximize profit. Another aspect is the support for data management and traditional transaction services. Brokerages may provide tools to accomplish more sophisticated, time-delayed updates. This includes software agents, distributed query generator, distributed transaction generator and a declarative resource constraint base-which describe the businesses roles and environment information. At the heart of the layer- workflow scripting environment built on a software agent model, that coordinates work and data flow among support services. Software agents are mobile programs that have been called intelligent agents. They are encapsulation of users instructions that perform all kinds of tasks in the e-market place. Information brokerages dispatch agents capable of information resource gathering, negotiating deals and performing transactions. They are intelligent because they have contingency plans of action. They examine themselves and their environment and if necessary change their cause of action to an alternate plan. E.g.: You send an agent to an on-line store to buy a bouquet of roses for Rs 25 or less. If shop offers roses starting at Rs 30, your agent can either choose a different bouquet or find a different store. It will take a while to solve the problems of inter- agent communication, interoperable agents and other headaches with distributed computing. Some vendors even put limits on the power of agents and also self destruct mechanism is built into their codes. Until e-com services become large scale, we dont know how well the software agents will work. 5.4) Concept # 4: Interface and support services This layer provides interfaces for e-com applications such as interactive catalogues and will support directory services functions necessary for information search and access. Interactive catalogues are interfaces to consumer applications like home shopping. It is an extension to paper catalogue and incorporates graphics and video to make it more attractive. Directories operate behind the scene and attempt to organize the enormous amount of information and transactions generated. Directory services databases make data from any server appear as a local file. E.g.: telephone white paper allows us to locate people and telephone no. They play an important role in information management functions. E.g.; take the case of buying an airline ticket with stopovers, with restriction that the time between layovers be minimized. This would require several queries to various online directories to find empty seats on various airlines and then the availability of seats would be coordinated with the amount of time spent in airport terminal. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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The primary difference between two-unlike interactive catalogues deal with people, Directory support services interact with software applications. So they need not have the multimedia. 5.5) Concept # 5: Secure messaging and structured document interchange services E-messaging is a critical business issue. Eg: you hand over an urgent fax on Monday and Tuesday it is still has not been sent. These are situations where you cannot wait for it to take place. Integrated messaging a group of computer services that through the use of a network send, receive and combine messages, faxes and large data files. Eg; email, enhanced fax and EDI. Messaging is software that sits between the network infrastructure and clients or e-com applications. Messaging offers solutions for communicating unformatted (unstructured) data- letters, memos reports as well as formatted (structured) data such as purchase orders, shipping notices and invoices. Unstructured messaging consists of fax, e-mail and form based system like Lotus notes. Structured document messaging consists of automated interchange of standardized and approved messages between computer applications via telecommunications lines. E.g. EDI. Messaging has many advantages; It supports both synchronous (immediate) and asynchronous (delayed) message delivery and processing. With asynchronous messaging, when a message is sent, work continues (software does not wait for a response). It allows transfer of messages through store and forward method. Another advantage; It is not associated with any particular communication protocol. No preprocessing is necessary and well suited for both client server and peer to peer computing models. It is central to work group computing. The ability to access the right information at the right time across diverse work groups is a challenge. With messaging tools, people can communicate and work together more effectively, no matter where they are located. When an employee sends an e-mail form, information also travels along with it. Disadvantages- With messaging, new types of applications are enabled, which appear to be more complex, especially to traditional programmers. There is no interoperability between different messaging vendors. Also privacy and confidentiality through data encryption and authentication techniques are important issues that need to be resolved.
5.6) Concept # 6: Middleware services It is a fairly new concept. In early days, while dealing with homogeneous system, there was no need of a middleware. When conditions changed, tools became inadequate. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Backlog was enormous and pressure was overwhelming. With the growth of networks, client server technology and other form of communicating between unlike platforms, problem of getting all the pieces to work together grew hazardous. Users demanded interaction between dissimilar system, network that permitted shared resource and applications that could be accessed by multiple software programs. In simple termsmiddleware is a mediator between diverse software programs that enables them to talk to one another.
5.7) Concept # 7: World Wide Web (WWW) as the architecture The WWW architecture is made up of three primary entities: client browser, Web browser, and third- party services. Refer text book for its block diagram. The client browser usually interacts with the WWW server, which acts as an intermediary in the interaction with third-party services. Web server functions can be categorized into information retrieval, data and transaction management, and security. The third-party services could be other Web servers that make up the digital library, information processing tools, and electronic payment systems. The Web has got a wide range of concepts and technologies that differ in purpose and scope. This includes the global hypertext publishing concept, the universal reader concept, and the client-server concept. 6.) Summary We discussed electronic commerce as the integration of network infrastructure, data management, and security services, to allow business applications within different organizations to interchange information within the context of business processes automatically. 7.0) Exercise questions 1. Give some applications of E-commerce.
MODULE 2 Lecture 1
1) Synopsis: Types of Electronic Payment Systems Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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2) Target: At the completion of the lecture you should be able to answer questions like a) What form and characteristics of payment instruments will consumers use? b) What are the step-by-step procedures and institutional arrangements that form the fabric of the electronic payment business processes that link consumers and organizations? 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: (a) Types of Electronic Payment Systems (b) Disadvantages of Electronic Payment systems 4) Revision: Please refer to pages 295 to 299 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Electronic payment systems Electronic payment systems and e-commerce are intricately linked, as on-line consumers must pay for products and services. The conventional payment methods such as cash, bank drafts or bills are not well suited for the e-com environment. The drawbacks are in terms of the speed required and high transaction costs involved in processing them. It started in 1940s and the first application was the credit cards. Later came EFT (Electronic Funds Transfer), which is defined as 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. It utilizes both computer and telecommunication components. 5.2) Concept # 2: Payment methods An electronic payment system is needed for compensation for information, goods and services provided through the Internet - such as access to copyrighted materials, database searches or consumption of system resources - or as a convenient form of payment for external goods and services - such as merchandise and services provided outside the Internet. it helps to automate sales activities, extends the potential number of customers and may reduce the amount of paperwork.
Secure (or non-secure) presentation: the customer provides credit card information over a secure (or even clear) transportation means.
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Customer registration: the customer gets a password or digital signature based on a credit card (hides the credit card information from the merchant, but still clears through the credit card). Credit-debit instruments: similar to customer registration but only one bill per month either through credit card or debit checks. Electronic currency: this method has potential for anonymity but requires tamper resistant hardware. Server scrip: the customer gets a kind of coupons from an agent that can be spending only with one particular merchant. This reduces the risk of double spending and allows off-line transactions. Direct transfer: the customer initiates the transfer of funds to the account of the merchant. This method provides no anonymity. Collection agent: the merchant refers the customer to a third party who collects payment using one of the methods mentioned above.
5.3) Concept # 3: Types of Electronic Payment Systems Work on EFT can be segmented into three broad categories: 1. Banking and financial payments Large-scale or wholesale payments (e.g.: bank-to-bank transfer) Small-scale or retail payments (e.g.: ATMs and cash dispensers) Home Banking (e.g.: bill payments) 2. Retailing Payments Credit cards Private label credit/debit cards Charge cards 3. On-line electronic commerce payments Token-based payment systems Electronic cash Electronic checks Smart cards or debit cards Credit card based payment systems Encrypted credit cards Third-party authentication numbers 5.4) Concept # 4: Disadvantages Although there are many benefits to digital cash, there are also many significant disadvantages. These include fraud, failure of technology, possible tracking of individuals and loss of human interaction. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Fraud over digital cash has been a pressing issue in recent years. Hacking into bank accounts and illegal retrieval of banking records has led to a widespread invasion of privacy and has promoted identity theft. There is also a pressing issue regarding the technology involved in digital cash. Power failures, loss of records and undependable software often cause a major setback in promoting the technology. Privacy questions have also been raised; there is a fear that the use of debit cards and the like will lead to the creation by the banking industry of a global tracking system. Some people are working on anonymous e-cash to try to address this issue. 6.) Summary We see electronic payment systems can be widely used in commerce and include wholesale payments, wire transfers, recurring bill payments, the automated clearinghouse, electronic draft capture, and electronic check presentment. 7.0) Exercise questions 1. Which are the different types of electronic payment systems?
Lecture 2
1) Synopsis: Digital Token-Based Electronic Payment Systems 2) Target: At the completion of the lecture you should be able to answer questions like a) b) What are the different types of electronic tokens? What are legal issues of Electronic Checks? 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: Digital Token-Based Electronic Payment Systems Electronic checks Electronic Checks: They're safe, convenient and confidential How does the electronic check get from the company to my bank or credit union 4) Revision: Please refer to pages 299 to 310 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston
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5.1) Concept # 1: Digital Token-Based Electronic Payment Systems The deficiency in the conventional payment methods is that they assume that the parties will at sometime or other be in each others physical presence or that there will be a sufficient delay in the payment process for frauds, overdrafts, etc to be identified and corrected. One new form of financial instrument developed is electronic tokens, in the form of electronic cash/money or checks. They are designed as electronic analogs of various forms of payment backed by a bank. Electronic tokens are of three types: 1. Cash or real-time: Transactions are settled with the exchange of electronic currency. E.g. e-cash 2. Debit or prepaid: Users pay in advance for the privilege of getting information. E.g.: smart cards and electronic purses that store electronic money. 3. Credit or postpaid: The server authenticates the customers and verifies with the bank that funds are adequate before purchase. E.g.: credit/debit cards and electronic checks.
5.2) Concept # 2: Electronic checks Processing the paper checks is becoming increasingly expensive, which is why many retailers, merchants and billing companies are turning to electronic checks. With electronic checks - often called e-checks - people can still use their checks, while everyone gets the benefits of electronic payments. When will you see electronic checks?

When you write a check to pay for something at a store or office When you mail a check to pay for something If your check bounces
Also, you can now permit a company to charge your account when you give your account information by telephone or on the Internet. 5.3) Concept # 3: Electronic Checks: They're safe, convenient and confidential

Your account information is not seen by anyone once the check is turned into an electronic payment. Federal regulations give you extra protection for electronic payments.
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You get more information on your checking account statement with an electronic check - in addition to the check number, the name of the company to whom you wrote the check appears. You now have more options for payment by phone or web sites (Internet). You can continue to write checks on the date and for the amount you choose.
5.4) Concept # 4: How does the electronic check get from the company to my bank or credit union Using the routing and transit number and account number on the bottom of the paper check, an e-Check is created. The transaction will contain your name information or transaction reference number, the dollar amount, the company name, and a descriptive word. When an actual check is converted, the check number is also included. The transactions for that day are put together in a batch and sent to the company's financial institution. The financial institution then sends the batch to the electronic network. The network then delivers the transactions to the account holding bank or credit union. This process is very similar to the way checks are cleared. 6.) Summary We discussed electronic commerce as the integration of network infrastructure, data management, and security services, to allow business applications within different organizations to interchange information within the context of business processes automatically.. 7.0) Exercise questions 1. What is electronic cash? Explain different methods of transacting electronic cash.
Lecture 3
1) Synopsis: Smart Cards and Credit Cards 2) Target: At the completion of the lecture you should be able to answer questions like a) What are the different payment options? 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: Smart cards Smart cards Credit Card Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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4) Revision: Please refer to pages 312 to 317 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Smart cards Smartcards are small portable cards or devices, usually of roughly the same size and appearance as a credit card, with an embedded microchip. The chip gives them greater capacity to store and use information than traditional magnetic stripe cards, meaning they can be used to store personal information, make payments and allow secure access to other systems. According to searchSecurity.com, there are more than a billion smart cards already in circulation, with Europe leading the field. Currently, most of these are focused on delivering a single application to a specific target market such as paying for petrol at a petrol station. As their power, sophistication and security grow, smart cards that can be used for many applications at once will become the norm. However the high initial cost of introducing smart card systems and a lack of universal standards mean there are potential risks about implementing smart card projects locally. Smarts cards may have up to 8 kilobytes of RAM, 346 kilobytes of ROM, 256 kilobytes of programmable ROM, and a 16-bit microprocessor. The smart card uses a serial interface and receives its power from external sources like a card reader. The processor uses a limited instruction set for applications such as cryptography Relationship-based smart cards are like credit cards with additional features such as valueadded marketing programs and access to multiple financial accounts. Electronic purses, more like debit cards, receive money from an ATM or through special "smart" phones and can be "recharged" once they become depleted. Their success depends on how ubiquitous smart-card readers become in places such as vending machines and tollbooths. 5.2) Concept # 2: Credit Card Send Credit-Card Details by Email It is entirely feasible for the payer to send credit-card details 'in clear' to the payee, by unencrypted email. This risks interception along transmission lines and in nodes along the way. Assessments of the degree risk of risk involved vary from lot more than conventional mechanisms like telephone calls and handing over your credit card in a restaurant, to a lot less. In Australia, and some other civilized countries, consumers are substantially protected Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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against fraud arising in such circumstances, and the financial institution and/or merchant carry the risk. Send Credit-Card Details by Separate Dial-Up Connection A minimalist approach to protecting the credit-card details is to require a separate dial-up connection from the payer to a card-validating intermediary. This seems unlikely to provide a satisfactory level of convenience to the payer, but at least one such service exists. (3) Send Credit-Card Details by Encrypted Transmission a) Use Email Another approach is to place credit-card details inside a message, and encrypt the message, or at least the risk-prone credit-card details. Symmetric (secret key) encryption schemes appear impractical because of problems with key management, but asymmetric (public key) schemes lend themselves to this use: the payer needs software that will encrypt the data using the payee's public key, and the payee can decrypt it using their own private key. PGP is the mainstream product, which delivers this capability. Unfortunately, however, the FBI's atrocious treatment of its originator, Phil Zimmerman, has resulted in long delays in PGP becoming available in a convenient, readily commercialized form. The formation of a company, PGP Inc., to exploit the product, may result in the availability of convenient interfaces for consumers in the near future. (b) Use Secure HTTP The Hypertext Transport Protocol (HTTP) provides a means of encrypting transmissions, referred to as Secure HTTP. A transmission using SHHTP is recognizable at browser-level through the use of the identifier 'shttp://' at the commencement of the URL. This can be used to capture credit-card details using a web-form, and submit them across the Internet in a relatively transmission-secure manner. (c) Use the Emergent SET Standard Secure HTTP can offer a secure channel, but does not address authentication and nonrepudiation risks. 5.3) Concept # 3: Debit-Card Details Debit-card transactions involve an immediate charge to the bank account of the cardholder, rather than to a so-called 'revolving credit' account run by a 'credit-card company'. In Australia, debit-card transactions are not permitted unless the keying of the PIN supports them. (Some countries have less strong security requirements and consumer protections...). If crypto-based techniques like SHHTP and SET are successful in establishing highly secure electronic payment mechanisms, they would be at least as secure as PIN-based transactions, and hence they could be used to support debit-card as well as credit-card transactions.
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Value-Token Creation and Passing These schemes involve the payer downloading virtual notes or coins (more generally, 'value-tokens') from their electronic banker and holding them in a virtual wallet on their own hard-disk (workstation, laptop, PDA, etc.). To make a payment, the payer mails one or more value-tokens to the recipient. The recipient deposits them with the same electronic banker. They may hold the value-tokens, or deposit them in a conventional bank account with that banker, or request transfer of the value to their account with another financial institution. No doubt clearing systems will be established in due course to enable banks that support various kinds of tokens to settle with one another, and transfer credits (much like clearing systems arose for international currencies and for cheques, etc.). There are many risks to be managed in this kind of scheme, such as the spender spending the tokens twice, the recipient inventing (forging, counterfeiting) tokens, the bank failing to honor its tokens, and the payer's or payee's hard-disk crashing. Several organizations claim to have crypto-based features that address these risks. Some of these schemes offer fixed-denomination value-tokens. This can result in additional traffic to break the token into one for the amount to be transferred to the payee, and another to be returned as 'change' to the payer. It may also result in other awkwardness (and in particular fragmentation of the value in one's wallet) that needs to be managed. Other schemes provide automated adaptation of the values of each token. To date, the schemes that have been devised feature single-use tokens: it appears that no one has come up with a multiple-use token yet. This may seem a deficiency in comparison with physical cash, but it may prove to be an entirely adequate way to transfer value in the context of the net. The big player, at least in intellectual terms, is David Chaum's Digicash, which operates out of Amsterdam. This supports payer anonymity, whereas other schemes that have been implemented or described involve identification of both the payer and payee. The other particularly important product is Cliff Neumann's NetCash, which originated at USC in Marina Del Ray. Digital cash will make transactions more efficient, which will in turn enlarge new business opportunities and eventually pass more benefits on to the users. First, digital cash will make transactions less expensive, because the cost of transferring digital cash through the Internet is cheaper than through the conventional banking system. To transfer money, the conventional banking system maintains many branches, clerks, automatic teller machines, and electronic transaction systems of its own. These overhead costs increase the fees of money transfers or credit card payments through banks. But since digital cash uses the existing Internet network and user's computers, the cost of digital cash transfer will be much lower, probably nearly zero. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Second, since the Internet has no national borders, digital cash does not have it either. Thus, the cost of transfer within a state is almost equal to the cost of transfer across states. The cost of international money transfer, which is now much higher than the transfer within national border, will be reduced dramatically. For example, now it takes more than a week to send a small amount of money to a foreign bank. But if the foreign bank accepts digital cash, this delay may be almost diminished. Third, digital cash payments can be used by everybody. While credit card payments are limited to authorize stores, digital cash payments are possible for person-to-person payments. Thus, even very small businesses or individuals can use these payments. The increased efficiency and enlarged business opportunity will lead to less expensive and more sophisticated services for users. 6.) Summary We discussed about the different options of electronic payment systems such as smart cards and credit cards. Thereby new opportunities will arise for consumers, banks, and others. 7.0) Exercise questions 1. Explain in detail the credit card system
Lecture 4
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1) Synopsis: Credit Card Based Payment Systems 2) Target: At the completion of the lecture you should be able to answer questions like a) What is the different existing credit card based electronic payment systems? b) What are Drawbacks of the existing Credit Card Based Payment Systems 3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: Encryption and Credit Cards Third Party Processors and Credit cards Drawbacks of the existing Credit Card Based Payment Systems 4) Revision: Please refer to pages 312 to 317 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Encryption and Credit Cards Though the use of credit cards during electronic transaction added a new flavor in electronic commerce, there is nothing new in the basic process. The consumers, who want to buy a product or service, simply send their credit card details to the involving service provider and the credit card organization handles this payment like any other electronic transaction . Existing credit card-based electronic payment systems include: (a) the use of encrypted cards (e.g., World Wide Web form-based encryption) (b) third-party authorization (e.g., First Virtual) Encryption and credit cards In this scheme, in order to make a truly secure and no refutable transaction using an encrypted credit card, each consumer and each vendor generates a public and a secret key. The public key is sent to the credit card company and put on its public key server. The secret key is re-encrypted with a password and the unencrypted version is erased. To buy something from vendor X, the consumer sends vendor X the message, It is now time T, I am paying Y dollars to X for item Z, then the consumer uses his or her password to sign the message with the public key. The vendor will then sign the message with its own secret key and send it to the credit card company, which will bill the consumer for Y dollars and give the same amount 5.2) Concept # 2: Third Party Processors and Credit cards Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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A third party credit card processor is a company that accepts credit card orders on behalf of other online businesses. In third-party processing, consumers register with a third party on the Internet to verify the electronic micro transactions. Here, the two key servers are merchant server and payment server. Using a client browser, a user makes a purchase from a merchant server by clicking on a payment URL (hyperlinks), which is attached to the product on a WWW page. The payment URLs send the encoded information including the details of purchase (e.g., price of item, target URL and duration) to the payment server. If the information entered by the customer is valid and funds are available, the payment server processes the payment transaction and redirects the users browser to the purchased item with an access URL, which encodes the details of the payment transaction (the amount, what was purchased and duration). The access URL acts as a digital invoice, stamped paid by the payment server; which provides evidence to the merchant that the user has paid for the information and provides a receipt that grants the user access. The merchant runs an HTTP server that is modified to process access URLs. The server checks the validity of the URL and grants access if the expiration time has not passed. Once the customer is authenticated, the payment is automatically processed. 5.3) Concept # 3: Drawbacks of the existing Credit Card Based Payment Systems Though the existing credit card-based electronic payment systems are simple in comparison to the digital cash and electronic checks, they suffer from a variety of drawbacks. The encrypted credit card-based electronic payment system suffers from the following disadvantages: The credit card companies need to maintain a public server with all the public keys assuming that the credit card company will keep the vendor honest. Encrypted credit card transactions may not be micro enough for purchasing information and numerous half-dollar and one dollar transactions may not be financially attractive, compared to the average credit card transaction of about $60. If the encrypted credit card electronic payment system is extended to all of the small-dollar services, available over the internet (e.g., 20-cent file transfers and $1 video game rentals), the overall processing load on key system components will likely become unmanageable or commercially nonviable unless a significant amount of automation takes place. The companies maintaining credit-card based payment system have to be big enough so that the costs for management and maintenance of the system do not entail considerable profit lose. Technological and financial strength of the company need to be pretty solid. The electronic payment system using a third-party processor dominates over the encrypted credit card-based system for micro transactions. But it also has disadvantages, stated as follows: Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Requiring an on-line third-party connection for each transaction to different banks could lead to processing bottlenecks that can undermine the goal of reliable use. To use this system both the customers and merchants must be registered with the On-line third-party processor (OTTP). In the case of First Virtual, this registration costs $2 for buyers and $10 for sellers. Sellers also pay a fee of 29 cents for each transaction plus 2 percent. Sellers also pay a $1 processing fee when aggregated payments are made to their account. The complexity of credit card processing using an on-line third-party, takes place in the verification phase; a potential bottleneck. Verification using an OTTP is time consuming and may require many sequence-specific operations. This may lead the system at stake. In the third-world developing countries, electronic commerce is not considered as a lucrative one and the general thought of the people is to consider it as an expensive one and rather unprofitable. Under these circumstances, using an OTTP for credit card verification is not wise in the third-world developing countries; since the establishment and the maintenance of the OTTP requires a large amount of funding. Moreover, payment of the fee to the third-party both from the buyers and the sellers may make the people and the merchants reluctant of using the OTTP for credit card verification scheme. Third-party agents are required to be trustful. Otherwise, using a third-party for credit card verification may seem a bit risky since the transactions are not anonymous and credit card companies do in fact compile valuable data about spending habits. Since an OTTP is a centralized entity, it is a candidate for single point of failure. If the third-party processor collapses, all ongoing transactions may be hampered, causing inconvenience to the users. 6.) Summary In this lecture we discussed about the credit cards and their drawbacks. 7.0) Exercise questions 1) What is the different existing credit card based electronic payment systems?
Lecture 5
1) Synopsis: Online Payment Process 2) Target: At the completion of the lecture you should be able to answer questions like a) What are the online payment processing issues?
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3) Introduction We will proceed towards the exposition of the item mentioned in the synopsis. We will emphasize the following: Online Payment Process Risk in Electronic Payment Systems Designing Electronic Payment Systems 4) Revision: Please refer to pages 326 to 331 of the textbook: Frontiers of electronic commerce by Ravi Kalakota and Andrew B. Whinston 5.1) Concept # 1: Online Payment Process Online payment processing requires coordinating the flow of transactions among a complex network of financial institutions and processors. Fortunately, technology has simplified this process so that, with the right solution, payment processing is easy, secure, and seamless for both you and your customers. This chapter provides you with what you need to know about online payment processing issues:

Online payment processing basics The payment processing network How payment processing works What you should know about fraud What to look for in a payment processing solution Getting started
Purchasing online may seem to be quick and easy, but most consumers give little thought to the process that appears to work instantaneously. For it to work correctly, merchants must connect to a network of banks (both acquiring and issuing banks), processors, and other financial institutions so that payment information provided by the customer can be routed securely and reliably. The solution is a payment gateway that connects your online store to these institutions and processors. Because payment information is highly sensitive, trust and confidence are essential elements of any payment transaction. This means the gateway should be provided by a company with in-depth experience in payment processing and security. The Payment Processing Network: Heres a breakdown of the participants and elements involved in processing payments: Acquiring bank: In the online payment processing world, an acquiring bank provides Internet merchant accounts. A merchant must open an Internet merchant account with an Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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acquiring bank to enable online credit card authorization and payment processing. Examples of acquiring banks include Merchant solutions and major banks. Authorization: The process by which a customers credit card is verified as active and that they have the credit available to make a transaction. In the online payment processing world, an authorization also verifies that the billing information the customer has provided matches up with the information on record with their credit card company. Credit card association: A financial institution that provides credit card services that are branded and distributed by customer issuing banks. Examples include Visa and MasterCard Customer: The holder of the payment instrumentsuch as a credit card, debit card, or electronic check. Customer issuing bank: A financial institution that provides a customer with a credit card or other payment instrument. Examples include Citibank and Suntrust. During a purchase, the customer issuing bank verifies that the payment information submitted to the merchant is valid and that the customer has the funds or credit limit to make the proposed purchase. Internet merchant account: A special account with an acquiring bank that allows the merchant to accept credit cards over the Internet. The merchant typically pays a processing fee for each transaction processed, also known as the discount rate. A merchant applies for an Internet merchant account in a process similar to applying for a commercial loan. The fees charged by the acquiring bank will vary. Merchant: Someone who owns a company that sells products or services. Payment gateway: A service that provides connectivity among merchants, customers, and financial networks to process authorizations and payments. The service is usually operated by a third-party provider such as VeriSign. Processor: A large data center that processes credit card transactions and settles funds to merchants. The processor is connected to a merchants site on behalf of an acquiring bank via a payment gateway. Settlement: The process by which transactions with authorization codes are sent to the processor for payment to the merchant. Settlement is a sort of electronic bookkeeping procedure that causes all funds from captured transactions to be routed to the merchants acquiring bank for deposit
T 803 5.2) Concept # 2: Risk in Electronic Payment Systems
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Credit card fraud can be a significant problem for customers, merchants, and credit card issuers. Liability for fraudulent transactions belongs to the credit card issuer for a cardpresent, in-store transaction, but shifts to the merchant for card not present transactions, including transactions conducted online. This means that the merchant does not receive payment for a fraudulent online transaction. Fortunately, there are steps you can take to significantly limit your risk as an online merchant. The following important fraud prevention steps should be adhered to: 1. Choose a payment services provider that is well-established and credible. Your provider should also have in-depth experience in and a strong track record for transaction security. 2. Make sure your payment gateway provider offers real-time credit card authorization results. This ensures that the credit card has not been reported as lost or stolen and that it is a valid card number 3. One of the simplest ways to reduce the risk of a fraudulent transaction is to use Address Verification Service (AVS). This matches the card holder billing address on file with the billing address submitted to ensure that the card holder is the card owner. 4. Use Card Security Codes, known as CVV2 for Visa, CVVC for MasterCard, and CID for American Express. For American Express, the code is a four-digit number that appears on the front of the card above the account number. For Visa and MasterCard, the code is a three-digit number that appears at the end of the account number on the back of the card. The code is not printed on any receipts and provides additional assurance that the actual card is in possession of the person submitting the transaction. As a merchant, you can ask for this code on your online order form. Even if you do not use this for processing, simply asking for it acts as a strong deterrent against fraud. 5. Watch for multiple orders for easily resold items such as electronic goods purchased on the same credit card. 6. Develop a negative card and shipping address list and cross-check transactions against it. Many perpetrators will go back to the same merchant again and again to make fraudulent transactions Finding a reliable, secure, and flexible payment processing solution for your business is critical, so its important to take the time to investigate and assess the options available to you. A payment processing solution should: 1. Reliably and cost-effectively accept and process a variety of payment types, including credit cards and electronic checks. Not only does this reduce lost sales, but it also enhances the quality of your site by allowing your customers the freedom and flexibility to pay you quickly and conveniently. 2. Provide real-time credit card authorization results allowing you to accept or reject orders immediately and reduce the risk of fraudulent transactions. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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3. Easily track and manage payments from multiple payment types or processors so you can spend more time on your business, not on managing transactions 4. Provide recurring billing payment services, allowing you to set up scheduled payment charges to your customers. For example, you can set up automatically recurring charges for items such as membership dues or for installment payments. Recurring billing is an important feature that provides added convenience for both you and your customer. 5. Be able to act as a virtual terminal to allow for processing offline transactions. This gives you the flexibility to process orders received via telephone, fax, e-mail, or in person. 6. Provide and store transaction records allowing you to easily search for transactions and create transaction reports. 7. Scale rapidly and seamlessly to accommodate increased transaction volumes so your systems grow as your business grows. 8. Provide flexible, easy integration with the merchants Web site. The sooner you can start accepting payments, the sooner you start generating revenue from your site. 9. Be able to work with all the leading Internet merchant accounts, which allow you to switch your banking relationship and not have to worry about installing new software or performing new integrations. 10. Be provided by a well-established and trustworthy company. This ensures that your payment service provider will continue to provide reliable payment services as well as new features Poor Performance and Failure E-businesses tread a thinner line than traditional businesses in efforts to attract and keep consumers. Someone who drives to a store will extend greater latitude to that shop (in terms of what the consumer likes or dislikes about the store, its selection, its layout, its service) than to a Web site. Online consumers expect speed, reliability, and broad selection. When they do not get it, they leave. All it takes to leave is typing a new Web address or following a link. For e-business, there is no dress rehearsal and often no second chance. Internet users are increasingly barraged by new sites, new services, all competing for their eyes and their dollars. When consumers find a site they like, they add a bookmark and stop hunting. And when a site does not satisfy consumers, they dont return and they tell their friends not to go. At issue for consumers is the tension between knowing they have more control with ebusiness and feeling overwhelmed by the choices, and this tension can spell disaster for an e-business that does not adequately mind its store. Often a single negative experience for a consumer means he or she will not return to that site to give that company another chance. If someone tries to buy a puzzle online and the transaction fails, there are enough other online toy retailers that this consumer need never return to the one that failed. A recent study of online shopping by the Boston Consulting Group for a 12-month period reveals unsettling statistics for e-commerce companies battling to attract and keep consumers. Prepared by Ms. Sreenu.G, Department of Computer Science, RASET
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Consumers who are satisfied with their first-time online purchase spent, on average, $600 in 13 transactions; dissatisfied first-time purchasers spent $250 in 5 transactions. Five out of six e-consumers experienced a failed purchase; 29% of all online purchases failed. Twenty-four percent of online shoppers who experienced a failure stopped shopping at that site; 7% also stopped shopping at that companys brick-and-mortar store.
5.3) Concept # 3: Designing Electronic Payment Systems The several factors that helps in the design of Electronic payment systems: Privacy A user expects to trust in a secure system.ie electronic communication must merit equal trust. Security A secure system verifies the identity of two-party transactions through user authentication and reserves flexibility to restrict information/services through access control. Intuitive interfaces The payment interface must be as easy to use as a telephone. Database integration The challenge before banks is to tie the databases together and to allow customers access to any of them while keeping the data up-to-date and error free. Brokers A network banker- someone to broker goods and services, settle conflicts, and facilitate transactions electronically- must be in place. Pricing One fundamental issue is how to price payment system services. Standards Without standards, the wielding of different payment users into different networks and different systems is impossible.
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6.) Summary In this lecture we discussed about the electronic payment systems and their risks and also the factors that we have to consider before designing an electronic payment system. 7.0) Exercise questions 1) What are the different risks in electronic payment systems?

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T 803

LECTURE PLAN OF MODULE 1 AND 2

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

T 803 There are 5 basic areas that a customer should evaluate:-

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

T 803 Global Suppliers

Classic EDI Procurement, Distribution and logistics

Engineering and research Private Commerce

Manufacturing and Production Internal Publishing

Accounting, finance and management

Classic EDI Procurement, Distribution and logistics

Engineering and research Private Commerce

Manufacturing and Production Internal Publishing Customer service

Accounting, finance and management

Advertising, Sales service

Consumer oriented Electronic commerce Customers

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

T 803 o o o Debit-Card Details

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

T 803 5.2) Concept # 2: Risk in Electronic Payment Systems

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

Prepared by Ms. Sreenu.G, Department of Computer Science, RASET

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