ELECTRONIC COMMERCE

1
CHAPTER 9

• ELECTRONIC COMMERCE

2
Electronic Commerce

• E-Commerce buying and selling products,
  services,and information via computer networks
• Electronic Business
• Selling and buying
• Customer services
• Collaboration of business partners
• Supporting main business operation

3
E-commerce classification

• Business-to-consumer EC
• Consumer-to-business EC
• Business-to-business EC
• Collaborative commerce
• Consumer-to-consumer
• Intrabusiness EC
• E-Government
• Mobile-commerce

4
Evolution of EC

• Began in the early 1970s
• Electronic Funds Transfer (EFT)
• Electronic Data Interchange (EDI)
• At the beginning of 90s
• Internet and WWW
• Scope
• home banking, shopping in electronic stores
  buying stocks, finding a job, conducting an
  auction, collaborating electronically with
  business partners around the globe, and providing
  customer service

5
Benefits of EC

• For organizations
• Expands marketplace
• Supports operations with business partners
• Decreases the time when products travel between
  organizations
• Minimizes distribution channels
• Reduces paper-work

• For customers
• Decreases prices
• Gives more choices on the market
• Shopping around the clock
• Supports mass customization

6
Limitations of EC

• Technical limitations
• Lack of universally accepted standards
• Insufficient telecommunications bandwidth
• Non-technical limitations
• Traditions to make shopping
• Lack of confidence to the electronic transactions
• Lack of national and international regulations
• Lack of infrastructure supporting EC applications

7
Business-to-Consumer EC

• Most visible part of EC
• Internet-based EC
• Based on corporate Web-server
• Non-Internet EC applications
• Delivers products and service in various forms

8
Electronic Shopping Model

• Shopping and browsing
• Items and Merchant selection
• Ordering and Negotiation
• Payment selection
• Payment authorization and transport
• Confirmation
• Delivery products or services
• Reimbursement based on authorization

9
Electronic Retailing

• Solo Storefronts
• Electronic Malls (Cybermalls)
• A collection of individual shops under one
  Internet address
• Success depends on the popularity of the entire
  collection of stores as well as on its own
  efforts
• Malls generate streams of prospective customers
  who otherwise might never have stopped at the
  store
• Channel conflict

10
Services Online

• Electronic banking
• Personal finance
• Online stock trading
• Online job market
• Travel agencies
• Real estate
• Auctions

11
Business-to-Business Applications

• Based on
• Extranets
• VANs
• Information shared
• Products - specifications, prices, sales history
• Customers - sales history and forecasts
• Suppliers - product line and lead times, sales
  terms and conditions
• Transportation - carriers, lead times, costs
• Inventory - inventory levels, carrying costs,
  locations

12
BTB Models

• Company-centric marketplaces
• Sell-Side marketplaces
• Buy-Side marketplaces
• Intermediary-managed marketplaces
• Exchanges
• Auctions

13
Sell-Side Marketplace

• Organizations attempt to sell their products
  (services) to other organizations electronically
• Similar to BTC model
• Seller Web-site contains a catalog
• Buyers can place orders

14
Buy-Side Marketplace

• EC technology is used to reduce the cost of goods
  and the administrative cost
• Buyers Web-site contains
• Request For Quotation (RFQ)
• Accepts proposed bids,
• Clarifications are made via e-mail

15
Intermediary-Managed Marketplace

• link between buyers and sellers
• Exchanges
• Multiple buyers and multiple sellers
• A bid-ask system
• Auctions
• Buyers submit their bids
• Items are sold to the higher bidder

16
Collaborative Commerce

• Non-selling/buying operations among companies
  implemented electronically
• Basic activities
• Planning and scheduling
• Design of new products
• Product content management
• Order management
• Others

17
Innovative Applications

• E-Government
• M-commerce
• Consumer-to-Consumer
• Intrabusiness
• Transactions take place within an organization
• Provides the same level of IT support for remote
  workers as for workers in central location

18
Limitations of Traditional Payment Systems

• Traditional methods cash, checks, money orders,
  credit cards
• Limitations
• Require face-to-face contacts
• It takes much longer to provide with necessary
  information

19
Online Payment System Characteristics

• Transaction types
• Micropayments and largepayments
• Operational characteristics
• Online transactions
• Offline transactions
• Established business relationships
• Impulse buyers
• Responsibilities

20
Electronic Payment Forms

• Electronic checks
• Electronic credit cards
• Electronic cash
• Smart cards
• Electronic Funds Transfer

21
Electronic checks

• Secured by public-key cryptography
• Suitable for some micropayments
• Advantages
• Fit within current system
• Work in electronic form
• High level of security
• Enhance existing bank system with EC features

22
Electronic Credit Cards

• Allow to make purchases up to fixed limit
• Credit card information must be submitted to the
  third party for authorization
• Unencrypted systems
• Encrypted payments
• using public/private key encryption, credit card
  details can be encrypted for better security
• this can be done by simply using the SSL protocol
  in the buyers computer

23
Electronic cash

• Supports micropayments
• Emulates properties of cash
• Characteristics
• Independence
• Security
• Privacy
• Transferability
• Possible to make change

24
E-Cash Operations

• A digital coin a string of bits with assigned
  amount of money and serial number
• Payment is requested by a company or another
  users
• Payment is initiated by the user

25
Smart Cards

• Contain embedded microchips or secondary storage
• Microprocessor with memory chip
• 8-bit CPU, 512b RAM, 32Kb ROM
• Memory chip up to 4Kb

26
Security Requirements

• Authentication
• Integrity
• Non-repudiation
• Privacy
• Safety

27
Encryption

• Plaintext
• the message in the original format
• Ciphertext
• The message in the unreadable form
• Encryption algorithms
• Mathematical formula
• Key
• A certain combination of symbols

28
Key Systems

• Symmetric systems single-key systems
• A single key is used to encrypt and decrypt
• Long keys support security
• Asymmetric systems two-key systems
• 2 keys private and public
• If text is encrypted by one key, it can be
  decrypted only by another

29
Public Key Encryption
Public Key of Recipient
Private Key of Recipient
Message Text
Message Text
Ciphered Text
Encryption
Decryption
Signature
Signature
Sender
Receiver
Private Key of Sender
Public Key of Sender
30
Digital Signatures

• Personal information encrypted by a private key
  of a sender
• Is used for
• Authentication of a sender
• Confirmation that message content had not been
  change
• Can be time stamped

31
Electronic (Digital) Certificate

• Confirms that the holder of private and public
  keys is the right person
• Issued by a third party Certificate Authority
• Private and public keys are to be submitted along
  with personal information
• Has expiration date

32
Secure Socket Layer (SSL)

• Placed between transport layer (TCP) and
  application layer
• SSL for Internet is Transport Layer Security
• Implemented
• As a part of a set of protocols
• Embedded into software packages

33
SSL Operation

• A combination of encrypted algorithms and
  authentication method is a cipher suite
• SSL selects the strongest available cipher suite
  
• Web-based application
• HTTPS
• All outgoing messages can be encrypted

34
Secure Electronic Transactions

• SET is designed by Visa and Master Card
• A customer has an account with a financial
  institution that supports SET
• The customer possesses a certificate with private
  and public keys
• Merchant has certificates for digital signatures
  and key exchange

35
Encrypted payment process

• Encrypted credit card information is sent to the
  sellers site
• The seller passes the encrypted information to
  the third party
• The third party contacts sellers financial
  institution
• Sellers Financial institution contacts buyers
  financial institution and receives approval or
  denial, replies to the third party
• The third party passes on approval to the seller