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Finance
Unit 1 Business skills for e-commerce
HND in Computing and Systems
Development
Timeline
Week Activity Week Activity
1 Introduction &
Businesses
10 Assignment 2 LO2
2 LO1 Stakeholders 11 LO3 Key processes
3 LO1 Functions 12 LO3 e-commerce
4 LO1 Stakeholders 13 LO3 Security - 1
5 LO2 Impacts 14 LO3 Security - 2
6 Assignment 1 LO1 15 LO3 Legislation
7 LO3Target markets 16 Assignment 3 LO3 issued
8 LO3 Objectives 17 Assignment work
9 LO3 Market
research
18 Assignment work
LO3: Be able to design e-
Commerce solutions
• Objectives: business idea eg unique selling proposition, business-to-business
opportunities, business to consumer markets; domain name
• Market research: purpose of research eg identifying information sources, online and
offline competition; types of research eg primary, secondary
• Target markets: market analysis eg size, characteristics, dynamics, competitors,
historical background, emerging trends, market share, market segmentation
• Key processes: technology requirements eg hardware, software, security,
maintenance, back end systems; supply sources; distribution channels
• e-Commerce: payment systems eg electronic cheque, PayPal, NoChex, credit or
debit cards; start-up capital; working capital; funding sources
• Security: key areas eg prevention of hacking, viruses, identity theft, firewall, impact
on site performance, Secure Sockets Layer (SSL), Secure HTTP (HTTPS), digital
certificates, strong passwords, alternative authentication methods
• Legislation: relevant legislation eg Data Protection Act 1998, Computer Misuse Act
1990, Consumer Credit Act 1974, Trading Standards, Freedom of Information Act
2000, copyright legislation
LO3 Criteria
• 3.1 investigate market potential for an e-Commerce
opportunity
• 3.2 evaluate current e-Commerce systems in use by
organisations
• 3.3 discuss the financial implications of an e-Commerce
solution
• 3.4 design an e-Commerce solution
• 3.5 evaluate the suitability of an e-Commerce solution.
Payment systems
• Electronic cheques
• PayPal
• NoChex
• Credit or debit cards
Electronic cheques
• In June 2014 a Daily Telegraph article1 said:
• New legislation was expected to allow banks to accept
images of cheques
• These could be shared electronically
• Accepted at branches or by smartphone app
• Reduces 6 day clearing cycle
• Avoids sending real cheques around banks
• What is the current situation?
• Research http://www.chequeandcredit.co.uk/
1http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10914403/Cheque-
payments-to-finally-go-digital.html
PayPal
• 3-click checkout to customers paying online, on mobiles
or in apps
• Integration is easy, start accepting more payments in
minutes
• No set-up charges, monthly fees, or cancellation fees
• PayPal charges UK sellers a fee of between 1.4% and
3.4% of the total sale plus 20p per transaction. The more
you sell, the less you pay
• Buyer protection (reassure buyers, attract more), seller
protection
Increased business claim
• 31% of UK buyers surveyed said that they
would not have made the purchase if PayPal
had not been offered as a payment method.
• The results of individual retailers ranged from 22% to 41%. Survey
conducted by Northstar Research Partners, Q4 2012. Based on
retailer-level data for 5 large online retailers representing 443 buyers
• “Businesses reported an average of 31% increase in sales after
adding Express Checkout. 173 million PayPal customers
worldwide.” Research conducted by ComScore in July 2014. Based
on 8 UK retailers
Issues with PayPal
• PayPal is not a bank – owned by eBay
• PayPal doesn't need to follow any US Federal or
State, or International, banking regulations.
• Accounts can be frozen (unable to add or
withdraw funds) for 180 days during
investigations – actively attack certain
accounts for ethical reasons eg piracy• http://www.independent.co.uk/life-style/gadgets-and-tech/news/paypal-account-of-torrent-software-developer-frozen-as-part-of-piracy-
crackdown-10257462.html
• Some users claim that PayPal has simply
seized their funds and never returned them
Nochex
• Nochex online payment services
• online payment solution for micro, small and
medium size businesses
• receives online payments made from all major
credit and debit cards
• UK Trader Account for micro businesses
• a low-cost account
• outstanding fraud-protection
• No monthly or annual fees
• 2.9% plus 20p per transaction
Nochex issues
• do not offer face-to-face payments
• subsidise their low cost services by including advertising
on their payment pages
• can keep a small holding amount, usually less than £100
to cover chargebacks
• customers complain of:
• almost non-existent service and that Nochex are difficult to
contact.
• accounts being closed for no reason, money being held for
several months at a time, and also problems with their system
software and website
Merchant accounts
• Merchant Accounts are special bank accounts used to collect
debit/credit card payments
• Cardholder Present,
• Cardholder Not Present
• Internet or Online Sales
• There are eleven Merchant Account Providers in the UK
(http://www.paymentbrain.co.uk/merchant-accounts)
• Information required to open an account:
• Current or projected turnover
• Average transaction value
• Frequency of transactions
• The type of product or service you are selling
• The percentage of transactions taken by card
• Set up fee and transaction charges apply
Chargebacks
• Dissatisfied customers can claim their money
back from the card company if in dispute with
the supplier
• Money deducted from merchant account if
customer is in the right
• Also the case if fraud is involved
Fraud
• Characteristics of fraudulent transactions
• Inconsistent Delivery Address.
• only deliver the goods to the address where the payment card is
registered.
• Inconsistent Card Verification Code.
• Fraudsters give credit card numbers but can’t access the CVC
code
• A lack of concern when spending money
• Quick delivery required
• High risk countries.
• Indonesia, Malaysia, Nigeria, Pakistan, Israel and Egypt.
Fraud – counter measures
• Perform credit checks on new suppliers and partners, and check
their contact details for authenticity.
• Validate new customers using verification such as Address
Verification Service, or Verified by Visa / MasterCard SecureCode.
There are a number of commercial providers of verification solutions
and details can be found via the CardWatch website.
• File your company secretarial records using the Companies House
WebFilingsystem to reduce the threat of identity theft of your
company name or directors.
• For unknown customers with no transaction history, insist on cleared
payment being received before goods or services are supplied.
• Respond to payment card chargeback requests promptly.
• Set strict credit limits.
• https://www.getsafeonline.org/businesses/business-fraud/
PCI
• The Payment Card Industry Data Security
Standard (PCI DSS) is a set of requirements
designed to ensure that ALL companies
that process, store or transmit credit card
information maintain a secure environment
• 4 levels depending on volume of transaction
• Rigorous annual compliance process
• Self assessment and qualified assessors• http://www.theukcardsassociation.org.uk/security/PCIDSS_checklist.asp
Start-up capital
• The money required to start a new business
• Premises
• Permits and licenses
• Inventory
• Development
• Manufacturing
• Marketing
• Also known as seed money
Source of start up capital
• a business loan from a bank
• the business will be expected to make monthly payments to pay
down the debt plus any interest and/or fees
• an investor, group of investors, or venture capitalist(s).
• start up capital provided in exchange for a certain stake in the
company
• the company founders' personal assets or from friends
and family
• often obtained in exchange for an equity stake in the business
Examples
• Apple
• Wozniack and Jobs, both penniless at the time, went to a local computer parts
supplier and ordered the parts on credit for the first 50 Apple computers
• Dell
• Michael Dell founded the company with $1,000 and ran it from his dormitory
room at university investment.
• Starbucks
• In 1971, three academics each invested $1350 of their own money into the first
Starbucks located in downtown Seattle
• eBay
• Pierre Omidyar finished the code for the website in the living room of his Silicon
Valley home
• Virgin
• “£300 from my mum” – Sir Richard Branson
Working capital
• Working Capital = Current assets – current liabilities
• Needs to be positive to maintain the business
• Assets are resources, equipment, inventory, cash
• Liabilities are payments, debt, salaries, interest
• Cash management: to meet day to day expenses
• Inventory management: allows for uninterrupted
production but reduces the investment in raw materials
• Debtors management: payment terms to reduce impact
on cash flows
• Short term financing: bank loans or overdrafts
Funding sources - equity
• Equity finance involves selling part of the business
(‘shares’) to an investor who will take a share of any
profits or losses
• Advantages
• investors can bring new skills and opportunities no interest, or
loans
• shared risks
• Disadvantages
• demanding, expensive and time-consuming
• own a smaller share of your business
• you may have to consult investors
• only limited companies can sell shares• https://www.gov.uk/business-legal-structures/limited-company
Funding sources -
crowdfunding
• A number of people each investing, lending or
contributing smaller amounts of money to reach a target
• Advantages
• alternative to funding from conventional means
• raise finance relatively quickly
• can raise awareness of a new business
• Disadvantages
• ideas could be copied if not protected
• Money must be returned if target not met
• Crowdfunding is mostly unregulated
• Potential to have a negative impact on reputation of venture fails
• http://www.advice4consumers.net/business/crowdfunding/
Funding sources - loans
• A loan is credit, usually in the form of cash, that
you borrow and repay over an agreed length of
time
• Advantages
• guaranteed the money for the whole term
• lender does not get a percentage of profits or shares
• Disadvantages
• inflexible – early repayment charges
• must meet monthly payments
• could lose property or assets (eg your home)
Funding sources - overdrafts
• Not a long-term source of finance
• Advantages:
• flexible
• quick to arrange
• no early repayment fees
• Disadvantages
• a charge to extend an overdraft
• charged if exceeding an overdraft limit
• can be asked for the money back at any time
• only available from the bank with the business current account
Activity
• Propose a financial system for MWS and justify
your decisions
• Discuss the advantages and disadvantages of
payment systems
• Costs
• Simplicity
• Customer satisfaction
• Fraud protection
• Seed capital is being provided by MSW and MJ, but
what continuing sources of funding do you propose?
• Your work must be fully referenced