lp for e-commerce by sreenu

8/2/2019 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 E-Commerce 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 ofgoods or services between two or more parties using electronic tools and techniques. Longemployed by large businesses and financial service organizations, several factors are nowconverging to bring electronic commerce to a new level of utility and viability for smallbusinesses and individuals -- thereby promising to make it part of everyday life.

5.1)E-Commerce Introduction

Electronic commerce, commonly known as e-commerce oreCommerce, consistsof the buying and selling of products or services over electronic systems such as theInternet and other computer networks. The amount of trade conducted electronically hasgrown dramatically since the spread of the Internet. A wide variety of commerce isconducted in this way, spurring and drawing on innovations in electronicfunds transfer,supply chain management, Internet marketing, online transaction processing, electronicdata interchange (EDI), automated inventory management systems, and automated datacollection systems. Modern electronic commerce typically uses the World Wide Web atleast at some point in the transaction's lifecycle, although it can encompass a wider range oftechnologies 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 electroniccommerce involves the transportation of physical items in some way. Online retailers aresometimes 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

http://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Internet_marketinghttp://en.wikipedia.org/wiki/Online_transaction_processinghttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Electronic_data_interchangehttp://en.wikipedia.org/wiki/Supply_chain_management


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Messaging and information distribution, as a means of sending and retrievinginformation

Multimedia content and network publishing, for creating a product and a meansto communicate about it

The Information Superhighway the very foundation for providing thehighway 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, andinformation pricing

Technical standards, to dictate the nature of information publishing, userinterfaces, and transport in the interest of compatibility across the entirenetwork

Any successful e-commerce application will require the I-way infrastructure in theway that regular commerce needs the interstate highway network to carry goodsfrom point to point. On this I-way vehicles are transporting information ormultimedia content. This information and multimedia content determines what typeof vehicle is needed. The multimedia content is stored in the form of electronicdocuments. These documents are digitized, compressed and stored in computerizedlibraries or multimedia storage ware houses called servers that are linked bytransport networks to each other and to the s/w or h/w clients that allow customersto 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 bepaid. The information and multimedia content determines what type of vehicle isneeded.

The final pillar on which the e commerce framework rests is technical standards,without which the impact of this revolution would be minimized. Standards arecrucial in the world of global e-commerce, to ensure not only seamless andharmonious integration across the transportation network.

5.4) Anatomy of E-Commerce Applications

Although no one knows what applications of electronic commerce will besuccessful in the long run, the potential payback for those who hold the winning numbers isa powerful driving force behind the development of the infrastructure and the convergenceof numerous industries.It is important to understand that applications can be found at alllevels of the infrastructure itself.In the following subsections we will revisit many parts ofthe infrastructure .We will examine electronic commerce applications ,multimedia



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content,and multimedia storage servers as well as the information delivery system,thenetwork service providers that serve as access points,and the devices that function asinterfaces 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 ascombination of text, audio, video and graphics in a computer file or document. It hascome to mean a combination of computers, television and telephone capabilities in asingle device. Goal of multimedia is to increase the utility of all information through theprocessing and distribution of new forms such as images, audio and video. Traditionalseparate divisions of industry no longer hold in multimedia. For e.g. an e-book containsnot 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 tocustomers. these multimedia storage servers are large information warehouses capable ofhandling various contents ranging from books, newspapers, movies etc. these servers serveinformation upon request, must handle large-scale distribution, guarantee security andcomplete reliability

Client-server architecture in e-com

All e-com applications follow the client-server model. Clients are devices pus software thatrequest information from servers. it replaces traditional mainframe based models, whichmeant dumb terminals to a computer. It is too costly and slow to cope with new data typeslike audio and video. Client-server architecture links PCs to a storage server, where mostof the computing is done on clients.

The client-server model allows client to interact with the server through a request replysequence known as message passing. Server manages application tasks, handles storageand 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 dataobjects are integral to e-com applications. A multimedia server is a hardware and softwarecombination that converts raw data into usable information and then dishes out whereand when users need it. Most provide a core set of functions to display, crate andmanipulate multimedia documents to transmit and receive multimedia documents overnetwork.



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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 ofcomplex 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 andmanipulation 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 videoservers are designed to deliver information to hundreds of consumers simultaneously viapublic telecommunications and cable network. Video servers tackle the simultaneousoverlapping supply problem that arises when providing on-demand services to large no. ofhomes. Numerous homes may want to watch film either simultaneously or at overlappingtimes. In hardware solutions servers can acquire the power of massive parallel architecture.i.e.; using thousands of inexpensive microprocessors that are interlinked to create theillusion of one large computer. Each processor acts as a video pump and distributes aportion 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, computernetwork including commercial network and public network such as Internet. Distribution ofinformation has become a competitive market with a combination of offense and defense.On defense are telephone and cable-TV companies. On offense are computer companiesthat offer new hard ware capabilities and software programs. Another threat is wirelesscommunications, 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 ofhandling multimedia, personal digital Assistants (PDA) television capable of two-waytransmission etc.



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The choice of OS depends on which transport highway consumers ride and user interfacethey prefer. If on-line services are used, high probability that PC-based access maydominate.

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.

1. Consumer Applications and Social Interaction

2. Changing Business environment

3. E-Com and the Retail industry4. Marketing and E-Com

5. Inventory management and organizational Applications

6. Just in Time manufacturing

7. JIT purchasing

8. Quick Response Retailing

9. Supply Cain Management

a) Supplier management



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b) Inventory management(IM)c) Distribution management

d) Channel management

e) Payment managementf) Financial management

g) Sales Force Productivity

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 consumersthink and the way they do business. One example might be applications oriented towardsocial interaction.

Television, the most successful technological miracle since the automobile, quickly becameso 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 upthe wiring infrastructure. The impact of the telephone on business and socialcommunications is without doubt one of the most significant events of the twentiethcentury. The same is true for the influence of television on consumer behavior andentertainment habits. In sum, the most successful marketplaces are expected to be those

that cater to consumers loneliness, boredom, education, and career. For the socialinteraction, one can add video on- demand, adult entertainment (sports, gambling),electronic malls, grocery shopping, and local news to that list. Newspaper publishers withon-line services have already found a successful niche: the personal ads.In addition to developing e-commerce applications, packaging and distribution must beconsidered.

5.2) Changing Business environment

The traditional business environment is changing rapidly as customers and businesses seekthe flexibility to change trading partners, platforms, carriers and networks at will. To shapetheir 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 marketshare, and to maintain long term viability in todays business environment. The informationSuperhighway will allow businesses to exchange information among constantly changingsets of customers, suppliers etc.



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Traditional firms and financial institutions fear that their vision of business no longerapplies. A company doing well suddenly finds itself stagnating and frustrated as fleet-footed competitors take away market share. The root cause is not that things are donepoorly; indeed right things are being done, but fruitlessly. It is because the assumption onwhich the firm is being run no longer fits reality.

Eg: Take the classic cases of IBM and Digital equipment Corporation (DEC) in thecomputer industry. IBM based its philosophy on mainframe computers and DEC to itsVAX series of minicomputers. The companies managements changed their theories ofbusiness and shifted to new foundations with the PC revolution. Now, E-Commerce isbringing about another revolution that no one can miss.

In general, firms utilize consumer and market research to shape its strategy, dictatedecisions about what to do and what not to do, and define what it considers meaningfulresults. Companies are restructuring, To be Lean and Mean is what companies desire.Organizations see major work force reductions or downsizings as the way to gainoperational 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-seasongoods. Retailers are struggling to fill the order. They are slashing back-office costs,reducing profit margins, reducing cycle times and making huge investments intechnology. They make sure that warehouse costs are down by reducing their averageinventory levels and co-coordinating consumer demand and supply patterns. In the pushto 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 supplierend of the pipeline. Pressure experienced by manufacturers and suppliers can be seen indisappearance of jobs, mergers and increase in business failures in the manufacturingsector. E-markets can provide a solution by promising customers more convenience andmerchants 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 (buildingand sustaining a ling term relationship), and even event marketing (setting up a virtualbooth 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 catalogsthat give the same look and feel as shopping channel. Users find moving images more



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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 likevideotext has failed in the past. Ideally an interactive shopping program should producefull motion demo of the selected products, but such a practical and economicaltechnology has yet to be developed.

Consumer information services are a new type of catalog business. Eg: CUC intl. Thecompanys primary mission is not to sell products but to provide information people needto 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 unlimitedaccess to information usually by dialing a number and speaking to a person who consultsthe computer database. Those who wish to order products can do so by phone orcomputer. 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 internationalbusiness. Adaptation would include moving toward computerized paperless operations,to reduce trading costs and facilitate adoption of new business processes. One oftentargeted business process is inventory management. Solution for these processes goes bydifferent manner. In manufacturing industry it is known as Just- In Time Inventorysystem.

5.6) Just in Time manufacturing

It is viewed as an integrated management system consisting of a number of differentpractices, dependent on the characteristics of specific plants. JIT management system, anevolution of Japanese approach to manufacturing introduce in Toyota, It was based ontwo principles: eliminate waste and empowering workers.

The first one refers to elimination of all wastes (time, materials, labor, and equipment) inthe production cycle. The following principles are also associated- focused factory, reducedset-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 firmsinvolved and provides a careful audit of the production process. It optimizes supplier andcustomer relations.

In a production plant, needed materials are to be supplied Just In Time. Production costswill decrease as required level of stock is reduced. Materials from suppliers will be orderedonly if production plant can sell its product. Quality control of production is enhanced. Allstages of production are closely monitored



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5.8) Quick Response Retailing

It is a version of JIT purchasing for retailers. Most often, keeping a store filled withmerchandise 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 extremelycostly.

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 makepurchases, the vendor automatically orders new deliveries from the retailer through itscomputer 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 tothe retailer.

Eg: Wal-Mart invested half a billion dollars in computer and satellite networks, bar-code systems, scanners and other QR equipment linking each point of sale terminal todistribution centre and headquarters. It enabled the company to become number one inthe 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 toimplement JIT/QR, manufacturers/retailers tended to reduce the number of suppliers andmove towards single sourcing. What manufacturer/retailer need is a large supplier base inorder to be competitive. One solution is to implement a common network infrastructuresuch as I-way. Using Inventory management solutions (JIT/QR) may not be feasible, if acompany depends on unresponsive supplier for key components. E.g.: a manufacturingcompany may develop the capability to assemble products quickly in response tocustomers order, but that is constrained by suppliers long lead times. What is required isa technique for managing unanticipated problems in the supply chain.

SCM extending- means integrating the internal and external partners on the supplyand process chains to get raw materials to manufacturers and finished products tocustomers. Product excellence alone fails to guarantee corporate success. Customersexpect many services- prompt delivery of products to precise locations with near- perfectadministration and physical quality.

SCM include following functions:



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1. Supplier management- Goal is to reduce the number of suppliers and get them tobecome partners in business. Benefits are reduced purchase order processing costs.Increased no. of POs processed fewer employees and reduced order processing cycletimes.

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 werereceived. IM solution should enable reduction of inventory levels, improve inventoryturns and eliminate out of stock occurrences.

3. Distribution management- Goal is to move documents related to shipping andtransport quickly. The paperwork took days to cycle, now sent in moments and containmore accurate data.

4. Channel management- Goal is to quickly disseminate information about changingoperational conditions to trading partners. Technical, product and pricing informationthat 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 ofcomputing invoices, reducing clerical errors, lowering transaction fee and costs.

6. Financial management- Goal is to enable global companies to manage their moneyin various foreign exchange accounts.

7. Sales Force Productivity- Goal is to improve communication and flow ofinformation among the sales force with regional and corporate offices. This establishesgreater access to market intelligence and competitive information that can be funneledinto better customer service and service quality.

6.) SummaryDuring the course of this lecture, we discussed e-commerce as a new way of

conducting, managing, and executing business transactions using computer andtelecommunications networks.


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 thesynopsis. We will emphasize the following:

a) Transparencyb) Transaction Security and Management

c) Distributed Object Management and Services

d) Internet Service providers

i. Evaluating and selecting a national/regional ISPii. Setting up a local technology infrastructure

iii. Setting up software and Dial-up connection linesiv. Technical support and help desk management

4) Revision

Please refer to pages 225 to 250 of the textbook: Frontiers of electroniccommerce 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 isessential for dealing with higher-level issues than physical media and interconnection. E.g.:virtual network- a collection of work group, departmental, enterprise and inter-enterpriseLANs that appear to the end user to be a seamless and easily accessed one.

Middleware facilitates a distributed computing environment that gives users andapplications transparent access to data, computation and other resources acrossheterogeneous system. Theoretical benefit of architecture can be realized withtransparency. 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 arequest 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 thetransaction security level, 2 general categories of security services exist. They areauthentication and authorization. Transaction integrity must be given for businesses that



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cannot afford any loss or inconsistency in data. For e-com, middleware provides thequalities 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 isits too hard to write a network based application without a technology that camouflagesthe intricacies if the network. An object is a combination of data and instructions acting onthe 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 instructionsabout the actions to be performed on the data. Object is used interchangeably withdocument resulting in a new form of computing document oriented computing. The trendis to move away from single data-type documents such as text, pictures or video towardsintegrated documents known as compound document.

Document orientation provides ability to build application from applets. It also providesnecessary ease of development through reuse and customization.

Middle ware acts as integration for the various standard protocols already in use. Theseinclude TCP/IP, distributed computing environment and emerging distributed objectcomputing 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 thevarious Internet applications and resources for both companies and individuals. There arefour 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 commonfactor is company size, with balance sheets of billions of dollars.

National Independents

These are commercial, for-profit entities offering connectivity services nationwide orinternationally in some cases, which are positioned to compete in the evolvingcommercial 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 orwithin regional intestate areas started entering into the commercial market places withthe elimination of NSF subsidies. Examples are SURAnet, NEARnet, NYSERnet, andBARRnet.

Local Service ProvidersCommonly called mom and pop shops, these are small businesses that support 10-1000 customers. They operate in one location and offer services to business anindividual 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 theISP vendors is to provide all customers of their collective markets the ability tocommunicate with each other without restrictions imposed by the Acceptable Usage

Policy. A common point of interconnection has been deployed: the CommercialInternet Exchange (CIX). Like a border checkpoint, CIX serves as an entry point fortraffic 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 othersmaller service providers with backbone connectivity. They provide connections (points ofpresence, POP), which are a direct linkage to backbone network. These POPs are usuallyequipped 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 theworld.

At regional level are tens of thousands of organizations of every kind. Most of these smallnetworks are operated by organizations that provide internet access to their internal staff.Along with high bandwidth connection, comes the need for customer premisesequipment. It is too complicated to configure and manage. This is where systemintegration and consultancy services could become key criteria in service providerselection.

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 requiresonly one leased line from each corporate location to the nearest ISP hub, rather than leaseddedicated phone connection.

Using an ISP to manage a geographically dispersed WAN, an organization can obtain costsavings in staff reduction and need to purchase equipment. By off-loading networkmanagement responsibility to ISPs skilled personnel, companies can reduce overhead and



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increase reliability of network. They also offer value added services such as news andinformation.

ISPs offer gateways that load non-IP traffic into IP packets for transmission acrossinternet, 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 networkusing an existing backbone protocol to host computer that has a direct connection to anISP. 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 firmconnected to a commercial ISP, desired to work with some university connected to anacademic network. This network has policies restricting their usage to research andeducation. 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 abilityto 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 thespeed 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 isavailable when network is loaded more heavily and how ell the providerunderstands WAN. Most will provide details of their network topology and explainwhat services can be expected in various times. Also look at the external linksprovided 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 thePOPs are single customers at the end of low speed lines or if there are high-endrouters linked by high speed connection. Most POPs offer internet connectivity inthe 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 ofapplications they will be using and frequency with which they will be send andreceive data.

d) The bandwidth required depends upon the type of usage. E.g.: an e-mail contains 10to 20 kb of data. This will be transmitted over a connection at 14.4kbps in just 2sec. So a large number of users can share it for e-mail only. But a picture contains500-1000KB of data. It will take 5 minutes to be transmitted in 14,4 kbps, 20 sec in56kbps and 1 sec in 1.5 Mbps. Take the estimate; multiply by the number of users



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simultaneously transmitting, divide by the connection speed, this will give thetransmission time. Always settle on a type that meets your requirements.

e) Evaluate what level of customer service they are offering. Whether they provideoften documentation, consultation and ongoing support.

Finally do some comparison and a price/benefit analysis. Some providers may be pricedless than others. Also seek customer reference. See what their complaints are. The mostimportant 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 thehardware decision depends upon what software is being run on it. The most important partof the architecture is the operating platform or server. A local ISP needs servers that canhandle 30 customer systems. 3major items that are required are router, terminal server anda modem farm.

Selecting a router: As size of the local ISP increases, there is need for an on-site routerthat connects to the POP. It is often a box with a modem, network interface card and asmall PC running router software. Information comes in packets, like envelopes each withits own header, bearing the address of its destination. When the packets come, the routersends them to the destination, based on the packet header. The additional functions are providing network security, manages traffic through adaptive routing, which permitsinformation 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, serveror 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, simultaneousaccess to multiple hosts, the number of ports, types of connections, scalability and userinterface.

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 thecomputer systems on the network. The dominant protocols are Telnet, SLIP/PPP, andISDN.

Serial Line Internet Protocol (SLIP) designed for host-to-host, host-to-router, router-to-router 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 mechanismfor 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 theentire 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 terminalservers is that they let users at a single terminal simultaneously log on to many hoistsystems. It also has ability to allow maximum no. of simultaneous sessions per port.

Terminal Connections: it deals with speed and reverse connections. Most support serialconnections 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 hostsystem.

Selecting a modem farm: Customer computers cannot connect to the terminal serverwithout a modem on the service providers side. Modems come with all types ofcapabilities and speeds in two basic forms- Synchronous-establish an end-to-endconnection (like a telephone call) and begin sending information. Asynchronous- sendinformation in small blocks, then check to make sure that there are no errors beforesending the next block of information.

The type of modem selected is related to telephone charge which can dominate the costof 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, FTPetc.Other services include:Gopher server service: allow customers to display information files on providers gopherserver. 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 candisplay 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 providecustomer support as recorded message in answering machine and an extended call back. Onthe other end are full service providers who have a customer assistance hotline andproactive support in the form of user meetings, workshops and newsletters.



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

1. Documentation: Does the ISP have a user manual? Does it explain how to use all thefunctionalities 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 theyconduct any general and specialized workshops focusing on resource available on theinternet?4. Ongoing Communication: Most publish an ongoing newsletter or memos that discussstate of the system and include information about new resources on the internet5. Technical enhancements: Does the ISPhave a track record of enhancing the system tomake 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 indispensableonce connected. The challenges for ISPs Quality of service, coverage, support, ease ofuse and value-added service. To address them, develop strong marketing strategies andprograms to support future growth.

6.) Summary

We see the applications of electronic commerce are being built on a foundation ofglobal hypertext such as WWW. The Web provides a totally different and unique methodof accessing information.


1. Describe how the growth of internet and the worldwide web have stimulated theemergence of E-commerce.

Lecture 5

1) Synopsis: Architectural Framework for Electronic Commerce



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a) What are the Middleware services?b) What are the different application service layers of e-commerce?

3) Introduction


a) Architectural Frame work for E-Commerce

b) E-com application Services

c) Information Brokerage and management

d) Interface and support services

e) Secure messaging and structured document interchange services

f) Middleware services

g) World Wide Web (WWW) as the architecture

4) Revision

Please refer to pages 215 to 227 of the textbook: Frontiers of electroniccommerce 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 informationfound 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 areintegrated, do they provide powerful solutions. There are 3 distinct classes:

1) Customer- Business transaction: Also known as market place transaction. Herecustomers learn about products differently through electronic publishing, buy them



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differently through e-cash and have they delivered differently. Traditional conceptsof 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 businesstransactions. B-@-B transactions include the use of EDI and e-mail for purchasing goodsand 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 electronicform at the point of origin, but are printed and key-entered at the point of receipt. Thisprocess is costly, time consuming and error prone. So small businesses are looking towardse-com as a way.

3) Intra-organizational transactions: also known as market driven transaction. A

company becomes market driven by dispersing throughout the firm informationabout its customer and competitors, by spreading strategic and tactical decisionmaking so that all units can participate and by continuously monitoring theircustomer commitment. To maintain the relationship management must pay closeattention to service, both before and after sales. 3 major components are customerorientation through product and service customization, cross-functionalcoordination through enterprise integration and advertising, marketing andcustomer service.



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Global Suppliers


Classic EDI

PrivateCommerce Internal

Publishing

Consumer oriented

Procurement, Distribution and logistics

Manufacturingand

Production

Engineeringand research

Accounting,finance andmanagement

Advertising, Sales Customer serviceservice


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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 integrationbetween customers and information providers, given some constraints such as lowprice, fast service or profit maximization for a client.

Information brokers for instance are becoming necessary in dealing with largeamount of information on the network. As the on-line databases migrate towardconsumer information, information professionals have to keep up with the knowledgeand ownership of these systems. Whos got what? How do you use it? What do theycharge? Most have trouble keeping track of files on one or more databases. It will haveto be software programs-information brokers or software agents that act on searchersbehalf.


Classic EDI

PrivateCommerce Internal

Publishing

Consumer orientedElectronic commerce

Customers

Procurement, Distribution and logistics

Manufacturingand

Production

Engineeringand research

Accounting,finance andmanagement

Advertising, Sales Customer serviceservice


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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/protectcurrency holdings to minimize risk and maximize profit.

Another aspect is the support for data management and traditional transactionservices. Brokerages may provide tools to accomplish more sophisticated, time-delayedupdates. This includes software agents, distributed query generator, distributedtransaction generator and a declarative resource constraint base-which describe thebusinesses roles and environment information. At the heart of the layer- workflowscripting environment built on a software agent model, that coordinates work and dataflow among support services.

Software agents are mobile programs that have been called intelligent agents. Theyare 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 becausethey have contingency plans of action. They examine themselves and their environmentand if necessary change their cause of action to an alternate plan. E.g.: You send anagent to an on-line store to buy a bouquet of roses for Rs 25 or less. If shop offers rosesstarting at Rs 30, your agent can either choose a different bouquet or find a differentstore.

It will take a while to solve the problems of inter- agent communication,interoperable agents and other headaches with distributed computing. Some vendorseven put limits on the power of agents and also self destruct mechanism is built intotheir 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 andwill support directory services functions necessary for information search and access.Interactive catalogues are interfaces to consumer applications like home shopping. It isan extension to paper catalogue and incorporates graphics and video to make it moreattractive.

Directories operate behind the scene and attempt to organize the enormous amount of

information and transactions generated. Directory services databases make data fromany server appear as a local file. E.g.: telephone white paper allows us to locate peopleand 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 thetime between layovers be minimized. This would require several queries to various on-line directories to find empty seats on various airlines and then the availability of seatswould be coordinated with the amount of time spent in airport terminal.



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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 havethe 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 Mondayand Tuesday it is still has not been sent. These are situations where you cannot wait forit to take place. Integrated messaging a group of computer services that through theuse 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-comapplications. Messaging offers solutions for communicating unformatted (unstructured)data- letters, memos reports as well as formatted (structured) data such as purchaseorders, shipping notices and invoices. Unstructured messaging consists of fax, e-mail

and form based system like Lotus notes. Structured document messaging consists ofautomated interchange of standardized and approved messages between computerapplications via telecommunications lines. E.g. EDI.

Messaging has many advantages; It supports both synchronous (immediate) andasynchronous (delayed) message delivery and processing. With asynchronousmessaging, when a message is sent, work continues (software does not wait for aresponse). 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 theright time across diverse work groups is a challenge. With messaging tools, people cancommunicate 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 appearto be more complex, especially to traditional programmers. There is nointeroperability between different messaging vendors. Also privacy and confidentialitythrough 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, therewas no need of a middleware. When conditions changed, tools became inadequate.



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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 demandedinteraction between dissimilar system, network that permitted shared resource andapplications that could be accessed by multiple software programs. In simple terms-

middleware is a mediator between diverse software programs that enables them to talkto 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, Webbrowser, and third- party services.Refer text book for its block diagram.

The client browserusually 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 transactionmanagement, 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 andscope. 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, datamanagement, and security services, to allow business applications within differentorganizations to interchange information within the context of business processesautomatically.


1. Give some applications of E-commerce.

MODULE 2

Lecture 1

1) Synopsis: Types of Electronic Payment Systems



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a) What form and characteristics of payment instruments will consumersuse?

b) What are the step-by-step procedures and institutional arrangements thatform the fabric of the electronic payment business processes that linkconsumers and organizations?

3) Introduction


(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 consumersmust pay for products and services. The conventional payment methods such as cash, bankdrafts or bills are not well suited for the e-com environment. The drawbacks are in terms ofthe 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 anelectronic 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 bothcomputer and telecommunication components.

5.2) Concept # 2: Payment methods

An electronic payment system is needed for compensation for information, goods andservices provided through the Internet - such as access to copyrighted materials, databasesearches or consumption of system resources - or as a convenient form of payment for

external goods and services - such as merchandise and services provided outside theInternet. it helps to automate sales activities, extends the potential number of customers andmay reduce the amount of paperwork.

Secure (or non-secure) presentation: the customer provides credit cardinformation over a secure (or even clear) transportation means.



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Customer registration: the customer gets a password or digital signature based ona credit card (hides the credit card information from the merchant, but still clearsthrough the credit card).

Credit-debit instruments: similar to customer registration but only one bill permonth either through credit card or debit checks.

Electronic currency: this method has potential for anonymity but requires tamperresistant hardware.

Server scrip: the customer gets a kind of coupons from an agent that can bespending only with one particular merchant. This reduces the risk of doublespending and allows off-line transactions.

Direct transfer: the customer initiates the transfer of funds to the account of themerchant. This method provides no anonymity.

Collection agent: the merchant refers the customer to a third party who collectspayment 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 systemsElectronic cashElectronic checksSmart cards or debit cards

Credit card based payment systems

Encrypted credit cardsThird-party authentication numbers

5.4) Concept # 4: Disadvantages

Although there are many benefits to digital cash, there are also many significantdisadvantages. These include fraud, failure of technology, possible tracking of individualsand loss of human interaction.



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Fraud over digital cash has been a pressing issue in recent years. Hacking into bankaccounts and illegal retrieval of banking records has led to a widespread invasion ofprivacy and has promoted identity theft.There is also a pressing issue regarding the technology involved in digital cash. Powerfailures, 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 thelike will lead to the creation by the banking industry of a global tracking system. Somepeople 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 includewholesale payments, wire transfers, recurring bill payments, the automated clearinghouse,electronic draft capture, and electronic check presentment.


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 likea) What are the different types of electronic tokens?b) What are legal issues of Electronic Checks?

3) Introduction


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 byRavi 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 partieswill at sometime or other be in each others physical presence or that there will be asufficient 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 ofelectronic cash/money or checks. They are designed as electronic analogs of various formsof payment backed by a bank. Electronic tokens are of three types:

1. Cash or real-time: Transactions are settled with the exchange of electroniccurrency. 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 electronicchecks.

5.2) Concept # 2: Electronic checks

Processing the paper checks is becoming increasingly expensive, which is why manyretailers, merchants and billing companies are turning to electronic checks. With electronicchecks - often called e-checks - people can still use their checks, while everyone gets thebenefits 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 accountinformation 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 anelectronic 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 electroniccheck - in addition to the check number, the name of the company to whom youwrote 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 papercheck, an e-Check is created. The transaction will contain your name information ortransaction reference number, the dollar amount, the company name, and a descriptiveword. 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 financialinstitution. 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. Thisprocess is very similar to the way checks are cleared.

6.) Summary

We discussed electronic commerce as the integration of network infrastructure, datamanagement, and security services, to allow business applications within differentorganizations to interchange information within the context of business processesautomatically..


1. What is electronic cash? Explain different methods of transacting electronic cash.

Lecture 3

1) Synopsis: Smart Cards and Credit Cards


a) What are the different payment options?

3) Introduction


Smart cards

Smart cards

Credit Card



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o Send Credit-Card Details by Email

o Send Credit-Card Details by Separate Dial-Up Connection

o Send Credit-Card Details by Encrypted Transmission

Debit-Card Details

4) Revision:

Please refer to pages 312 to 317 of the textbook: Frontiers of electronic commerceby 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 andappearance as a credit card, with an embedded microchip. The chip gives them greatercapacity to store and use information than traditional magnetic stripe cards, meaning theycan be used to store personal information, make payments and allow secure access to othersystems. According to searchSecurity.com, there are more than a billion smart cardsalready in circulation, with Europe leading the field. Currently, most of these are focusedon delivering a single application to a specific target market such as paying for petrol at apetrol station. As their power, sophistication and security grow, smart cards that can beused for many applications at once will become the norm. However the high initial cost ofintroducing smart card systems and a lack of universal standards mean there are potentialrisks about implementing smart card projects locally.

Smarts cards may have up to 8 kilobytes of RAM, 346 kilobytes of ROM, 256 kilobytes ofprogrammable ROM, and a 16-bit microprocessor. The smart card uses a serial interfaceand receives its power from external sources like a card reader. The processor uses alimited instruction set for applications such as cryptography

Relationship-based smart cards are like credit cards with additional features such as value-added 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 dependson how ubiquitous smart-card readers become in places such as vending machines andtollbooths.

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, byunencrypted email. This risks interception along transmission lines and in nodes along theway. Assessments of the degree risk of risk involved vary from lot more than conventionalmechanisms like telephone calls and handing over your credit card in a restaurant, to a lotless. In Australia, and some other civilized countries, consumers are substantially protected



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against fraud arising in such circumstances, and the financial institution and/or merchantcarry 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-upconnection from the payer to a card-validating intermediary. This seems unlikely toprovide 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 schemesappear impractical because of problems with key management, but asymmetric (publickey) 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, theFBI's atrocious treatment of its originator, Phil Zimmerman, has resulted in long delays inPGP becoming available in a convenient, readily commercialized form. The formation of acompany, PGP Inc., to exploit the product, may result in the availability of convenientinterfaces 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-levelthrough 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 acrossthe 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 non-repudiation 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 supportsthem. (Some countries have less strong security requirements and consumer protections...).If crypto-based techniques like SHHTP and SET are successful in establishing highlysecure electronic payment mechanisms, they would be at least as secure as PIN-basedtransactions, and hence they could be used to support debit-card as well as credit-cardtransactions.



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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 theirown hard-disk (workstation, laptop, PDA, etc.).

To make a payment, the payer mails one or more value-tokens to the recipient. Therecipient 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 thevalue to their account with another financial institution.

No doubt clearing systems will be established in due course to enable banks that supportvarious kinds of tokens to settle with one another, and transfer credits (much like clearingsystems arose for international currencies and for cheques, etc.).

There are many risks to be managed in this kind of scheme, such as the spender spendingthe 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 claimto have crypto-based features that address these risks.

Some of these schemes offer fixed-denomination value-tokens. This can result in additionaltraffic to break the token into one for the amount to be transferred to the payee, and anotherto be returned as 'change' to the payer. It may also result in other awkwardness (and inparticular fragmentation of the value in one's wallet) that needs to be managed. Otherschemes provide automated adaptation of the values of each token.

To date, the schemes that have been devised feature single-use tokens: it appears that noone 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 thecontext of the net.

The big player, at least in intellectual terms, is David Chaum's Digicash, which operatesout of Amsterdam. This supports payer anonymity, whereas other schemes that have beenimplemented or described involve identification of both the payer and payee. The otherparticularly important product is Cliff Neumann's NetCash, which originated at USC inMarina 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 transferringdigital 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 overheadcosts increase the fees of money transfers or credit card payments through banks. But sincedigital cash uses the existing Internet network and user's computers, the cost of digital cashtransfer will be much lower, probably nearly zero.



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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 transferwithin national border, will be reduced dramatically. For example, now it takes more than aweek 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 arelimited to authorize stores, digital cash payments are possible for person-to-personpayments. Thus, even very small businesses or individuals can use these payments.

The increased efficiency and enlarged business opportunity will lead to less expensive andmore sophisticated services for users.

6.) Summary

We discussed about the different options of electronic payment systems such assmart cards and credit cards. Thereby new opportunities will arise for consumers, banks,and others.


1. Explain in detail the credit card system

Lecture 4



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1) Synopsis: Credit Card Based Payment Systems2) 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 PaymentSystems

3) Introduction


Encryption and Credit Cards

Third Party Processors and Credit cards

Drawbacks of the existing Credit Card Based Payment Systems

4) Revision:


5.1) Concept # 1: Encryption and Credit Cards

Though the use of credit cards during electronic transaction added a new flavor inelectronic commerce, there is nothing new in the basic process. The consumers, who wantto buy a product or service, simply send their credit card details to the involving serviceprovider and the credit card organization handles this payment like any other electronic

transaction .

Existing creditcard-basedelectronicpaymentsystems 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 anencrypted creditcard, each consumer and each vendor generates a public and a secret key.The public key is sent to the creditcard company and put on its public key server. The

secret key is re-encrypted with a password and the unencrypted version is erased. To buysomething from vendor X, the consumer sends vendor X the message, It is now time T, Iam paying Ydollars toXfor itemZ, then the consumer uses his or her password to signthe message with the public key. The vendor will then sign the message with its own secretkey and send it to the creditcard company, which will bill the consumer forYdollars andgive the same amount

5.2) Concept # 2: Third Party Processors and Credit cards



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A third party creditcard processor is a company that accepts creditcard orders on behalfof other online businesses. In third-party processing, consumers register with a third partyon the Internet to verify the electronic micro transactions. Here, the two key servers aremerchant 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 theproduct on a WWW page. The payment URLs send the encoded information including thedetails of purchase (e.g., price of item, target URL and duration) to the payment server. Ifthe information entered by the customer is valid and funds are available, the paymentserver processes the payment transaction and redirects the users browser to the purchaseditem with an access URL, which encodes the details of the payment transaction (theamount, what was purchased and duration).

The access URL acts as a digital invoice, stamped paid by the payment server; whichprovides evidence to the merchant that the user has paid for the information and provides areceipt 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 theexpiration time has not passed. Once the customer is authenticated, the payment isautomatically 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 incomparison to the digital cash and electronic checks, they suffer from a variety ofdrawbacks. The encrypted creditcard-basedelectronicpayment system suffers from the

following disadvantages: The creditcard companies need to maintain a public server withall the public keys assuming that the creditcard company will keep the vendor honest.

Encrypted creditcard transactions may not be micro enough for purchasing informationand numerous half-dollar and one dollar transactions may not be financially attractive,compared to the average creditcard transaction of about $60. If the encrypted creditcardelectronicpayment system is extended to all of the small-dollar services, available overthe internet (e.g., 20-cent file transfers and $1 video game rentals), the overall processingload on key system components will likely become unmanageable or commerciallynonviable unless a significant amount of automation takes place.

The companies maintaining credit-cardbasedpayment system have to be big enough sothat the costs for management and maintenance of the system do not entail considerableprofit lose. Technological and financial strength of the company need to be pretty solid.

The electronic payment system using a third-party processor dominates over theencrypted creditcard-based system for micro transactions. But it also has disadvantages,stated as follows:



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Requiring an on-line third-party connection for each transaction to different banks couldlead to processing bottlenecks that can undermine the goal of reliable use. To use thissystem both the customers and merchants must be registered with the On-line third-partyprocessor (OTTP). In the case of First Virtual, this registration costs $2 for buyers and $10for 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 ofcreditcard processing using an on-line third-party, takes place in theverification phase; a potential bottleneck. Verification using an OTTP is time consumingand 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 alucrative one and the general thought of the people is to consider it as an expensive one andrather unprofitable. Under these circumstances, using an OTTP forcreditcard verificationis not wise in the third-world developing countries; since the establishment and themaintenance 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 themerchants reluctant of using the OTTP forcreditcard verification scheme.

Third-party agents are required to be trustful. Otherwise, using a third-party forcreditcardverification may seem a bit risky since the transactions are not anonymous and creditcardcompanies do in fact compile valuable data about spending habits. Since an OTTP is acentralized entity, it is a candidate for single point of failure. If the third-party processorcollapses, 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.


1) What is the different existing credit card based electronic paymentsystems?

Lecture 51) Synopsis: Online Payment Process


a) What are the online payment processing issues?



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b) Which all factors we have to consider before designing an Electronicpayment System?

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:


5.1) Concept # 1: Online Payment Process

Online payment processing requires coordinating the flow of transactions among acomplex network of financial institutions and processors. Fortunately, technology hassimplified 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 youneed 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 thoughtto the process that appears to work instantaneously. For it to work correctly, merchantsmust connect to a network of banks (both acquiring and issuing banks), processors, andother financial institutions so that payment information provided by the customer can berouted securely and reliably. The solution is a payment gateway that connects your onlinestore 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 processingand 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 providesInternet merchant accounts. A merchant must open an Internet merchant account with an



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acquiring bank to enable online credit card authorization and payment processing. Examplesof acquiring banks include Merchant solutions and major banks.

Authorization: The process by which a customers credit card is verified as active and thatthey 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 matchesup 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 andMasterCard

Customer: The holder of the payment instrumentsuch as a credit card, debit card, orelectronic 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 isvalid and that the customer hasthe funds or credit limit to make the proposed purchase.