E-COMMERCE SUPPORT SERVICES

14.11 E-COMMERCE SUPPORT SERVICES

The i m p l e m e n t a t i o n of EC may require several support services. B 2 B and B 2 C appli- cations require p a y m e n t s and order fulfillment. Portals require content. A n d so on. Figure 14.5 portrays the the major EC services. A m o n g t h e m are e-infrastructure

(technology consultants, system d e v e l o p e r s and integrators, hosting, security, and net- w o r k s ) , e-processes, m a i n l y p a y m e n t s a n d logistics, and e-markets, d e a l i n g with marketing and advertising. E-communities includes the different business partners.

E-services includes C R M , P R M , and directory services. E-content refers to c o n t e n t providers. A l l t h e s e services support the applications in the center. A l l the services n e e d t o b e managed.

We will discuss here only two topics; payments and order fulfillment. For details on the other services see Turban et al., 2004.

ELECTRONIC PAYMENTS P a y m e n t s are an integral part of d o i n g business, w h e t h e r in the traditional w a y or

online. Unfortunately, in most cases traditional p a y m e n t systems are not effective for EC, especially in B2B.

LIMITATIONS OF T R A D I T I O N A L P A Y M E N T I N S T R U M E N T S Non-electronic payment methods, such as using cash, writing a check, sending a m o n e y order, or giving your credit card number over the telephone, have several limitations in

e - c o m m e r c e . Cash cannot be used b e c a u s e there is no f a c e - t o - f a c e contact. It takes time for payments sent by mail to be received. It also takes time to process a credit card number provided by p h o n e or fax, and it is inconvenient to have to switch from the

8 1 1 P A R T V IMPLEMENTING M S S IN THE E-BUSINESS E R A

E-lnfrastructure E-Process E-Markets

F I G U R E 1 4 . 5 MAJOR E C SERVICES

c o m p u t e r to the p h o n e to c o m p l e t e a transaction, especially if t h e s a m e t e l e p h o n e line i s used. F u r t h e r m o r e , n o t e v e r y o n e a c c e p t s credit cards o r checks, a n d s o m e b u y e r s d o

n o t h a v e credit cards o r c h e c k i n g a c c o u n t s . Finally, c o n t r a r y t o w h a t m a n y p e o p l e believe, it m a y be less s e c u r e for the b u y e r to u s e t h e t e l e p h o n e or m a i l to arrange or s e n d payments, especially f r o m a n o t h e r country, t h a n to finish a s e c u r e transaction on

a computer.

A n o t h e r i s s u e i s that m a n y E C t r a n s a c t i o n s are v a l u e d a t o n l y a f e w d o l l a r s o r e v e n cents. T h e cost o f p r o c e s s i n g such m i c r o p a y m e n t s n e e d s t o b e very low; y o u w o u l d n o t want to p a y $5 to p r o c e s s a p u r c h a s e v a l u e d at o n l y a f e w dollars. T h e c o s t of m a k - ing m i c r o p a y m e n t s o f f l i n e is just t o o high. F o r all of t h e s e r e a s o n s , a b e t t e r w a y is n e e d e d to p a y in cyberspace. This better w a y is an electronic payment system.

ELECTRONIC PAYMENT SYSTEMS A s i n t h e traditional m a r k e t p l a c e , s o t o o i n cyberspace, the diversity o f p a y m e n t m e t h - o d s allows c u s t o m e r s t o c h o o s e h o w t h e y w i s h t o pay. T h e f o l l o w i n g i n s t r u m e n t s are a c c e p t a b l e m e a n s o f p a y m e n t : e l e c t r o n i c c h e c k s , e l e c t r o n i c credit cards, p u r c h a s i n g cards, e l e c t r o n i c cash, s t o r e d - v a l u e smart cards, p e r s o n - t o - p e r s o n p a y m e n t s , e l e c t r o n i c f u n d s transfer ( E F T ) , wireless p a y m e n t s , and e-wallets. H e r e w e will l o o k a t s o m e o f t h e s e p a y m e n t m e c h a n i s m s . Later o n w e will s e e h o w t o m a k e t h e m secure.

E l e c t r o n i c C h e c k s . E l e c t r o n i c c h e c k s ( e - c h e c k s ) are similar t o r e g u l a r c h e c k s , and t h e y are u s e d m o s t l y i n B 2 B . H e r e i s h o w t h e y work:

S t e p 1: T h e c u s t o m e r e s t a b l i s h e s a c h e c k i n g a c c o u n t with a bank. S t e p 2: T h e c u s t o m e r c o n t a c t s a seller, b u y s a p r o d u c t or a service, and e - m a i l s an

e n c r y p t e d e l e c t r o n i c check. Step 3: The merchant deposits the check; money is debited from the buyer's

CHAPTER 14 ELECTRONIC COMMERCE

Like regular checks, e - c h e c k s carry a signature (in digital f o r m ) that c a n be veri- f i e d ( s e e p a y b y c h e c k . c o m ) . P r o p e r l y s i g n e d a n d e n d o r s e d e - c h e c k s are e x c h a n g e d b e t w e e n financial institutions t h r o u g h e l e c t r o n i c clearing h o u s e s ( s e e e c h e c k . o r g and

nacha.org for details). E l e c t r o n i c Credit Cards. E l e c t r o n i c credit cards m a k e i t p o s s i b l e t o c h a r g e o n l i n e

p a y m e n t s to o n e ' s credit card account. It is e a s y and s i m p l e for a b u y e r lo e - m a i l h e r or

his credit card n u m b e r to the s e l l e r . T h e risk h e r e is that h a c k e r s will be able to r e a d the card n u m b e r and u s e it illegally if it is not e n c r y p t e d . S e n d e r a u t h e n t i c a t i o n is also dif- ficult. ( N e w t e c h n o l o g i e s will s o l v e this p r o b l e m i n t w o o r t h r e e years.) T h e r e f o r e , f o r security, o n l y e n c r y p t e d cards s h o u l d be used. (Credit card details can be e n c r y p t e d by using the SSL protocol in the buyer's computer, which is available in standard browsers and is described online.) When you buya book from Amazon.com, your credit card i n f o r m a t i o n and p u r c h a s e a m o u n t are encrypted in y o u r b r o w s e r . So t h e

i n f o r m a t i o n i s s a f e w h i l e o n the I n t e r n e t . W h e n this i n f o r m a t i o n a r r i v e s a t

A m a z o n . c o m , it is not o p e n e d but is transferred a u t o m a t i c a l l y ( e n c r y p t e d ) to V I S A , MasterCard, or s o m e other credit card c o m p a n y for authorization.

Virtual C r e d i t Cards. A virtual c r e d i t card is a s e r v i c e that a l l o w s y o u to s h o p with an ID number anda password instead witha credit card number (see

a m e r i c a n e x p r e s s . c o m ) . T h e b a n k p r o v i d e s y o u w i t h a transaction n u m b e r valid for a short period. This w a y y o u r loss, if a n y occurs, is limited. Credit cards are u s e d m a i n l y in

B 2 C and i n s h o p p i n g b y S M E s . Purchasing cards are u s e d for B 2 B . P u r c h a s i n g Cards. I n s o m e countries, such a s Britain, U n i t e d States, a n d H o n g K o n g ,

c o m p a n i e s use p u r c h a s i ng cards t o p a y o t h e r c o m p a n i e s . U n l i k e credit cards, w h e r e credit is p r o v i d e d for 30 to 60 days for f r e e b e f o r e p a y m e n t is m a d e to the m e r c h a n t , p a y m e n t s m a d e with purchasing cards are s e t t l e d within a w e e k . P u r c h a s i n g cards are u s e d for u n p l a n n e d B 2 B purchases, and c o r p o r a t i o n s generally limit t h e a m o u n t per purchase (usually $1,000 t o $2,000). Purchasing cards c a n b e u s e d o n the Internet m u c h

like regular credit cards. T h e y e x p e d i t e the p r o c e s s of u n p l a n n e d purchases, usually as part of desktop e-purchasing described in S e c t i o n 14.6.

Electronic Cash. Cash is the most prevalent consumer-payment instrument. Traditional brick-and-mortar m e r c h a n t s prefer cash b e c a u s e t h e v d o not h a v e t o p a y

c o m m i s s i o n s to credit card c o m p a n i e s a n d c a n put the m o n e y to u s e as s o o n as it is received. S o m e b u y e r s pay with cash b e c a u s e t h e y d o n o t h a v e c h e c k s o r credit cards, or b e c a u s e t h e y want to preserve their anonymity. It is logical t h e r e f o r e , that EC sellers

and s o m e buyers m a y prefer electronic cash (e-cash). E l e c t r o n i c cash a p p e a r s i n t h r e e major forms:

a. Electronic payment cards with e-cash. A typical e-payment card is known as a stored-value m o n e y card. I t i s t h e o n e y o u u s e t o p a y f o r p h o t o c o p i e s i n y o u r library, for transportation, or for t e l e p h o n e calls. It a l l o w s a f i x e d a m o u n t of p r e-

paid m o n e y t o b e s t o r e d o n it. E a c h t i m e y o u u s e the card, the a m o u n t i s r e d u c e d . O n e s u c c e s s f u l e x a m p l e i s u s e d b y the N e w York M e t r o p o l i t a n T r a n s p o r t a t i o n

A u t h o r i t y ( M T A ) , w h i c h o p e r a t e s buses, trains, interstate toll bridges, and tunnels. N e a r l y 5 million c u s t o m e r s present cards to card-reader m a c h i n e s on buses, sub- ways, and road t o l l b o o t h s e a c h day. I n January 2 0 0 3 the M T A d e c i d e d t o discon-

tinue the u s e of t o k e n s in public transportation ( t h e y h a d b e e n in u s e for o v e r 50 years) in favor of s t o r e d - v a l u e cards. Similar cards are u s e d in m a n y cities a r o u n d

P A R T V IMPLEMENTING M S S IN THE E-BUSINESS E R A

Cards with stored-value m o n e y can be also p u r c h a s e d for Internet use. Y o u enter a third-party W e b site and p r o v i d e an ID n u m b e r and a password, m u c h as y o u d o w h e n y o u u s e a prepaid p h o n e card. T h e m o n e y can b e u s e d o n l y i n partic- ipating stores.

b. Smart cards. S o m e p e o p l e refer to stored-value cards as smart cards, but they are n o t really t h e s a m e . True smart cards c o n t a i n a m i c r o p r o c e s s o r ( c h i p ) and can store a c o n s i d e r a b l e a m o u n t of i n f o r m a t i o n ( m o r e than 1 0 0 t i m e s w h a t is in a stored-value card) and can c o n d u c t processing. S u c h cards are frequently multi- purpose; they can be u s e d as credit cards, debit cards, and s t o r e d - v a l u e cards, and w h e n u s e d in d e p a r t m e n t - s t o r e chains as loyalty cards t h e y c o n t a i n purchasing

i n f o r m a t i o n about shoppers.

A d v a n c e d smart cards h a v e t h e ability to transfer funds, p a y bills, b u y f r o m v e n d i n g m a c h i n e s , or pay for s e r v i c e s such as t h o s e o f f e r e d on t e l e v i s i o n or PCs. M o n e y v a l u e s can b e l o a d e d a t A T M s , kiosks, o r f r o m y o u r PC. For e x a m p l e , t h e

V I S A C a s h Card a l l o w s y o u t o b u y g o o d s o r s e r v i c e s a t participating gas sta- tions, f a s t - f o o d o u t l e t s , p a y p h o n e s , d i s c o u n t stores, p o s t o f f i c e s , c o n v e n i e n c e stores, c o f f e e shops, and e v e n m o v i e theaters. Smart cards are ideal f o r m i c r o - payments.

Smart cards c a n a l s o b e u s e d t o transfer b e n e f i t s f r o m c o m p a n i e s t o their

e m p l o y e e s , as w h e n retirees get their p e n s i o n p a y m e n t s , and frorri g o v e r n m e n t s that pay citizens different entitlements. T h e m o n e y is transferred electronically to

a smart card at an A T M , kiosk, or PC.

c. Person-to-person payment. Person-to-person payments (P2P) are one of the n e w e s t and fastest-growing p a y m e n t schemes. T h e y e n a b l e the transfer of f u n d s

b e t w e e n t w o individuals f o r a variety of purposes, like repaying m o n e y b o r r o w e d

f r o m a friend, s e n d i n g m o n e y to a student at college, paying for an i t e m p u r c h a s e d at an o n l i n e auction, or sending a gift to a family m e m b e r . O n e of t h e first c o m p a - n i e s t o o f f e r this s e r v i c e i s P a y P a l ( p a y p a l . c o m ) . P a y P a l ( a n e B a y c o m p a n y ) claimed, in 2003, to h a v e about 20 million c u s t o m e r accounts, handling m o r e than

35 percent of all e B a y transactions and f u n n e l i n g $8.5 billion in p a y m e n t s through its s e r v e r s annually. C i t i b a n k c2it ( c 2 i t . c o m ) , A O L Q u i c k C a s h , B a n k O n e ' s

e M o n e y M a i l , Y a h o o ! P a y D i r e c t , and W e b C e r t i f i c a t e ( w e b c e r t i f i c a t e . c o m ) are all PayPal competitors.

Virtually all P 2 P s y s t e m s w o r k the s a m e way. A s s u m e y o u w a n t to s e n d m o n e y to s o m e o n e o v e r the Internet. First, y o u select a service and o p e n up an account with it. Basically, this entails creating a user n a m e , a password, giving t h e service your e-mail

address, and providing the service with a credit card or b a n k account number. N e x t , y o u add f u n d s f r o m y o u r credit card o r b a n k a c c o u n t t o y o u r a c c o u n t . O n c e t h e account has b e e n f u n d e d you're ready t o s e n d m o n e y . Y o u access PayPal (for e x a m p l e ) with your user n a m e and password. N o w y o u specify the e - m a i l address o f the p e r s o n t o receive the m o n e y , along with t h e dollar a m o u n t y o u want t o send. A n e-mail i s sent

to the p a y e e ' s e-mail address. T h e e - m a i l will c o n t a i n a link back to t h e service's W e b site. W h e n the recipient clicks on the link, he or s h e will be t a k e n to the service and

asked to set up an account to which t h e m o n e y that w a s sent will be credited. T h e recip-

i e n t c a n t h e n credit t h e m o n e y f r o m this a c c o u n t t o his o r h e r credit card o r b a n k account. T h e payer pays a small a m o u n t ( a r o u n d $1) per transaction.

Electronic Bill Presentment and Payment. An increasing number of people prefer to

C H A P T E R 14 ELECTRONIC COMMERCE

m a j o r e x i s t i n g p a y m e n t s y s t e m s i n c o m m o n use: a u t o m a t i c p a y m e n t o f m o r t g a g e s ,

a u t o m a t i c transfer o f f u n d s t o p a y m o n t h l y utility bills, p a y i n g bills f r o m a n o n l i n e b a n k a c c o u n t , m e r c h a n t - t o - c u s t o m e r d i r e c t billing, a n d u s e o f a n i n t e r m e d i a r y t o

aggregate bills i n t o o n e p a y a b l e W e b site. SECURITY IN ELECTRONIC PAYMENTS

T w o m a i n issues n e e d t o b e c o n s i d e r e d u n d e r the t o p i c o f p a y m e n t security: what m e a -

sures are n e c e s s a r y i n order t o m a k e E C p a y m e n t s s a f e (security r e q u i r e m e n t s ) , a n d the m e t h o d s that can b e u s e d (security p r o t e c t i o n ) .

Security R e q u i r e m e n t s . T h e security r e q u i r e m e n t s for c o n d u c t i n g E C are: 1. Authentication. T h e buyer, the seller, and the p a y i n g institutions m u s t be assured

of t h e identity of the parties with w h o m t h e y are dealing. 2. Integrity. D a t a a n d i n f o r m a t i o n t r a n s m i t t e d in E C , s u c h as o r d e r s , r e p l i e s to

queries, and p a y m e n t authorizations, m u s t be p r o t e c t e d against accidental or m a l i - cious alteration or d e s t r u c t i o n during transmission.

3. Non-repudiation. M e r c h a n t s n e e d p r o t e c t i o n against the c u s t o m e r ' s u n j u s t i f i e d denial o f placing a n order. O n the o t h e r hand, c u s t o m e r s n e e d p r o t e c t i o n against t h e m e r c h a n t ' s u n j u s t i f i e d d e n i a l o f p a y m e n t s m a d e . ( B o t h t y p e s o f d e n i a l s are

called r e p u d i a t i o n . ) 4 . Privacy. M a n y c u s t o m e r s w a n t their identity t o b e s e c u r e d . T h c v w a n t t o m a k e s u r e o t h e r s d o n o t k n o w w h a t t h e y buy. S o m e p r e f e r t h e s a m e c o m p l e t e a n o n y m i t y that is possible with cash payments. 5. Safety. C u s t o m e r s w a n t to be sure that it is safe to p r o v i d e a credit card n u m b e r on the Internet.

Security p r o t e c t i o n . S e v e r a l m e t h o d s a n d m e c h a n i s m s c a n b e u s e d t o fulfill t h e s e security requirements. The primary m e c h a n i s m is e n c r y p t i o n , which is o f t e n part of the m o s t u s e f u l security s c h e m e s . Intelligent s y s t e m s are e x t r e m e l y u s e f u l i n facilitating Internet security. For details s e e D S S O n l i n e 14.2.