Definition:

Electronic Payment is a financial exchange that takes place online between buyers and sellers. The content of this exchange is usually some form of digital financial instrument (such as encrypted credit card numbers, electronic cheques or digital cash) that is backed by a bank or an intermediary, or by a legal tender. The various factors that have lead the financial institutions to make use of electronic payments are:

1. Decreasing technology cost:

The technology used in the networks is decreasing day by day, which is evident from the fact that computers are now dirt-cheap and Internet is becoming free almost everywhere in the world.

2. Reduced operational and processing cost:

Due to reduced technology cost the processing cost of various commerce activities becomes very less. A very simple reason to prove this is the fact that in electronic transactions we save both paper and time.

3. Increasing online commerce:

We began E-Commerce with EDI, this was primarily for large business houses not for the common man. Many new technologies, innovations have lead to use of E-Commerce for the common man also. We will now briefly enumerate these innovations based on whom they affected:

1. Affecting the consumers:

Credit cards, Debit Cards, ATMs (Automated Teller Machines), Stored value cards, E-Banking.

2. Enabling online commerce:

Digital Cash, E-Cash, Smart cards (or Electronic Purse) and encrypted Credit cards.

3. Affecting Companies:

There are also many problems with the traditional payment systems that are leading to its fade out. Some of them are enumerated below:

1. Lack of Convenience:

Traditional payment systems require the consumer to either send paper cheques by snail-mail or require him/her to physically come over and sign papers before performing a transaction. This may lead to annoying circumstances sometimes.

2. Lack of Security:

This is because the consumer has to send all confidential data on a paper, which is not encrypted, that too by post where it may be read by anyone.

3. Lack of Coverage:

When we talk in terms of current businesses, they span many countries or states. These business houses need faster transactions everywhere. This is not possible without the bank having branch near all of the companies offices. This statement is self-explanatory.

4. Lack of Eligibility:

Not all potential buyers may have a bank account.

5. Lack of support for micro-transactions:

We will now focus attention on the various ways available to pay online these methods of payment are still new even when seen as a technology. Each has its own benefits and shortcomings:

1. Electronic Tokens:

An electronic token is a digital analog of various forms of payment backed by a bank or financial institution. There are two types of tokens:

1. Real Time: (or Pre-paid tokens) - These are exchanged between buyer and seller, their users pre-pay for tokens that serve as currency. Transactions are settled with the exchange of these tokens. Examples of these are DigiCash, Debit Cards, Electronic purse etc.
2. Post Paid Tokens – are used with fund transfer instructions between the buyer and seller. Examples – Electronic cheques, Credit card data etc.
1. Electronic or Digital Cash:

1. Cash is a legal tender i.e. payee is obligatory to take it.
2. It is negotiable i.e. can be given or traded to someone else.
3. It is a bearer instrument i.e. possession is proof of ownership.
4. It can be held & used by anyone, even those without a bank certificate.
5. It places no risk on part of acceptor.

1. They are identification cards owned by the issuer & restricted to one user i.e. cannot be given away.
2. They are not legal tender
3. Their usage requires an account relationship and authorization system.

• Must have a monetary value:

• Must be interoperable or exchangeable as payment for other digital cash, paper cash, goods or services, lines of credit, bank notes or obligations, electronic benefit transfers and the like.
• Must be storable and retrievable:

• Should not be easy to copy or tamper with while it is being exchanged. This is achieved by using the following technologies, these are nothing but new and very efficient versions of the old art of cryptography.
• Digital cash is based on cryptographic systems called "Digital Signatures" similar to the signatures used by banks on paper cheques to authenticate a customer.
• Purchase of digital cash from an online currency server (or bank) involves 2 steps:

• Establishment of an account in this step we are given a unique digital number which also becomes our digital signature. As it is a number known only to the customer and the bank, forgery, which may be done in paper cheques becomes very difficult.
• Maintenance of sufficient money in the account is required to back any purchase.

• Well suited for clearing micro payments. Conventional cryptography of e-cheques makes them easier to process than systems based on public key cryptography (like digital cash).
• They can serve corporate markets. Firms can use them in more cost-effective manner.
• They create float and the availability of float is an important requirement of Commerce.

Banking as a business can be divided into five broad types:

1. Retail
2. Domestic wholesale
3. International Wholesale
4. Investment
5. Trust

Of all these types, retail and investment banking are most affected by online technological innovations and are the ones that stand to profit most from e-commerce.

Role of e-commerce in banking is multifaceted – impacted by:

1. Changes in technology.
2. Rapid deregularization of many parts of finance.
3. Emergence of new banking institutions.
4. Basic economic restructuring.

E-Banking offers an inexpensive alternative to branching to expand a bank’s customer base, and many banks are using e-banking to increase services to their customers. Many banks have started websites on the Internet and many plan to offer banking services over the Internet.

Smart Cards and other forms of electronic cash could be the key to consumer acceptance of home banking, eventually allowing banks to reduce the number of their physical branches.

Four major categories of home banking are:

1. Proprietary bank dial-up services.

A home banking service in combination with a Computer and Modem lets the bank become and electronic gateway to consumer’s accounts, enabling them to transfer funds or pay bills directly to creditor’s accounts.

2. Off-the-shelf home finance Software:

This category is a key player in making relationships between current customers and helping banks gain new customers. Example: Microsoft’s Money and Bank of America’s MECA Software.

3. Online Service Based Banking:

This category allows banks to setup retail branches or subscriber based online services such as Prodigy, CompuServe and America Online.

4. WWW Based Banking;

E-Commerce and Retailing

Retailing is expected to change with the rapid development of new online sales and distribution channels that literally can be used from anywhere, anytime – from work, school, a hotel, car or airplane. As an example of the Electronic retailing we can see Amazon which sells books online and Dell computers who sell computers online. These retailers started as small players in a market, which did not trust them. However, they have become major players after taking over some small retailers.

Almost every retailer is now re-evaluating every aspect of its operation from customer service to advertising, merchandising to store design and logistics to order fulfillment and further more reacting to the pressure of retailers, suppliers are assessing technology based solutions to drive down costs and become more efficient producers of goods.

Online channels are impacting traditional retail business models with online retailing constraints of time and space disappear.

Today electronic retailing is still far from being a competitive threat to more traditional store retailing but it is becoming increasingly attractive as technology and application improve and retailers gain experience.

Some traditional retail outlets:

1. Shopping malls and departmental stores.
2. Super Centers
3. Factory outlets
4. Warehouses
5. Mail order and catalogue shopping

Electronic Retailing Channels are:

1. Television Retailing

The T.V. retail marketing and programming are divided into segments that are televised live, with a show host who presents the merchandise and conveys information relating to the product including price, quality, features and benefits.

Success of T.V. shopping is the result of effective utilization of electronic media for capturing the power and influence of celebrity and the magic of showmanship and bringing them to bear on a sale.

2. CD-ROM Based Shopping has the following advantages:

• A CD-ROM catalogue has multimedia capability and can enable a merchant to add sound, photographs an a full motion video to a product presentation.
• It can be interactive enabling the customer to select which category to view.
• Relatively inexpensive to produce and distribute.

• Not all possible customers may have a CD-ROM drive or software to see it.
• It is a static device to catalogue a company’s products, but the list or style of the products a company makes may vary from time to time.

Publishing is another area where the Internet has impacted. With all web sites having web pages that show some content or other visitors, get hordes of web page based information on almost any topic. In fact, the web has become a very big virtual information library. Taking advantage of this are some web sites like the www.rocketlibrary.com. These web sites encourage people to write for them free and encourage members to get e-books free. E-Books are nothing but electronic forms of paper books, these books are a part of a wave of innovation, these include Palmtop computers, E-Book readers etc. These readers and Palmtops can store thousands of books in a very small size as compared to paper books.

The big publishing houses are taking hue and are now offering some chapters or complete books online. This has also lead to a new trend in which authors are now offering their books online without actually going to publishing houses, eg. Stephen King is offering one chapter of his new book The Plant at a dollar (www.stephenking.com).

All this has become due to the fact that Internet can handle micro-payments. Like retailing it may appear that books may vanish one day due to these online publishers but it is not so as books are still a favorite pastime of many, but e-books will become a supplement to the paper books this is for sure.

Online publishing can be viewed in two ways:-

• Activity of disseminating information.
• Activity of publishing for sale. In order to realize revenue from their information, publishers package their product as a bundled commodity rather than disjointed information.

There is a fundamental difference between information and commodity. A commodity such as digital book needs to be sold in volume in order to generate revenue, so publishers must keep their material from spreading freely all over the planet. On the other hand, value of information is not lost when it is sold because the contents are not limited by their medium of expression.

Technical Issues:

1. How to improve and enforce copyright protection.
2. How to create compelling content using the available technology.
3. How to conduct financial transactions for individual articles (Micropayments).
4. Publishers have to constantly innovate and challenge present concepts if this form of commerce is to become widely accepted and popular.

1. Content
2. Incentive
3. Services
4. Quality
5. Price
6. Speed of delivery
7. Bundling of products
8. Diversity of choice

1. Online Archive Approach:

(Includes bibliography databases and full text searches). This is new to the web and appeals to corporate publishers and to some extent, commercial publishers (such as academic or journal publishers) who have an existing digital archive that they want to deliver over the web, as well as on paper, CD-ROM or other media.

2. The new medium approach:

(Including real-time news delivery, personalized news delivery and entertainment). It aims to create new material for the web; to treat the web, as its own medium. This will appeal mostly to commercial publishers, such as magazines, that view web as an alternative, not a replacement for print publication. This approach is more controversial and more difficult to implement, but also more exciting.

3. The Publishing Intermediation Approach:

This approach (including online directories) exploits new service opportunities for intermediaries. The future is bright for the publishing intermediaries who offer case of operation speed & details information because there will always be a need for a good directory to help people locate goods, service & products.

4. The dynamics & Just-in-Time Publishing Approach:

A key issue in online publishing relates to digital copyrights. Effective technological protection mechanisms are vital to ensuring the availability of quality of quality content online. Protecting intellectual property rights (copyrights, trademarks and licenses) and collecting dues from online users is proving to be quite challenging. The Internet makes it extremely easy to copy, retransmit and alter works without the permission of the copyright holder. Moreover, the digital world has no international boundaries, and policing is impossible since the levels of protection and sanctions against infringement vary widely in countries across the globe, which makes the risk even greater. Without effective protection, publishers are not willing to risk their investment and hard work.

1. Restricting access to the source of the work:
1. Controlling web server access.
2. Controlling individual document access.
2. Restricting manipulation of the electronic file containing the work.

Magazines & Newspapers have also set up sites on the Web with the interaction of attracting advertising dollars. Many online periodicals include traditional advertisements as well as icons, which display an advertiser’s logo & when clicked with mouse, send a user across the web to the advertiser’s website.

Advertising spending is expected to increase for 5 reasons.

1. Shorter Access Times:

The bandwidth available is constantly increasing so that the user now has to wait less to access a web site. This means that the user can spend more time on the web site. This in turn means that he will be seeing more ads.

2. Reduced Access Fees

We are all seeing that Internet usage has now almost become free, companies like CalTiger are offering it in India. This reduction in prices has lead to tremendous growth in the number of users.

3. Increasing convenience to access information:

The web has now become sort of the worlds biggest encyclopedia, it is the largest source of all information. We all refer to the web for information. We know how easy it is search the web.

4. Increasingly valuable information:

Now that we have discussed E-Commerce we will try to see how does a site actually implement it, what tools are necessary to implement an online store.

E-Commerce Phases:

Let us now look at each of these phases closely:

• Marketing:

• Customer/Visitor:

• B2C – These web sites provide business to consumer. These are micro-payment based web sites. They have to attractive and should be able to show the products properly. As an example, you may visit www.fabmart.com and www.firstandsecond.com to see the feel of a B2C site.
• B2B – These are web sites that provide business to the business, that is their function is similar to the stock exchanges, i.e. they are meeting points for a buyer and a seller. These do not focus on content but rather on service. Functions of such web sites are online order processing, tender filling, tracking of orders etc. To see some of these sites in action you may visit www.chemb.com and www.hellobrain.com.
• Auction Sites – These are sites that let you auction or sell something online it may be an old motorcycle or bed or books. To see this site go to www.bazee.com

• Web Site Visit:

• Product Browsing:

• Shopping Basket:

• Checkout:

• Tax & Shipping:

• Payment:

• Receipt:

• Process Order:

• Fulfill Order:

• Ship Order:

The tools that go into the making of a web site depend on the platform or OS being used to develop the store:

1. Windows NT platform:
1. Database support – A must, either in form of Access or SQL Server.
2. ASP support – this is the technology from Microsoft that will enable dynamic content on the web site.
3. MTS support – Every transaction should pass the ACID test (i.e. it should be Atomic Consistent Isolated and Durable) MTS has built in transaction objects that can be used.
4. Site Server – has a rich set of tools to build a site, these help to engage a customer.
5. Commerce Server – This has a rich set of tools that can help in commerce transactions.
2. Unix/Linux platforms:
1. MySQL support – this is the database supported by sites on this platform.
2. Perl – is the scripting language that enables dynamic content on these web sites.
3. JAVA:
1. Java is a platform independent package, so JAVA has Java Server Pages for scripting and can interact with most of the databases with the use of some third party addons etc.

E-Banking Case Study:

Intuit: Intuit is a leading provider of financial software it pioneered the concept of e-banking by making a personal finance software called Quicken in 1984. It launched online bill payment services in the year 1990, IntelliCharge credit card service in 1993 and Quicken Quotes a portfolio price update service in 1994.

At the forefront was the company’s software Quicken; it allows users to organize, understand and manage their personal finance. Quicken looks and works like a cheque-book, it allows users to enter their financial transactions and then generate meaningful reports and graphs. It allows users to reconcile their bank accounts and also track their credit card purchases. It also enables users to print cheques from the computer and allows them to make online payments.

The company also offers to its customers online banking, bill payment and credit management.

How It Works:

Customers will have to sign up with a local bank and then use Quicken software to get the desired information. Quicken users then dial a local number and all transactions between Quicken and the banks are done through an Intuit subsidiary National Payment Clearing House, which changed its name to Intuit Service Corporation. ISC is basically an intermediary between the Quicken software and the banks. ISC’s network design is based on "burst and disconnect" i.e. the user connects to ISC gets his desired information and disconnects. This strategy allows full utilization of the network and allows maximum number of users. The network applies the RSA security method. Intuit’s banking partners download all bank related information like bank balances and statements into ISC’s servers. So that all information is available to the user from his computer and modem. In case of credit card payments the request is passed to the credit card company which feeds the details about the latest transactions to ISC which then gets back to the user.

In case of Bill Payment the user just logs into the ISC server and feeds the details of the bills he has to pay. ISC then sees the most appropriate method of payment of the bill. There may be many possible ways, like some companies may have tied up with ISC itself, some may have tied up with other networks etc. If the bill cannot be paid over the network then Intuit prints a physical cheque and sends it to the party.

The figure on the following page shows graphically with the help of block diagrams how Intuit’s services work.

Intuit is one of the oldest and leading players in this market the other leading service providers are:

• Citibank and Prodigy: This is a tie up between a major bank and an Internet service provider to benefit the user.
• Intuit and America Online: Similar to one above.
• Security First Network Bank: (SFNB) this is different from the rest as the complete bank is online and you do not have to purchase any proprietary software, the browser is the only software needed. This service also clearly distinguishes between Internet Banking and Online Banking.
• Internet banking: is banking with the use of just a browser and nothing else. You can download statements and other information and print them as you like it. This type of banking allows banks to break free of software developers, as no proprietary software is needed.
• Online Banking as we saw relies on proprietary software. This software is responsible for all transactions that take place on with the bank.

The intricacies of online retailing can be explain through following case study of Peapod CUC International, based in Evanston, Illinois which is using the online medium for food retailing services. Founded in 1989 by two brothers, Peapod is a member of online grocery /drug store shopping and delivery service that already has thousands of customers in the Chicago, San Francisco, and Boston Area.

Peapod is performing as a middleman supply chain management, which was founded on the idea that people do not want to go to the grocery store and without leaving the room they can avail the facility of the modern Internet communication. Peapod has an online database over 25,000 grocery and drugstore items, and allows comparison-shopping based on price, nutritional content, fat or Calories. Other feature includes electronic coupons retailer preferred customer discounts, and other benefit like recipes, tips, and home delivery service. Peapod has a staff of professional shoppers; produce specialists, and delivery people who fulfill the order

In the online retailing we will discuss the following in view of Peapod's online retailing management through the supermarket:

2) The Business Model.

The Mechanism behind online retailing

Peapod initially had a DOS – Based system with little Graphics. Later in1995, they introduced a new version of the software – based on the windows platform, in which product pictures were available.

Peapod's back office is linked with the mainframe databases of the supermarkets at which it ships for its customers, allowing it to provide the supermarkets' storekeeping units and shelf tag prices electronically to its customers where they need to buy a software application that enables them to access peapod database through an online computer service. By executing the Peapod software and entering the user ID & password. On verification, user gets access whole grocery store and drugstore items the supermarket online. Then Peapod provides customers with home shopping services.

After accessing, the customers can virtually visit to the grocery store and according to provide information as well as delivery services then can find the item by brand name or product type or can be sorted out item by various categories. Within categories, they can choose to have the item arranged alphabetically by brand stored by lowest per ounce, package size, unit price, or nutritional value. Customer can make selection for goods to be purchase and can subtotal the amount.

Peapod customers create their own grocery aisles in their own virtual store. Customers can a make request for list of item by category (cereals), by item (Frosted Flakes), by brand (Kellogg’s), or even by what is on sale in the store on a given day. And even there last history to goods purchase.

After having finished shopping, user can choose a Pinpoint delivery time period with featuring 60 minutes or 90 minutes time slots. Now clicking on done button the order is electronically routed to Peapod. Where all order are taken centrally, and then lined to the respective store. The store gets a printout with the order including delivery address and payment instruction mode.

At the customer services availability, customer can avail the facility from Membership Service Cell, where their representative will try to resolve the matter. For example, service representative found that customer receiving five bags of apples instead of five apples. In response, Peapod began asking to its virtual customer to confirm order in which order-entry error may occur.

The Business Model

The formula for Peapod's success is the busy American lifestyle. So on the basis of good demographics, which can do better things among the American to, delivers the goods across the homes. The behind-the-scenes logistics are central to what Peapod is all about; that means make sure the orders get to the stores correctly and that they are shopped correctly.

With the overcome of traditional retailer Peapod need to crate the supply chain after identifying a specific demand from a target customer for a particular item, and then it feeds off the existing infrastructure to do it. But, Peapod has to option to switch over the food supply management then need to re-plan all the way of their online retailing with compare to food retailer who have the shopper’s resistance to switching food stores because of familiarity with the shelf location of the products purchased. Apart from this scene on-line customer feel inconvenience to relearn dozen of product location at a new store. Online environment must offer significant advantage to overcome shopper enteria and induce trial .

As some new retail format emerge in the market, and once Peapod gain enough customers, Peapod need to create extra warehouse to avoid the extra overhead because costing does a matter to go to the store and pick the product off the shelf.

At the end of each shopping interaction Peapod’s customer feedback can give a boost to institute a variety of changes and option.

Clearly, Peapod stands as testament to the power of new ideas in retailing. The service, which has about 15000 customers has customer-retention rate of more than 80 per cent.

However with competition heating up from their entrants Peapod has to find new way to be efficient in order to make money in low-margin business.