Introduction

The Internet and information and communications technologies (ICT) are central to economic growth
and productivity. Internet-based technologies and networks can increase productivity, decrease costs
and open new market opportunities. Now-a-days, using the Internet and email to conduct business is
not uncommon. However, lack of technical and management skills in Information and Communications
Technology is a barrier. There are a wide variety of resources available to help you to improve

COMMERCE

Meaning E-Commerce or Electronics Commerce is a methodology of modern business which addresses

the need of business organizations, vendors and customers to reduce cost and improve the quality of
goods and services while increasing the speed of delivery.

E-commerce refers to paperless exchange of business information using following ways, Electronic Data
Exchange (EDI), Electronic Mail (e-mail), and Electronic Bulletin Boards Electronic Fund Transfer (EFT),
Other Network-based technologies the concept of e-commerce is all about using the internet to do
business better and faster.

E-commerce is the process of buying and selling over the Internet, or conducting any transaction
involving the transfer of ownership or rights to use goods or services through a computer-mediated
network without using any paper document.

E-COMMERCE DEFINITIONS

The definition of e-commerce includes business activities that are business-to-business (B2B), business-
to-consumer (B2C), extended enterprise computing (also known as "newly emerging value chains"), d-
commerce, and m-commerce. Ecommerce is simply a part e-business, more specifically, the trading
aspect of business. Although there are many definitions and explanations of e-commerce, the following
definition provides a clear distinction.

There Are Many Definitions And Understanding About E-Commerce.

They Are As Follows:

 According to the editor-in-chief of International Journal of Electronic Commerce, Vladimir Zwass,
'Electronic commerce is sharing business information, maintaining business relationships and
conducting business transactions by means of telecommunications networks'.
 Electronic Commerce is where business transactions take place via telecommunications
networks, especially the Internet – E. Turban, J. Lee, D. King and H.M. Chung,
 Electronic commerce is about doing business electronically – P. Timmers
 Electronic commerce or e-commerce refers to a wide range of online business activities for
products and services – Anita Rosen
  It pertains to "any form of business transaction in which the parties interact electronically rather
than by physical exchanges or direct physical contact." –
 MK, Euro Info Correspondence Centre (Belgrade, Serbia),
 E-commerce is usually associated with buying and selling over the Internet, or conducting any
transaction involving the transfer of ownership or rights to use goods or services through a
computer-mediated network. –Thomas L. Mesenbourg
 A more complete definition is: E-commerce is the use of electronic communications and digital
information processing technology in business transactions to create, transform, and redefine
relationships for value creation between or among organizations, and between organizations
and individuals.

E-COMMERCE – FEATURES

The unique features of e-commerce technology include:

Ubiquity: e-Commerce is ubiquitous; It is available just about everywhere and at all times by using
internet and Wi-Fi hotspot such as airport, coffee cafe and hill station places

Global reach: The potential market size is roughly equal to the size of the online population of the world.

E-Commerce Technology seamlessly stretches across traditional cultural and national boundaries and
enables worldwide access to the client.

E-Commerce website has ability to translate the multilingual websites as well as allow the access to
visitors all over the world, purchase products and make business interactions.1.4.3 Universal standards:
The technical standards of the Internet are shared by all of the nations in the world.

The whole online tradition are growing and expanding their features in the world.

To development any kind of business need Internet and communication application which make the
business relationship more lovingly and attractive for secure business and successful business.

Richness: Users can access and utilize text messages and visual and audio components to send and
receive information.

An individual may see information richness on a company's blog if a post contains a video related to a
product and hyperlinks that allow him to look at or purchase the product and send information about
the post via text message or email.

Interactivity: E-commerce technologies allow two-way communication between the merchant and the
consumer. As a result, e-Commerce technologies can adjust to each individual's experience.

For example, while shopping online, an individual is able to view different angles of some items, add
products into a virtual shopping cart, checkout by inputting his payment information and then submit
the order.
Personalization: Technologies within e-Commerce allow for the personalization and customization of
marketing messages that groups or individuals receive.

Social technology: E-Commerce technology has tie up the social media networking application to
provide the best source of content sharing technology and e-Marketing systems. You can share your
content or data easily in just one click.

User-Generated Content: Social networks use e-Commerce technologies to allow members, the general
public, to share content with the worldwide community. Consumers with accounts can share personal
and commercial information to promote a product or service.
 FUNCTIONS OF E-COMMERCE

The following are five functions you should be doing daily in your e-commerce business .a) Search
Engine Optimization (SEO)

Generate unique relevant content.

Google loves unique content that is related to what your site is all about.

Link keywords in your unique content to pages related to that keyword.

Incentivize them to complete their checkout within X days.1.6 Scope of E-Commerce Today, online
shopping is a reality in India.

In the recent past, the growth of e-commerce industry in India has been phenomenal as more shoppers
have started discovering the benefits of using this platform.

There is enough scope for online businesses in the future if they understand the Indian shopper's psyche
and cater to their needs.

Delivering experiences-commerce needs to focus on customer experience to build trust and confidence.

BENEFITS AND LIMITATIONS OF E-COMMERCE

Benefits of E-Commerce Electronic commerce can increase sales and decrease costs.

A firm can use electronic commerce to reach narrow market segments that are geographically scattered.

The web is particularly useful in creating virtual communities that become ideal target markets for
specific types of products or services.

Some key benefits of e-commerce are summarized below:

By becoming e-commerce enabled, businesses now have access to people all around the world.

Limitations of E-Commerce

Most of the disadvantages of e-commerce stem from the newness and rapidly developing pace of the
underlying technologies.

There are problems where older business systems cannot communicate with web-based and Internet
infrastructures, leading to some organizations running almost two independent systems where data
cannot be shared.

Cost of access to the Internet, whether dial-up or broadband tariffs.

Cost of computing equipment.

 E-COMMERCE OPPORTUNITIES AND CHALLENGES FOR INDUSTRIES

E-Commerce is presently an essential ingredient of India’s trade facilitation policy. Since

1991, after economic reforms explicitly took place in India, the need to facilitate international trade both
through policy and procedure reforms has become the foundation stone of India’s trade and fiscal
policies. Resultantly, a technological revolution accompanied by the wide spread use of the Internet,
web technologies and their applications took place. E-Commerce has changed and is still changing the
way business is conducted around the world.

OPPORTUNITIES:

There is a rising awareness among the businesses in India about the opportunities offered by e-
commerce. E-commerce provides a new place for connecting with consumers and conducting
transactions. Virtual stores operate round the clock.

a) Global Trade:

E-business is one of the major factors in the globalization of business. Other factors include decreases in
trade barriers, globalization of capital markets. Indian e-business has grown at a compounded annual
growth rate of 30% since FY09, and is expected to be $18 billion

b) Virtual Businesses:

Business firms now have the ability to become virtual E-Business. Virtual business uses electronic means
to transact business as opposed to the traditional means of face to face transaction.

c) Lower search costs:

The Internet brings low search costs and high price lucidity. E-business has proved to be highly cost
effective for business concerns as it cuts down the cost of marketing, processing, inventory
management, customer care, etc.

d) Round the clock:

Customers can do transactions for the product or enquiry about any product/services provided by a
company anytime, anywhere from any location.

e) Greater Economic Efficiency:

Greater economic efficiency (lower cost) and more rapid exchange (high speed, accelerated, or real-time
interaction) are achieved with the help of electronic business.

CHALLENGES:
The growth of ecommerce volumes in India is attracting the attention of players around the world.
Despite lower per-capita purchasing power, the population still makes India one of the most attractive
emerging markets for ecommerce. But India is far from being a bed of roses.

Here are the top 8 challenges that ecommerce businesses face in India.

a) Indian customers return much of the merchandise they purchase online.

Indian customers return much of the commodities they purchase online.

b) Cash on delivery is the preferred payment mode.

Cash on delivery is the preferred payment mode. Low credit card access and low trust in online
transactions has led to cash on delivery being the preferred payment choice in India.

c) Payment gateways have a high failure rate.

d) Internet penetration is low.

Internet penetration is low. Internet penetration in India is still a small fraction of what is there in a
number of western countries. The quality of connectivity is poor in several regions. e) Feature phones
still rule the roost.

Though the total number of mobile phone users in India is very high, a significant majority still use
feature phones, and not smart phones. As a result this consumer group is unable to make e-business
purchases on the move.

f) Postal addresses are not standardized.

If an online order is placed in India, it is quite likely get a call from the logistics company to ask about
exact location. Clearly address is not enough. This is because there is little standardization in the way
postal addresses are written.

g) Logistics is a problem in thousands of Indian towns.

Given the large size of the country, there are thousands of towns that are not easily accessible. The
problem with logistics is compounded by the fact that cash on delivery is the preferred payment option
in India.

h) Overfunded competitors are driving up cost of customer acquisition.

The long-term prospects for ecommerce companies are so exciting that some investors are willing to
spend irrationally high amounts of money to acquire market share today. Naturally the Indian consumer
is spoiled for choice.

FUTURE SCOPE AND GROWTH

The growth of e commerce will be on two accounts: One is due to the changes in the macro-economic
parameters like disposable income, internet penetration, inflow of investments, and the other due to
segment specific factors.

a) Macro-economic factors

i) Personal Disposable Income will continue to rise

ii) Number of active Internet users in India is poised to rise

iii) Demand for debit and credit cards will see a rise

b) Segment Specific factors

In the online travel segment, growth of the tourism industry and demand of domestic travel will have
positive externalities on the e-commerce industry. With travel websites providing additional features
like hotel booking and package tours, the convenience factor offered by these websites will lead to
growth. Additionally, internet gives users the choice where they can evaluate an offer, compare the
prices and decide on the one that suit their demand. In the online retail space, absence of showrooms
and high cost of transportation prevents those in tier 2 cities to access global brands thus increasing
demand for online shopping.
UNIT – II

Business Models for E-commerce

2.1 Introduction

When it comes to starting an online business, you have a lot of choices to make. The biggest of the
choices may be the most important as they will ultimately define your business model and much of the
future of your business. Creating an e-commerce solution mainly involves creating and deploying an e-
commerce site. The first step in the development of an ecommerce site is to identify the e-commerce
model. Depending on the parties involved in the transaction, e-commerce can vary greatly in terms of
how they provide value to and earn income from consumers. The following discussion would provide a
bird’s eye view about various EBusiness Models in vogue.

MEANING AND DEFINITION OF PORTAL

Portal is a doorway, entrance, or gate, especially one that is large and imposing. It is a Website
considered as an entry point to other websites by providing access to a search engine.

DEFINITION:

A portal is a kind of Web site. The term originated with large, well-known Internet search engine sites
that expanded their features to include email, news, stock quotes, and an array of other functionality.

Portal is a term, generally synonymous with gateway, for a World Wide Web site that is a major starting
site for users when they get connected to the Web. There are general portals and specialized or niche
portals. Examples of general portals: Yahoo, Excite, Netscape, Lycos, CNET, and Microsoft

A web portal is one specially designed Web page that brings information together from diverse sources
in a uniform way. Usually, each information source gets its dedicated area on the page for displaying
information (a portlet); often, the user can configure which ones to display. The term portal space is
used to mean the total number of major sites competing to be one of the portals.

BIRTH OR PORTAL

Web portal was a web IT buzzword in the late 1990s. After the proliferation of web browsers in the late
1990s many companies tried to build or acquire a portal to attempt to obtain a share of an Internet
market.

CLASSIFICATION

Web portals are sometimes classified as horizontal or vertical.

A horizontal portal is used as a platform to several companies in the same economic sector or to the
same type of manufacturers or distributors.

A vertical portal (also known as a "vortal") is a specialized entry point to a specific market or industry
niche, subject area, or interest. Some vertical portals are known as "vertical information portals" (VIPs)

VIPs provide news, editorial content, digital publications, and e-commerce capabilities. In contrast to
traditional vertical portals, VIPs also provide dynamic multimedia applications including social
networking, video posting, and blogging.

Personal Portal: A personal portal is a web page at a web site on the World Wide Web or a local HTML
home page including JavaScript and perhaps running in a modified web browser.

Business Portal: Business portals can be designed for sharing and collaboration in workplaces. A further
business-driven requirement of portals is that the content be presented on multiple platforms such as
personal computers, personal digital assistants (PDAs), and cell phones/mobile phones. Information,
news, and updates are examples.

Government Web Portal: At the end of the dot-com boom in the 1990s, many governments had already
committed to creating portal sites for their citizens. These included primary portals to the governments
as well as portals developed for specific audiences.

Cultural portal: Cultural portal aggregate digitized cultural collections of galleries, libraries, archives and
museums.

Corporate web portals: A Corporate Portal is basically a secured website used by employees,
manufacturers, alumni and even customers. The portal is the perfect starting point for everyday tasks
that usually would consist of using many different types and sources of information and tools. By
gathering all necessary information and tools in one environment, users save huge amounts of time.
Companies not only save time through their users, IT

Stock portal: It is also known as stock-share portal, stock market portal or stock exchange portal. It is
Web-based applications that facilitates the process of informing the shareholders with substantial online
data such as the latest price, ask/bids, the latest News, reports and announcements. Some stock portals
use online gateways through a central depository system

Search portals: Search portals aggregate results from several search engines into one page.

Tender portals: A tender portal is a gateway for government suppliers to bid on providing goods and
services. Tender portals allow users to search, modify, submit, review andarchive data in order to
provide a complete online tendering process.

Domain-specific portals: A number of portals have come about which are specific to the particular
domain, offering access to related companies and services.

MEANING AND FEATURES OF BUSINESS MODEL

Meaning of Business Model

Business model is the most discussed and least understood aspect of the web. There is so much talk
about how the web changes traditional business models. But there is little clear-cut evidence of exactly
what this means. Basically, a business model is the method of doing business by which a company can
sustain itself -- that is, generate revenue. The business model spells-out how a company makes money
by specifying where it is positioned in the value chain.

FEATURES OF BUSINESS MODEL

E-Business Concept

The e-business concept describes the rationale of the business, its goals and vision, and products or
offerings from which it will earn revenue. A successful concept is based on a market analysis that
identifies customers likely to purchase the product and how much they are willing to pay for it.

Value Proposition

The value proposition describes the value that the company will provide to its customers and,
sometimes, to others as well. With a value proposition the company attempts to offer better value than
competitors so that the buyer will benefit most with this product.

A value proposition may include one or more of the following points:

 Reduced price
 Improved service or convenience such as the "1 click" checkout
 Speed of delivery and assistance
 Products that lead to increased efficiency and productivity
 Access to a large and available inventory that presents options for the buyer

Sources of Revenue

Depending on the business model, several revenue sources may be available to an ebusiness. Many
online businesses will have a three or four of these sources. A mix of revenue sources is often referred
to as a revenue model but may be mistakenly called a business model.

Some of these sources of revenue are:

 Advertising
 affiliation
 Agent commissions
 Licensing
 Sales commissions
 Sales profits
 Sponsorship
 Subscription
  Syndication
 Use fees

ACTIVITIES, RESOURCES AND CAPABILITIES

The activities, resources and capabilities of a business are sometimes known as its requirements. In
order to perform the activities required to carry out the mission of the business, certain resources are
needed; for example, employees with certain skills, or capabilities, are needed to perform activities
correctly and efficiently. Also, inventions, processes and other intellectual property may add to the
individual knowledge of an employee to develop a competence in the performance of the required
activities.

a. Activities

Activities are specific business processes or groups of processes such as design, production and sales
that implement the business concept. The operational business model identifies the costs and outputs
of each activity. Activities drive the need for resources.

b. Resources

In order to perform activities an organization requires human, tangible, intangible and supporting
resources.

c. Capacity

The total resources of the organization represent its capacity. When resources are underutilized, the
company has resources that aren't used or idle capacity. Idle capacity in manufacturing tends to be
measured in terms of additional output that could be produced. In ervice organizations the measure for
idle capacity is usually a number of employees.

E-BUSINESS MODELS

 Business - to - Business (B2B)

 Business - to - Consumer (B2C)
 Consumer - to - Consumer (C2C)
 Consumer - to - Business (C2B)
 Business - to - Government (B2G)
 Government - to - Business (G2B)
 Government - to - Citizen (G2C)

Business - to -Business (B2B)

It refers to business that is conducted between companies, rather than between a company and
individual consumers
B2B applications can be witnessed in the following areas:

 Supplier management
 Inventory management
 Distribution management
 Channel management
 Payment management

Diagrammatic Representation of B2B Model

Models in B2B

 Supplier centric model

 Buyer centric model
 Intermediary – centric model

Advantages of B2B

 Instant purchases
 Increased revenue
 Expands company’s presence
 Closer business relationships

The Disadvantages of a B2B

 Limited Market
 Long Purchase Decision Time
 Inverted Power Structure
 Sales Process

BUSINESS - TO - CONSUMER (B2C)

B2C means selling directly to the end consumer or selling to an individual rather than a company.
Website following B2C business model sells its product directly to a customer

Following are the key features of a B2C Model

 Heavy advertising required to attract large number of customers.

 High investment in terms of hardware/software.
 Support or good customer care service

Advantages of E-Commerce for B2C Businesses

 Access to goods and services from home or other remote locations.

 The possibility of lower cost of goods and services.
  Access to a greater variety of goods and services on offer.
 Consumers can shop at any time of day, from the privacy of their own home. The internet has
been called “the mall that never sleeps.”
 So many choices – Consumers can shop for basically any item they can think of! Airline tickets,
groceries, clothing, and even medicine!
 Hassle free – Consumers can shop online without dealing with annoying sales people, fighting
the congestion of shopping malls, and driving 10 different places to find one thing.

Disadvantage of E-Commerce for B2C Businesses

 The competition is so fast for the web.

 Technology problem can cause problems to operate the site properly, resulting in losing
customers and sales.
 Catalogue Inflexibility: The catalogue needs to regenerate every time when there is some new
information or items to add in.
 Limited Market Place
 High Sales Cycle
 Required Higher Cost of Doing Business
 Inefficient Business Administration
 Need to employ number of staff

Disadvantages for the consumer

 Security issue: probably the number one reason why people don’t purchase online.
 Customer services: consumer are not always satisfied with their purchases and when buying
online.

CONSUMER - TO - CONSUMER (C2C)

E-commerce involves electronically-facilitated transactions between individuals, often through a third

party. One common example is online auctions, such as Ebay.

Advantages of C2C E-Commerce

 It is always available so that consumers can have access to whenever they feel like shopping
 There is regular updating of the website
 Consumers selling products to other consumers benefit from the higher profitability that result
from selling directly to one another
 There is a low transaction cost; sellers can post their goods over the internet at a cheaper rate
far better than higher price of renting a space in a store
 Customer can directly contact sellers and do without an intermediary.
Disadvantages of C2C E-Commerce

 Payment made has no guarantee

 There could be theft as scammers might try to create their website with names of some famous
C2C websites such as eBay to attract customers.
 There is lack of controlling quality of the products.

CONSUMER - TO -BUSINESS (C2B)

Customer to Business (C2B), sometimes known as Consumer to Business, is the most recent E-
Commerce business model. In this model, individual customers offer to sell products and services to
companies who are prepared to purchase them.

GENERAL FEATURES OF C2B

 Direct action.
 Collaborative consumption.
 Detailed segmentation.
 Interaction.
 Reciprocity.
 Bi-directionality.

Advantages and Disadvantages of C2B

Advantages

1. Could be described in terms of paths, nodes, properties

2. Could be graphic, examples could be generated.

3. One single place for all Magnolia configurable elements.

BUSINESS-TO-GOVERNMENT (B-TO-G)

Business-to-government (B2G) e-commerce is concerned with the need for business to sell goods or
services to governments or government agencies. Such activities include supplying the army, police
force, hospitals and schools with products and services.

CONSUMER-TO-GOVERNMENT (C-TO-G)

Examples where consumers provide services to government have yet to be implemented.

GOVERNMENT-TO-BUSINESS (G-TO-B)

Also known as e-government, the exchange of information, services and products between government
agencies and business organizations. Government sites now enable the exchange between government
and business of
 GOVERNMENT-TO-CONSUMER (G-TO-C)

It is also known as e-government. Government sites offering information, forms and facilities to conduct
transactions for individuals, including paying bills and submitting official forms on-line such as tax
returns.

GOVERNMENT-TO-GOVERNMENT (G-TO-G)

It is also known as e-government. Government-to-government transactions within countries linking local

governments together and also international governments, especially within the European Union, which
is in the early stages of developing coordinated strategies to link up different national systems.

M-COMMERCE:

Mobile commerce is the buying and selling of goods and services through wireless technology-i.e.,
handheld devices such as cellular telephones and personal digital assistants (PDAs).

Industries affected by m-commerce include:

 Financial services, including mobile banking as well as brokerage services.

 Telecommunications, in which service changes, bill payment and account reviews can all be
conducted from the same handheld device;
 Service/retail, as consumers are given the ability to place and pay for orders on-the-fly; and
 Information services, which include the delivery of entertainment, financial news, sports figures
and traffic updates to a single mobile device.

UNIT – III

E-Marketing

Learning Objectives

After reading this unit, you will be able to

 Understand the concepts of E-Marketing

 Differentiate Traditional Marketing and E-marketing

 Analyse the impact of E-Commerce on markets

 Know about internet marketing trends and strategies

Contents

3.1 Introduction

3.2 Definition of E-Marketing

3.3 Objectives of E-Marketing

3.4 Importance of E-Marketing

3.5 Disadvantages of E-Marketing

3.6 E-Marketing Mix

3.7 Traditional Marketing Vs. E-Marketing

3.8 Impact of E-Commerce on Markets

3.9 Marketing issues in E-Marketing

3.10 E-Advertising

3.11 Internet Marketing Trends

3.12 E-Branding

3.13 Marketing Strategies

3.14 Summary

3.15 Key Terms

3.16 Self Evaluation Questions

3.1 Introduction

The development of E-Marketing has been one of the most important and influential

trends in the field of business, marketing and information technology. It has revolutionized the

manner in which certain businesses market their products and the manner in which businesses

and consumers interact in the future. It can include information management, public relations,

55

customer service and sales. It is also known as Internet marketing. It is a component of electronic

commerce.
This unit will highlight the importance of E-Marketing; examine how it helps businesses

to reach their customers, some of the most important advantages and disadvantages, challenges

and opportunities of E-Marketing.

3.2 E-Marketing Definition:

E-Marketing is the process of considering marketing activities and achieving marketing

objectives through electronic medium. It may be defined as an economic process that involves

the use of computer, internet and other electronic systems and network, whereby the goods or

services are exchanged and their values in terms of price are determined.

CISCO specialists define E-Marketing as the sum of all activities a business conducts

through the internet with the purpose of, attracting, winning and retaining customers.

E-Marketing involves the use of online networks, computer communication and digital

interactive media to the marketing objectives of the organization. It enhances the functions of

traditional form of marketing. Business organizations adopt marketing tactics like e-mail, banner

ads, referrals, and video ads to attract and retain customers. For example, naukri.com helps job

aspirants to get a suitable placement at an economic cost.

E-marketing means using digital technologies to help sell goods or services. These

technologies are a valuable complement to traditional marketing methods. Though businesses

will continue to make use of traditional marketing methods, such as advertising, direct mail and

PR, E-Marketing adds a whole new element to the marketing mix. Many businesses are

producing great results with E-Marketing. Its flexible and cost-effective nature makes it suitable

for small firms too.

3.3 Objectives of E-Marketing

Different businesses may develop different E-Marketing objectives depending on their

individual circumstances. A useful framework for developing effective E-Marketing objectives is

the five S’s framework, which includes:

1. Sell – using the internet to sell products and services

2. Serve – using the internet to serve customers

3. Speak – using the internet to communicate with customers

56

4. Save – using the internet to save/ reduce cost

5. Sizzle – using the internet to build brand identity

When setting E-Marketing objectives, make sure that they are:

Specific – specify what is to be achieved

Measureable – expressed in measurable terms such as key performance indicators, outcomes,

numbers, percentage, dollars, etc.

Action-oriented – state which actions need to be taken and who will take them. Realistic –

achievable with the resources available

Time Bound – establish specified time frames.

Examples of some typical e-marketing objectives could be:

 To achieve 20% online sales within the first year of launching online marketing

campaigns

 To increase online sales for all products by 15% in 2016

 To grow email coverage to 50% of the current customer base by the end of next year

 To reduce the annual cost of direct marketing by 20% through E-Marketing

3.4 Importance of E-Marketing

E-Marketing gives access to the mass market at an affordable price and unlike TV or

print advertising, it allows truly personalized marketing.

Specific benefits of E-Marketing include:

Global reach – A website can reach anyone in the world who has internet access. This helps to

find new markets and compete globally with a small investment.

Lower cost – A properly planned and effectively targeted campaign can reach the right

customers at a much lower cost than traditional marketing methods.

Measurable results – marketing by email or banner advertising makes it easier to establish

effective campaign. Detailed information about customers’ responses to advertising can be

obtained.

Round the Clock – With a website, customers can find out about products even if office is

closed.

Personalization – If the customer database is linked to the website, then whenever someone

visits the site, you can greet them with targeted offers. The more they buy, the more you can

refine your customer profile and market effectively.

57

One-to-one marketing – E-Marketing helps to reach people who want to know about your

products and services instantly. For example, many people take mobile phones and PDAs

wherever they go. Combine this with the personalized aspect of E-Marketing, very powerful and

targeted campaigns can be created.

Better conversion rate – If there is a website, then ever your customers are only a few clicks

away from completing a purchase. Unlike other media which require people to get up and make

a phone call, post a letter or go to a shop, E-Marketing is seamless. With all these aspects EMarketing
has the potential to add more sales.

Instant information – One of the most important advantages is the speedy availability of the

information. The clients/users can easily get information by navigating the internet, about the

products that they want to purchase; besides, they can check the information at anytime.

Savings – It allows the companies to save money, since the online marketing campaigns don’t

require a large amount of investment.

Scope for expansion – It helps the expansion of the operations from a local market to national

and international markets at the same time, offering almost infinite expanding possibilities.
Feedback – On the internet everything can be measured, thus it’s easier for the companies to

know if their campaign is working or not, which user is interested in their products, from which

place, etc.

3. 5 Disadvantages of E-Marketing

1. Complex websites – Slow internet connections can cause difficulties. If the companies build

too complex or too large websites, it will take too long for users to check or download them and

they will get bored eventually.

2. Purchase without inspection – The e-commerce doesn’t allow the user “to touch” the

merchandise before purchasing it. Because of this, some salesmen are starting to guarantee the

possibility of returning the product.

3. Payment method – Many users still do not trust in the electronic methods of paying and

because of this give up buying online.

4. Lack of confidence – One of the major disadvantages may be the lack of trust of the users

because of the constant virtual promotions that appear to be frauds. This is an aspect that

deteriorates the image and reputation of honest companies.

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5. Cash on Delivery (CoD) – Cash on delivery system is another disadvantage. It doesn’t

guarantee the 100% purchase of the product.

3.6 The e-Marketing Mix

The marketing mix can be synthesized in the expression of “the 4 P’s”, standing for Product,

Price, Place and Promotion.

3.6.1 Product

Product – the first element of the marketing mix – includes investigation and research on the

potential customers’ needs in order to be able to develop products to satisfy these needs.

A classic definition of the “product” notion is that of Philip Kotler: a product is anything that
can be offered on the marketplace, with the purpose of capturing interest, buying, usage or

consumption, as long as it can satisfy a need or fulfil a wish. A product can be a physical

object, service, person, place, organization or idea. The e-marketing works in many cases with

non-physical products, and is situated more on the intangible, virtual side. As in classic

marketing, the e-marketing product is developed and analyzed after the 3-level model

introduced by Kotler.

The 3 levels of a product (Kotler)

The core product answers the question “What do consumers buy?” and consists in the services

or main advantages sought by consumers.

The actual product is built around the core product and it may have one, several, or all of the

following 5: quality, characteristics, style, brand name, packaging. The strategies at this level

should ensure that the product offers a differential advantage from the competitors’ products.

The augmented product: comes as the final and most sensitive layer of the total product. It

complements the product with additional services and advantages such as after sales service,

warranty, and delivery terms. In a highly competitive market, it’s the augmented product that

makes the difference and is pushing the buying decision.

Online options for the core product

In 1998, Ghosh proposed to evolve the product offerings using the Internet. He introduced the

notion of ‘digital value’ to customers and suggested companies to ask themselves the following

questions:

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1. Can I offer additional information or transaction services to my existing customer base?

2. Can I address the needs of new customer segments by repackaging my current information

assets or by creating new business propositions using the Internet?

3. Can I use my ability to attract customers to generate new sources of revenue such as
advertising or sales of complementary products

4. Will my current business be significantly harmed by other companies providing some of

the value I currently offer?

Another concept related to the product issues in e-marketing is that of the ‘prosumer’. It was

introduced in 1980 by famous futurist Alvin Toffler in his book entitled “The Third Wave”.

Toffler sees a future that would mix production with consumption. He imagined a world where

interconnected users would collaboratively "create" products. The “prosumer” idea was further

developed and has been given alternative meanings, with great application in e-marketing.

Logophilia WordSpy defines “prosumer” as:

1. A consumer who is an amateur in a particular field, but who is knowledgeable enough to

require equipment that has some professional features ("professional" + "consumer").

2. A person who helps to design or customize the products they purchase ("producer" +

"consumer").

3. A person who creates goods for their own use and also possibly to sell ("producing" +

"consumer").

4. A person who takes steps to correct difficulties with consumer companies or markets and

to anticipate future problems ("proactive" + "consumer").

The inner nature of a product can even be fundamentally altered. Rayport and Sviokla (1994)

describe transactions where the actual product has been replaced by information about the

product. In the same manner, the scope of the product offer may be changed online. For

example, Tesco.com offers computers through its online presence, although it is impractical to

sell such a range of products inshore.

Online options for the augmented product

The most important feature one can add to a product marketed online, is the interactivity and the

possibility to provide extended product information. A known example is the printer

manufacturer Epson, who let purchasers select the best printer for them by choosing options

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such as print quality and speed which then automatically reduces the number of available

printer options.

Other aspects of the augmented product that can be greatly addressed online: add-on services

such as gift wrapping; product or brand endorsement such as Pepsi offering video interviews

with David Beckham through their e-newsletter and web site; awards, testimonials; customer

lists; warranties; guarantees; money back offers; customer service.

When acting on an online market, we have great opportunities to get closer to the customer. A

simple way of doing so is the “Feedback” section of any efficient website. Such feedback can

provide detailed and accurate information upon the customers, such as demographics, spending

habits, purchase intentions in the following period and so on.

3.6.2 Price

Price is an extremely important element of the marketing mix, because it is the only one able to

generate a turnover for the organization. When looking more deeply into the interactions

between the 4 P’s of the marketing mix, one observes that Price is a supportive element for the

remaining 3 P’s, because it costs to produce and design a Product, it costs to distribute

it (Place) and definitely it costs to Promote it.

There is no single, consolidated view of how the use of internet interferes in pricing issues. We

have to present two extreme viewpoints, discussed by Baker in 2001.

The first view is the inevitability of having decreased prices for products sold over the internet.

Because the capabilities offered by the internet significantly increase the customer knowledge:

consumers have tools such as price comparison sites, at both individual and organizational

level.

The second view is that although price transparency is a great theory, the actual practice of the
consumers is quite different. Baker’s researches indicated that many online purchasers do not

perform much research before buying. For example, it is estimated that 89% purchase books

from first site and only 10% of online shoppers are aggressive bargain hunters. Another issue is

made of barriers to prevent organizational buyers to use online marketplaces. Another

impediment is the preference for a human face, especially when developing long-term

relationships with a supplier.

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Now let us review what options a marketer has, to set online pricing policies. The identified and

most used options nowadays are:

 Differential pricing;

 Reverse B2B auctions;

 Pricing structure.

Differential pricing is basically means that a company that goes online would offer lower prices

when selling online compared to the prices offered offline. A classic example is that of airway

companies: almost all offer lower prices when you buy online than you can get from the

company’s offline offices.

There are three factors to assist in online pricing:

 precision: we must remember that any product has an indifference band, when

varying price has almost no effect on sales. In the traditional approach, researches to

determine these bands are very expensive, but the internet survey costs are much

more affordable;

 adaptability: implies a quick response to the demands of the marketplace. With the

internet-based technologies, it is often possible to alter prices according to the

dynamic of the demand, thus adjusting prices to maximize profitability.

 segmentation: implies different prices for different groups of customers, usually by

offering price facilities only in the cases when it is necessary to close the sale.

Reverse B2B auctions: are still a troubled practice even though it is widely used by some

business sectors like chemicals, engineering. It is difficult to predict the evolution of reverse

auctions since the buyers’ behaviour is still confusing: half of them do not chose the lowest

bidder, while over 80% prefer to stay with the current supplier.

Pricing structure: the internet technologies made possible to alter the traditional pricing

structure and adapt it to the new market realities. Altering pricing structure is particularly suited

for digital, downloadable products such as mp3’s, software, e-books. While in the traditional

commerce you would pay just once, for continuous use, in the online world you’re offered more

possibilities such as renting, pay-per-use, leasing.

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Further pricing options that could be varied online include Basic Price, Discounts, Add-On’s

and extra products and services, Warranties, Refunds, Order Cancellation terms.

3.6.3 Place

Traditionally, the place element refers to how an organization will chose to distribute the

product / service they are offering to the end user to achieve the overall marketing objectives

efficiently.

A closer look into the marketing mix reveals that the biggest impact of the internet is upon the

place element, for the simple reason that the internet has a global reach. Identified major

implications of the internet upon the place aspect of the mix are:

Place of purchase, for which McDonald and Wilson (2002) identified five options:

Seller-controlled sites: those that are the main site of the supplier company which are ecommerce
enabled;

 Seller-oriented sites: controlled by third parties, but represent the seller rather than

providing a full range of options;

 Neutral site: independent evaluator intermediaries that enable price and product
comparison and will result in the purchase being fulfilled on the target site;

 Buyer-oriented sites: controlled by third parties on behalf of the buyer;

 Buyer-controlled sites: involve either procurement posting on buyer-company

sites or those of intermediaries that have been set up in such a way that it is the

buyer who initiates the market making.

Navigation, with three key aspects proposed by Evans and Wurster (1999):

 Reach: the potential audience of the e-commerce site. Reach can be increased by

moving from a single site to representation with a large number of different

intermediaries.

 Richness: the depth or detail of information which is both collected about the

customer and provided to the customer. This is related to the product element of

the mix.

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 Affiliation: refers to whose interest the selling organization represents –

consumers or suppliers. This particularly applies to retailers, suggesting that

customers will favour retailers who provide them the richest information on

comparing products.

Localisation: the strategy of providing a local site, most of the times using the local language

when the culture differences are significant from one marketplace to another.

New channel structures: some new structures were born, specific for the internet-based

markets. They are:

 Disintermediation: refers to the possibility of performing direct sales. It can lead

to channel conflicts and there are a number of barriers and facilitators to such

change.

 Re-intermediation: new intermediaries who receive a commission on each sale

resulting from a referral from their site.

 Countermediation: refers to possible partnerships with another independent

intermediary, or setting up some own independent intermediary.

3.6.4 Promotion

The promotion as part of the marketing mix refers to how marketing communications are used

to inform the audience about an organization and its products. The internet offers plenty new

marketing communications channels to inform customers and assist during the purchase cycle.

Internet technologies can be deployed to find new ways to improve and sustain advertising

activities, sales promotions, public relations, or to proceed to direct marketing campaigns using

e-mail or websites.

The promotion element of a marketing plan also requires taking strategic decisions about

investment in the online communications mix. Example: “What is the balance between

investment in site promotion compared to site creation and maintenance?” The site must be

promoted just like you promote a product, in order to make it efficient and support your

business. Since there is often a fixed budget for site creation, maintenance and promotion, the e-

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marketing plan should specify the budget for each to ensure there is a sensible balance and the

promotion of the site and e-marketing campaigns are not underfunded.

The Extended Marketing Mix

The model of the marketing mix, the 4 P’s, was introduced more than 40 years ago. As

consumers and businesses were subjects of continuous transformations and evolution, the

classical mix became not sufficient in terms of strategies for a company to distinguish itself and

achieve competitive advantage. Therefore, new service elements, has been added to complete the

marketing mix:

 People;
 Process;

 Physical evidence.

The service elements of the marketing mix are as important in the virtual world as they are in

the physical world. The extended marketing mix is also known as “the 3 P’s”, that add to the

initial 4 P’s.

3.6.5 People

The people element of the extended marketing mix refers to the how the staff of an organization

interacts with customers and other stakeholders.

The main aspect of the people element when we are active in an online market, is the degree in

which we can replace the staff with automation capabilities of the internet. There is several

ways we can do that:

 Auto responders: automatically generated response when a company e-mails an

organisation, or submits an online form.

 E-mail notification, generated by a company’ system, with the purpose of updating

customers on the status of their order.

 Call-back facility offers customers the opportunity to fill in their phone number on a

form and specify a convenient time to be contacted.

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 Frequently Asked Questions (FAQs). For these, the art is in compiling and

categorising the questions so customers can easily find the question and a helpful

answer with a possible solution.

 On-site search engines, to help customers find what they’re looking for. Site maps are

sometimes used with the same purpose.

3.6.6 Process

The process element of the marketing mix refers to the methods and procedures companies use
to achieve all marketing functions such as new product development, promotion, sales and

customer service. The restructuring of the organization and channel structures described for the

product, price, place and promotion all require new processes to be performed.

3.6.7 Physical evidence is the element of the marketing mix that refers to the tangible

expression of a product and how it is purchased and used. In an online context, physical

evidence refers to customers’ experience of the company through the web site and associated

support. It includes issues such as site ease of use or navigation, availability and performance.

3.7Traditional Marketing Vs. E-Marketing

3.7.1 Traditional marketing is labelled traditional, because it incorporates the original methods

of marketing and advertising through 4 basic ways; print, broadcast, direct mail and telephone.

Before our digital era arose, these were the ways in which we would receive our necessary

information and updates of products and services on offer.

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Traditional Marketing is not too much different than sending a post card to everyone in a

city to see if they need moving services. Sure it will get some business but it is wasteful and in

the end may cost more than the revenue it generates. Generally, companies with a lot of

advertising money will enter into this arena just to maintain their market share and there is little

chance for growth.

Examples of traditional Marketing: Radio, TV, Yellow pages/Phone book, Newspapers,

Magazines, Coupon books, Direct Mail, Billboards, etc

3.7.2 E-Marketing

E-Marketing helps to broaden the reach and filter impressions. For instance, a lot more

demographics go to the internet for moving related topics than listen to a specific radio station.

Marketing is then targeted to those who have searched or shown interest in moving related

content. When money is paid for E-Marketing it is paid for the first call to action such as clicking
an ad rather than just impressions. It means that money is now more focused on people with

some level of interest in your services.

Examples of Internet Marketing: Purchased Leads, Google Adwords, SEO, Yelp, Google

Local, Facebook/Twitter, Article Marketing, Content Marketing, Email Marketing

3.7.3 Comparison of Traditional Marketing Vs. E-Markeitng

Product promotion: E-commerce enhances promotions of products and services through direct,

information-rich and interacting contact with customers.

Direct saving: The cost of delivering information to customers over the internet results in

substantial savings to senders.

Customer Service: Customer service can be greatly enhanced by enabling customers to find

detailed information online.

Brand Image: Newcomers can establish brand or corporate images very quickly through net and

at affordable cost.

Advertising: Traditional advertising is one way communication to persuade customers to buy

their products and services. In the electronic period, it is two way communication aims at

customers to browse, explore, compare, question and even customer design the product

configuration.

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Customization: The ultimate luxury can get is in terms of custom designed products and

services. The net offers a tremendous opportunity to understand customers needs one at a time

and offer customized products and services.

Order making process: Taking orders from customers can drastically be improved if it is done

electronically, this saves time and reduces expenses and so sales people have more time to sell

their products or services.

Intermediaries: In traditional marketing middlemen are supposed to provide pace and time
utilities to the ultimate customer, but advancement of information technology is turning

intermediation in to disintermediation.

Customer Value: Traditional marketing tries to maximize the value per transactions; here

customer attraction is big target. But in electronic marketing, the marketers are trying to form

relationship with customers and they are looking for long term value maximization.

3.8 Impact of E-Commerce on Market

Marketing is one of the business functions most dramatically affected by emerging

information technologies. Companies can use the web to provide ongoing information, service

and support, create positive interaction with customers for long term relationships and encourage

repeat purchases. It allows customers to sit in their homes and purchase goods. One can shop any

kind of product or service in the mid of the night and from any part of the world.

During the agrarian economy, people engaged in the process of exchanging goods and

services used the barter system, in this system, buyers and sellers knew each other and there was

mutual dependence on each other for survival during this period.

During the industrial age the marketing term was coined to signify the need for

identification and satisfaction process. In this system manufacturers/sellers did not have a face to

face interaction with consumers, which led to problems for producers in understanding customer

needs. To avoid this problem marketers are using different tools like advertising, direct

marketing and E-commerce to exploit the gullible customers. E-Commerce expands the

marketplace to national and international markets. With minimal capital outlay, a company can

easily and quickly locate more customers, the best suppliers and the most suitable business

partners worldwide.

The following discussion would highlight various impacts of E-Commerce on market

 It provides many potential benefits to consumers and organizations. These are:

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 It enables customers to shop round the clock a day, all year around, through any part of

the world.

 It provides customers with more choices; they can select from many vendors and from

more products.

 It allows quick delivery, especially in case of digitalized products like music and books.

 It makes it possible to participate in virtual auctions.

 It allows customers to interact with other customers in electronic communities and

exchange ideas as well as compare experiences.

 It allows customers to receive detailed and relevant information within seconds.

 It facilitates competition, which results in substantial discounts.

 It allows reduced inventories and overhead by facilitating ‘pull' type supply chain

management.

 It reduces the time between the outlay of capital and the receipt of products and services.

 It decreases the cost of creating, processing, distributing, storing and retrieving paper

based information.

 Apart from this benefit it attracts improved image and customer services.

Apart from the above, the impact of e-Commerce has already begun to appear in all areas

of business ranging from customer service to new product design. It has facilitated new types of

information based interaction with customers, Internet bookshops, on-line super market,

electronic newspapers, on-line trading on stock exchanges (e-Trading), on-line advertising

(eAdvertising), on-line taxation (e-Taxation), online ticketing (e-ticketing), online banking (eBanking),
computerization in postal communication (e-Post) and so on. We shall take up some of

these e-Commerce services to have an idea of how it has transformed the functioning in these

sectors.

E-Banking

Imagine the days when long queues and waiting were the normal phenomena in a bank
during a particular time of the day and on particular days of a week to deposit or withdraw

money or to get a demand draft made. But, the scenario in banks now-a-days is very different.

One can withdraw and deposit money at his/her own convenience. Having an account in one

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place in India, one can transact in any part of the country. Some of the new trends in banking

sector are as follows:

(a) Telebanking: A customer is given a password number (known as T-PIN i.e., Telephonic

personal identification number) through which he can have access to his/her account over

telephone and give instruction regarding withdrawal, issue of demand draft etc. The customer

can also access his account and give instructions by using the mobile phone. Similarly, the bank

can also keep on informing the customer regarding the various schemes, opportunities, last dates,

etc.

(b) Internet Banking: This is another way a customer can have access to his account and give

instructions. It makes the task of the customer easy as he can access his account anywhere, any

time and any number of times. The customer simply uses a password number and gets the details

of transactions sitting at home.

(c) ATM: ATM, the acronym for Automated Teller Machine, is increasingly becoming popular

in banking industry. ATM is a computerized machine used for most of the routine jobs of a bank.

It is operated by a magnetic plastic card popularly known as ATM card. By inserting the ATM

card in the machine and entering the PIN (Personal Identification Number) the customer can use

it for withdrawals and deposits of money.

The customer can also get the information about the balance available in his/her account,

get the mini-statement of last 5/10 transactions from the ATM. Earlier the customers only had

the option to access the ATM of the bank in which they had an account. But now-a-days some

banks have tied-up with other banks for use of their ATM by the customers. So customers can
use the ATM facility even of a bank they do not have an account in, but with whom their bank

has a tie-up.

(d) Debit Card: A debit card is an electronic card that can be used conveniently while making

payments. This card is issued to the customers of the bank having current or savings deposit

account. The holder of this card can use this card at several outlets for purchase of goods and

services. This card allows the holder to spend up to the balance available in his/her bank account.

It can also be used at ATMs just like ATM cards.

(e) Credit Card: Some banks issue credit cards to individuals who may or may not have an

account with them. The cards are issued to individuals after verifying their credit worthiness. The

individual can use those cards at various outlets to make payments. The issuing bank fixes a

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credit limit up to which the cardholder can purchase goods and services. The bank issues a

statement of transactions periodically and the individuals have to pay back the amount to the

bank by a due date. Thus, the customers get a credit period ranging from 10 to 55 days which

varies from bank to bank and the nature of transactions. No interest is charged if the payment is

made within the due date. If the customers fails to pay by due date, the bank charges interest at a

high rate on the amount due. Most banks give bonus points for transactions and insurance

coverage for the products purchased through credit card as well as to the cardholders. The

cardholder can also use his/her card to withdraw cash from ATMs.

E-Ticketing

Purchasing tickets has become so easy now that you can make railway reservations sitting at

home or even while you are on the move. If you have access to Internet you can have all the

details of railway information and accordingly you can book a ticket. You have to make payment

through credit cards/debit cards for on-line booking of tickets. You can also buy air tickets

through similar methods. Recently, with private sector entry in aviation sector, the competition
has increased and bidding of air tickets through Internet has started. The highest bidder avails the

opportunity of travelling at a rate much lower than the original price. The e-Ticketing service is

also available through mobile phones.

E-Advertising

Internet advertising has revolutionized marketing strategies. Unlike the print and television

media where all advertisements are stacked together, the viewer has the choice either to view it

or ignore them. On the other hand, in the net-world the surfer will only click on the

advertisement of his/her choice. He may select advertisements of his own interest.

E-Trading

On line trading has started with the establishment of OTCEI. Now the National Stock Exchange

(NSE) and Bombay Stock Exchange (BSE) have also completely switched over to online trading

to which most stock-brokers have access through internet. It is also taking off among small

investors and traders in stock and shares. Internet makes available to them up-to-the-minute

information which, until recently, had only been available to financial institutions. The use of online
brokerage services automates the process of buying and selling. This allows reduction in

brokerage charges, makes trading transparent as they can access the information on market prices

on-line, and the investor is able to deal at a price viewed immediately. The transfer of ownership

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of stocks and shares can also be recorded electronically in investor’s Demat accounts thereby

avoiding the need for physical delivery.

Computerization of Mail Transmission and Processing

As a part of modernization programme, computerization of the registration and sorting work has

been done in a large number of post offices in India. To cut down the transmission time for

sending money order across the country, money orders are now transmitted through VSAT

satellite networks which have resulted in faster delivery of money order to the customers. New

policy for Voice mail/Audio fax services was announced by incorporating a new service known
as Unified Message Service (UMS), a system by which voice message, mails, fax and e-mail can

be received from one mail box using telephone instrument, fax machines, mobile phones,

internet browsers, etc.

E-Post

E-mail is the fastest means of communication. To send and receive any information through email, we
need to have a computer with Internet connectivity and the e-mail account of the sender

and receiver. However, this technology has not yet reached the rural and other remote areas of

our country. To bridge this gap and extend the benefit of the e-mail facility to the people of rural

India, the Department of Post has introduced e-Post facility. It enables people to send and receive

e-mail at the post offices. E-Post is a service under which printed or even handwritten messages

are transmitted as email on internet. At the destination post offices, these messages are printed,

enveloped and delivered through the postman like other letters. The post offices where this

facility is not available can receive the e-Post message from the customers and forward the same

to the nearest e-Post centre for dispatch. E-Post messages received for areas beyond the delivery

jurisdiction are printed and sent to concerned post office for delivery. Besides availing e-Post

services through post office it can also be accessed from a customer’s house or office or from

any other places if he has Internet access. The customer can make payment through a prepaid

card that is available in the head post office and other outlets. The customer has to register as a

user and access the service at the e-Post portal http://indiapost.nic.in.

3.9 MARKETING ISSUES ON E-MARKETING

Opportunities and threats

The use of electronic commerce by business in developed countries has grown

considerably in the past few years. In the near future, E-commerce will bring a change in not

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only the way in which the trade is conducted, but also a change in the volume of goods traded

between countries. It is also changing manufacturing and distribution systems, product design,
and the relationship between the producer and consumer.

The changes to the current trading volume could have a negative effect on some

international environmental objectives such as sustainable development. There is also a potential

for developing countries to be further exploited by developed countries as e-commerce matures.

Besides, there are questions as to whether the internet will increase the "digital divide" between

the "haves and have-nots."

While e-commerce may have negative impacts on some aspects of international trade and

the environment, there are some "green" companies who are looking at e-commerce as a way to

positively impact trade and the environment. These companies have some innovative business

models that will likely bring environment-friendly goods to both consumers and businesses.

There are some other likely benefits to be gained from the growth of e-commerce such as

a reduction in the need for warehouses and retail stores, and a further reduction in the need for

the associated finished materials, energy, and land consumed by these structures.

3.10 E-ADVERTISING

E- Advertising or Online advertising or Internet advertising is a marketing strategy that

involves the use of the Internet as a medium to obtain website traffic and target and deliver

marketing messages to the right customers. It is geared toward defining markets through unique

and useful applications.

Delivery methods

Display advertising

Display advertising conveys its advertising message visually using text, logos,

animations, videos, photographs, or other graphics. Display advertisers frequently target users

with particular traits to increase the effect of advertisements. Online advertisers often

use cookies, which are unique identifiers of specific computers, to decide which ads to serve to a

particular consumer. Cookies can track whether a user left a page without buying anything, so
the advertiser can later retarget the user with ads from the site the user visited.

As advertisers collect data across multiple external websites about a user's online activity,

they can create a detailed picture of the user's interests to deliver even more targeted advertising.

This aggregation of data is called behavioural targeting.

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Advertisers can also target their audience by using contextual and semantic advertising to

deliver display ads related to the content of the web page where the ads appear. Retargeting,

behavioural targeting, and contextual advertising all are designed to increase an

advertiser's return on investment, over untargeted ads.

Advertisers may also deliver ads based on a user's suspected geography through geotargeting. A user's
IP address communicates some geographic information (the user's country or

region). It helps to narrow the range of possible locations. For example, with mobile devices,

advertisers can sometimes use a phone's GPS receiver or the location of nearby mobile towers.

Web banner advertising

Web banner ads typically are graphical ads displayed within a web page. Many banner

ads are delivered by a central ad server. Banner ads can use rich media to incorporate video,

audio, animations, buttons, forms, or other interactive elements using Java

applets, HTML5, Adobe Flash, and other programs.

Frame ad (traditional banner)

Frame ads were the first form of web banners. The colloquial usage of "banner ads" often

refers to traditional frame ads. Website publishers incorporate frame ads by setting aside a

particular space on the web page. The Interactive Advertising Bureau's Ad Unit Guidelines

proposes standardized pixel dimensions for ad units.

Pop-ups/Pop unders

A pop-up ad is displayed in a new web browser window that opens above a website

visitor's initial browser window. A pop-under ad opens a new browser window under a website
visitor's initial browser window.

Floating ad

A floating ad or overlay ad is a type of rich media advertisement that appears

superimposed over the requested website's content. Floating ads may disappear or become less

obtrusive after a preset time period.

Expanding ad

An expanding ad is a rich media frame ad that changes dimensions upon a predefined

condition, such as a preset amount of time a visitor spends on a webpage, the user's click on the

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ad, or the user's mouse movement over the ad. Expanding ads allow advertisers to fit more

information into a restricted ad space.

Trick banners

A trick banner is a banner ad where the ad copy imitates some screen element users

commonly encounter, such as an operating system message or popular application message, to

induce ad clicks. Trick banners typically do not mention the advertiser in the initial ad, and thus

they are a form of bait-and-switch. Trick banners commonly attract a higher-than-average clickthrough
rate, but tricked users may resent the advertiser for deceiving them.

News Feed Ads

"News Feed Ads", also called "Sponsored Stories", "Boosted Posts", typically exist on Social

Media Platforms that offer a steady stream of information updates ("news feed") in regulated

formats (i.e. in similar sized small boxes with a uniform style). Those advertisements are

intertwined with non-promoted news that the users are reading through. Those advertisements

can be of any content, such as promoting a website, a fan page, an app, or a product. This format

of online advertisement yields much higher click-through rates than traditional display ads

Some examples are: Facebook's "Sponsored Stories", LinkedIn's "Sponsored

Updates", and Twitter's "Promoted Tweets".

Interstitial

An interstitial ad displays before a user can access requested content, sometimes while

the user is waiting for the content to load. Interstitial ads are a form of interruption marketing.

Text ads

A text ad displays text-based hyperlinks. Text-based ads may display separately from a

web page's primary content, or they can be embedded by hyperlinking individual words or

phrases to advertiser's websites. Text ads may also be delivered through email marketing or text

message marketing. Text-based ads often render faster than graphical ads and can be harder for

ad-blocking software to block.

Search Engine Marketing (SEM)

Search engine marketing (SEM) is designed to increase a website's visibility in search

engine results pages (SERPs). Search engines provide sponsored results and organic (nonsponsored)
results based on a web searcher's query. Search engines often employ visual cues to

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differentiate sponsored results from organic results. SEM includes all of an advertiser's actions to

make a website's listing more prominent for topical keywords.

Search Engine Optimization (SEO)

Search engine optimization (SEO) attempts to improve a website's organic search

rankings in SERPs by increasing the website content's relevance to search terms. Search engines

regularly update their algorithms to penalize poor quality sites that try to game their rankings,

making optimization a moving target for advertisers.

Sponsored search

Sponsored search (also called sponsored links, search ads, or paid search) allows

advertisers to be included in the sponsored results of a search for selected keywords.

Social Media Marketing

Social media marketing is commercial promotion conducted through social

media websites. Many companies promote their products by posting frequent updates and

providing special offers through their social media profiles.

3.10.1 Advantages of online advertising:

Extensive coverage:

Online advertising releases wide range of advertising information, regardless of time and

geographical constraints. From the advertising point of view, the wider the scope of

dissemination of information, human contact, the more advertising effect will be. From the

advertisers market, even a small business is likely to become an international company

overnight.

Large-capacity information:

Capacity to provide information is unrestricted. Businesses or advertising agencies can provide

advertising information and instructions equivalent of thousands of pages without having to

worry about the increase on the advertising costs as that of traditional media. The network

behind small banner ads, companies can put their company and its products and services,

including product performance, price, model, morphology, etc. It seems necessary to explain all

audiences, including detailed information made into a web page on their website.

Strong interaction with sensory:

Online advertising carrier is basically a multimedia, hypertext format, as long as the audience

interested in a certain kind of product, you can tap the mouse further to know more, much more

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detailed and vivid information so that consumers can personally “experience” products, services

and brand. As virtual reality and other new technologies to online advertising, immerse

experience for customers such as goods or services, and to book online, trading and settlement

will greatly enhance the effectiveness of online advertising.

Real-time and long-lasting unity:

Internet media has the right to change the function of information, companies can make changes

at any time according to need, 24 hour warehouse industry can adjust product prices, product

information, can instantly get the latest product information dissemination to consumers. Online

media can also be long-term preservation advertising information. Enterprise established for the

product website can remain, waiting for consumer inquiries, enabling real-time and persistence

unity.

Non-compulsory transfer of information:

As we all know, newspaper ads, magazine ads, TV ads, radio ads, outdoor advertising and so has

a compulsive, forced indoctrination into your brain. The online advertising belongs on demand

advertising, thus saving time and avoiding ineffective passive attention.

3.10.2 Disadvantages of online advertising:

Internet advertising has obvious advantages over traditional advertising, and also unavoidably

brings its disadvantages, mainly in the following aspects:

Visitors to their online advertising “filtered”:

Some visitors simply do not want to see, let alone have report responses. This situation is similar

to other media, only a handful of consumers will buy your product. The biggest difficulty lies in

selecting the right online advertising target market; otherwise it is difficult to bring about the

final ad buying behaviour.

Network technology to filter the ads:

On the one hand for the advertising network provides more space, opportunities, tools, and the

origin of Internet culture itself is obnoxious commercialism, so there have been some network

software and tools will plant a report as a network of cultural dregs filter out. In doing online

advertising company, be sure to verify that the target market has a tendency to extreme aversion

to commercial advertising, whether the use of these filters online advertising tool.

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Lack of skills and marketing skills:

Internet advertising is the guiding ideology of the “information marketing” rather than the

“impression inducement,” but the expression and transmission of information still need

presentation skills to attract consumers. Therefore, only the aspects of the product and the

information listed here is definitely not form a successful online advertising. Traditional

advertising to generate an irresistible impression and attractive presentation skills and marketing

skills in online advertising is still needed, even more demanding. How to marketers to consumers

in rich information resources at the same time, but also have a strong attraction for them is a

huge challenge.

Online advertising marketing personnel requirements are higher than other media:

Compared to online advertising can almost be seen as a microcosm of the entire marketing,

which involves how to attract customers to interact with customers, etc., which is the traditional

advertising to customers impressed goals have to go very far. In short online advertising requires

marketer’s integrated use of traditional advertising performance practices, providing information

on the use of soft methods of marketing and network marketing techniques.

3.11 Internet Marketing Trends

Marketers are constantly looking into the future, trying to predict the next big trend, be it

for their brands or their clients. Naturally, marketers are preoccupied with questions like: What is

the next big campaign? How can we turn our client into the “next big thing”? What is the next

hot trend going to be in retail? Etc. Everyone wants to the answers. Knowing this, what do some

of the top minds in marketing predict for their own futures? Here are the 10 trends that are going

to have the biggest impact on the future of marketing.

1. Mobile is going to become the centre of marketing. From cell phones to smart phones,

tablets to wearable gadgets, the evolution of mobile devices is one of the prime factors

influencing the marketing world. As the focus is shifting to smaller screens, brands will be able
to strike up a more personalized relationship with their customers by leveraging the power of

mobile.

2. Transparency will dictate brand-customer relationships. Currently, customers are seeking

more engagement from brands. This trend will continue with customers becoming more

demanding in their expectation of transparency. Genuine brands – the ones that “walk the talk”

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and create real value – will be rewarded. This means brands that still haven’t made their

customer dealings transparent are headed to a future of doom.

3. The need for good content will not slow down. Content, particularly visual content, will rule

the roost in the online marketing world, evolving into various forms and disrupting the

conventional marketing models. Moreover, the speed at which a brand can create amazing

content will play a part in their success.

4. User-generated content will be the new hit. The power of user-generated content will

surpass branded content as brands begin to relinquish control of their own brands’ marketing to

their customers. From online reviews, to social media posts and blogs, this means there will be a

strong need for brands to create a positive impact in their consumers’ minds. In response to this

model of content production, content co-creation between brands and consumers will become a

popular trend.

5. Social will become the next Internet. Social will become an integral part of the “broader

marketing discipline.” As its impact grows stronger, most brands will fully transition their

marketing efforts to social channels. As such, social has the full potential to become not just one

of the channels but the channel.

6. Brands will own their audience. By cultivating brand community and entering into direct

conversations with their customers, brands will begin to own their audience in a way that will

create loyalists and brand advocates. In the future of marketing, branding and marketing efforts
will have their seeds rooted in what customers are talking about. The customers’ responses and

feelings toward the brand will dictate future campaigns. Essentially, if the customers are happy,

they’ll gladly wear the marketer’s hat and do what is needed to bring their favourite brand in

focus.

7. Brands solely-focused on Millennials will go out of relevance. Brands will need to

understand that the millennials are not a niche “youth” segment but a generation of people who

will ultimately give way to a newer generation. Therefore, millennial-focused brands will have to

change their game to stay relevant.

8. Good brands will behave like product companies and not like service companies. While

service companies aim to create a happy customer and look forward to a contract renewal,

product companies thrive on innovation. So, for brands of the future, customer satisfaction and

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retention will not be enough. They will need to innovate more efficiently to create more value for

their customers. However, great service will NEVER go out of style.

9. Personalized, data-driven marketing will become more refined. There is a difference

between data-driven marketing and intrusive marketing. While the former is based on

relationship-building, the latter is nothing but old-school push marketing wrapped in a new

cover. The difference between these two formats will become even more prominent in future.

Marketers who focus on relationship building will be rewarded, while intruders will be shut out.

10. More accurate metrics will surface. What most brands do in the name of measuring

marketing success is look at hollow “vanity” metrics such as likes, shares, or tweets. Even in

terms of data mining, we are still developing more sophisticated means to capture the right data.

Many ideas are hypothesized, but few are practical. The future will witness the rise of better

analytical tools to help marketers gauge the success of their campaigns.

3.12 Internet Branding

The word "brand" is derived from the word "brandr" meaning "to burn. Brand is the

“Name, term, design, symbol, or any other feature that identifies one seller's product distinct

from those of other sellers.".

In accounting, a brand defined as an intangible asset is often the most valuable asset on a

corporation's balance sheet.

Brand means Trademark, Logo or Trade name under which a product or service is sold in

market. Company means business organization/company which manufactures or provides service

to customers. Eg. Nokia India Pvt. Ltd. is the name of the company and its Brand name is

NOKIA under which it sells its Products.

Brand consists of Name Logo Tagline Shapes Colors Sounds Movements Etc

How Brand is found: Adopted to differentiate one person's cattle from another symbols are

burned into the animal's skin with a hot iron stamp, subsequently the same technique is used in

business, marketing, and advertising.

Internet branding (also known as online branding or E-Branding) is a technique that

uses the World Wide Web as a medium for positioning a brand in the marketplace. Website

creation and optimization, social media, blogs, online press releases, and video marketing are all

methods used for online branding purposes.

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E-branding refers to the sum total of a company`s values, attitudes, vision, mission,

personality and appearance that is projected to the audience online.

Types of Brands

 Initialism: Name made of initials. Eg: UPS or IBM

 Alliteration: Names fun to say. Eg: Reese's Pieces or Dunkin' Donuts

 Evocative: Names evoke a relevant vivid image. Eg: Amazon or Crest

 Neologisms: Completely made-up words. Eg: Wii or Kodak

 Foreign word: Adoption word from another language. Eg: Volvo or Samsung

 Founders' names: Using the names of Founder. Eg: Hewlett-Packard, Dell or Disney

 Geography: Brands named for regions and landmarks. Eg: Cisco and Fuji Film

Purposes of Internet Branding

 To create a direct relationship between Customer and Brand owners

 To help in better sales & Brand loyalty

 To strengthen the market position of the organization

Benefits of Internet Branding

 Easy to survive among competitors

 Helps to build familiarity and loyalty from consumers

 Convenient to gain reputation amongst customers

 Becomes the digital asset for a company

 Result in higher sales of not only one product, but other products associated with brand

 Helps to be a part of the grand global internet community of the 21st century

 Easy to expand customer relationship

Advantages to Consumers

 Consumes less time in Shopping.

 The quality of product is better

 Prices are fixed by the company and there are no changes.

 Products own the responsibility.

Advantages to Producers

 Name helps in advertising in an easier way.

 Name establishes the permanent identity of the product

 Name promotes repurchasing

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 Competition becomes easier with the help of brand loyalty

Effective Ways to Maximize E-Branding Presence

In the competitive age we live in, in order to succeed online, branding must be highly

recognizable, relatable, and authentic; thereby setting itself apart from the competition. High

visibility of brand increases credibility and customers will be more willing to retain your

product/services.

Creating an awareness of online brand is about capturing the attention of the targeted

audience. Consumer's today look to connect directly with business owners and hear their stories

before they make a decision on whether to buy their products/services. With that in mind, let's

examine seven key insights as to how to effectively maximize online brand presence:

1. Be Consistent With Branding. Ask one question: "What is my business really about?" It is

very important to display a consistent branding strategy across all online channels. This creates

brand recognition and helps to reinforce the brand. It is common for a business to use several

channels to reach out to customers. For example, a business may use its website, several social

networks, blogs, document sharing sites, etc.

2. Optimize Your Website. Creating and maintaining a website is one of the most important

branding tools for any business. Website optimization for optimal performance on search engines

is one thing companies can do to drive traffic to a website and improve the brand's visibility.

3. Social Media. Social Media Marketing is one of the most effective and cost effective ways to

promote both small businesses and corporations and enhance the visibility of brand. Social

Media Marketing promotes visibility, brand loyalty, recognition and can also increase sales. In

addition, social media marketing allows small businesses and established ones to compete with

an advantage.

4. Produce and Distribute Great Quality Content. Creating and distributing quality content is

the best way to gain visibility online. It is one of the most effective marketing strategies to create
brand recognition online.

5. Press Release Marketing. Press release distribution is a very effective and inexpensive way

to enhance brand visibility and recognition. If it is picked up by Google News, your company

will receive additional coverage for your brand.

6. Leverage Video Marketing. Businesses of all sizes and scale can benefit from video

marketing i.e., YouTube, Vimeo, Metcafe, etc. Posting branded videos relevant to your niche is a

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very effective way to promote business, drive traffic to your website, and get your brand noticed

in front of a targeted audience.

7. Start a Blog. Having a blog can enhance brand visibility and improve chances of success. In

fact, blogging is one of the most effective ways to improve the visibility of the brand online.

Blogging greatly improves search engine rank, establishes validity in brand and increases reach.

In addition, blogging helps to cultivate relationships with customers and other influencers.

8. Authentic. As a final point, when creating an online brand presence, don't attempt to create

your online brand like any other brand in the market. Be authentic. If you can be open and honest

with yourself about your brand's value, you will be able to authenticate this value when creating

your online brand presence.

3.13 Marketing strategies

Marketing Strategies are made not only to attract customers but also to retain the existing

customers. Online Marketing Strategies too are made for the same purpose. Following are some

of the strategies that can be adopted in online marketing:

 E-Mail marketing strategies

 Affiliate marketing strategies

 Viral marketing strategies

 Brand leveraging strategies

 Search engine optimization (SEO)

E-Mail marketing strategies

Business organization s send e-mail messages to people who have requested information

about a specific product. This is called opt-in-email and this strategy is called Permission

Marketing Strategy. E-mail allows marketers to deliver different advertisements to different

customers based on market segmentation. It allows users to see graphic images and text that

really impresses them. The users also get transported to the related website by clicking on the

link in the message. Finally, the behaviour of the customer collected from the database can be

integrated by the marketers to send sales promotion e-mails to the customers.

For example, if a visitor had visited the website of UNIVERCELL to read about the latest

arrival of Mobile phones, then the information can be utilized by UNIVERCELL to send a

coupon or information through direct e-mail to the customer. It attracts the customer and may

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result in purchase of mobile phone. Some marketers also send e-mail even without receiving any

request for information from the customers. It is known as unsolicited commercial e-mails

Affiliate marketing strategies

Low budget websites are using affiliate marketing strategy to generate revenues.

Affiliate’s firm website contains description, rating and information about a product that is

linked to another organization’s website that offers the product for sale. Marketers pay affiliates

to forward customers to their websites. The pioneer of affiliate marketing is amazon.com.

Affiliate member must feature a link to amazon’s site. When an internet user buys any

product on amazon’s website after having gone there through a link, the affiliate member link

which had forwarded the buyer to amazon.com receives the commission.

There are three types of affiliate marketing programmes.

1. Click through – affiliates are paid for each visitor who clicks through the banner or
button/link and goes to the sellers’ page.

2. Lead Generation – affiliates are paid if the marketer is able to register the user.

3. Revenue sharing – affiliates are paid when he customer makes a purchase

Viral marketing strategies

Viral marketing strategy approaches individual consumers to inform other persons about

the products and services of a business organization. Business organizations believe that this

marketing strategy can build good business as there is no face to face contact in electronic

marketing.

For example, Blue Mountain Arts, an electronic greeting company adopts the viral

marketing strategy. A greeting card recipient sends electronic greeting cards in turn to their

friends. This method helped it to grow as the most visited site on the web.

Brand leveraging strategies

An organization leverages its dominant position by adding more features to the website

that are useful to existing customers. This is called Brand leveraging strategy.

For example, Yahoo added a search engine function and leveraged its dominant position

by acquiring other web businesses and widened its existing offerings.

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Search engine optimization (SEO)

Search engine optimization (SEO) attempts to improve a website's organic search

rankings in SERPs by increasing the website content's relevance to search terms. SEO is not just

submitting site at search engine. It helps the internet user to identify the company’s product or

service available on the site when the users are searching for a product or a service. When a

potential customer checks through search engine looking out for a product or service, marketers

want their company’s website to appear among the top 10 returned listings. The method of

having a particular URL listed near the top of search engine results is called SEO. Search engine
sites offer companies a paid placement which is the consideration of purchasing a top listing on

the result pages.

For example, Sify.com is specialized in SEO. It provides a complete range of search

engine marketing solutions worldwide

UNIT- IV

E- Payment Systems

LEARNING OBJECTIVES

After reading this unit, you would be able to

 Understand the concept of E-Payment system

 Know about various types of E-Payments

 Learn the process of E=Payment system

CONTENTS

4.1 Introduction

4.2 Types of E-Payment Systems

4.3 Requirements of E-Payments

4.4 Digital Token Based E-Payment System

4.5 Credit cards as E-Payment System

4.6 Smart Card Cash Payment System

4.7 Micro Payment System

4.8 E-Cash

4.9 Summary

4.10 Key Terms

4.11 Self Evaluation Questions

4.1 INTRODUCTION

The ease of purchasing and selling products over the Internet has helped the growth of

electronic commerce and electronic payments services are a convenient and efficient way to do

financial transactions. Generally we think of electronic payments as referring to online

transactions on the internet, there are actually many forms of electronic payments. As technology

developing, the range of devices and processes to transact electronically continues to increase

while the percentage of cash and cheque transactions continues to decrease.

The Internet has the potential to become the most active trade intermediary within a

decade. Also, Internet shopping may revolutionize retailing by allowing consumers to sit in their

homes and buy an enormous variety of products and services from all over the worlds. Many

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businesses and consumers are still wary of conducting extensive business electronically.

However, almost everyone will use the form of E Commerce in near future.
An electronic payment system is needed for compensation for information, goods and

services provided through the Internet - such as access to copyrighted materials, database

searches or consumption of system resources - or as a convenient form of payment for external

goods and services - such as merchandise and services provided outside the Internet. it helps to

automate sales activities, extends the potential number of customers and may reduce the amount

of paperwork.

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.

E payment is a subset of an e-commerce transaction to include electronic payment for

buying and selling goods or services offered through the Internet.

Risks in Electronic Payment systems

Customer's risks

 Stolen credentials or password

 Dishonest merchant

 Disputes over transaction

 Inappropriate use of transaction details

Merchant’s risk

 Forged or copied instruments

 Disputed charges

 Insufficient funds in customer’s account

 Unauthorized redistribution of purchased items

Electronic payments Issues

 Secure transfer across internet

 High reliability: no single failure point

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 Atomic transactions

 Anonymity of buyer

 Economic and computational efficiency: allow micropayments

 Flexibility: across different methods

 Scalability in number of servers and users

Designing Electronic Payment systems

It includes several factors:

Privacy: A user expects to trust in a secure system; just as a telephone is a safe

Security: A secure system verifies the identity of two-party transactions through “user

authentication” & reserves flexibility to restrict information/services through access control

Intuitive interfaces: The payment interface must be as easy to use as a telephone.

Database integration: With home banking, for ex, a customer wants to play with all his

accounts.

Brokers: A “network banker”-someone to broker goods & services, settle conflicts, & financial

transactions electronically-must be in place

Pricing: One fundamental issue is how to price payment system services. For e.g., from cash to

bank payments, from paper-based to e-cash. The problem is potential waste of resources.

4.2 TYPES OF E-PAYMENT SYSTEMS

Electronic payment systems are proliferating in banking, retail, health care, on-line

markets, and even government—in fact, anywhere money needs to change hands. Organizations

are motivated by the need to deliver products and services more cost effectively and to provide a

higher quality of service to customers. The emerging electronic payment technology is labelled

as electronic funds transfer (EFT). EFT is defined as “any transfer of funds initiated through an
electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct,

or authorize a financial institution. EFT can be segmented into three broad categories:

Banking and financial payments

 Large-scale or wholesale payments (e.g., bank-to-bank transfer)

 Small-scale or retail payments (e.g., automated teller machines)

 Home banking (e.g., bill payment)

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Retailing payments

 Credit Cards (e.g., VISA or MasterCard)

 Private label credit/debit cards (e.g., J.C. Penney Card)

 Charge Cards (e.g., American Express

On-line electronic commerce payments

1. Token-based payment systems

 Electronic cash (e.g., DigiCash)

 Electronic cheques (e.g., NetCheque)

 Smart cards or debit cards (e.g., Mondex Electronic Currency Card))

2. Credit card-based payments systems

 Encrypted Credit Cards (e.g., World Wide Web form-based encryption)

 Third-party authorization numbers (e.g., First Virtual)

Electronic payment refers to paperless monetary transactions. Electronic payment has

revolutionized the business processing by reducing paper work, transaction costs, labour cost.

Being user friendly and less time consuming than manual processing, it helps business

organization to expand its market reach / expansion. Some of the modes of electronic payments

are following.

 Credit Card
 Debit Card

 Smart Card

 E-Money

 Electronic Fund Transfer (EFT)

4.2.1 Cards

Credit cards, debit cards and prepaid cards currently represent the most common form of

electronic payments. For all 3 types of cards the consumer or the business uses a plastic card,

commonly with a magnetic stripe..Along with magnetic stripe cards, smart cards are also used

for payments. Smart cards are at present overwhelmingly plastic credit cards with an embedded

computer chip.

Credit Card: Credit card is small plastic card with a unique number attached with an account. It

has also a magnetic strip embedded in it which is used to read credit card via card readers. When

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a customer purchases a product via credit card, credit card issuer bank pays on behalf of the

customer and customer has a certain time period after which he/she can pay the credit card bill.

It is usually credit card monthly payment cycle. Following are the actors in the credit card

system.

 The card holder - Customer

 The merchant - seller of product who can accept credit card payments.

 The card issuer bank - card holder's bank

 The acquirer bank - the merchant's bank

 The card brand - for example, visa or mastercard.

Debit Card

Debit card, like credit card is a small plastic card with a unique number mapped with the

bank account number. It is required to have a bank account before getting a debit card from the
bank. The major difference between debit card and credit card is that in case of payment through

debit card, amount gets deducted from card's bank account immediately and there should be

sufficient balance in bank account for the transaction to get completed, whereas in case of credit

card there is no such compulsion.

Smart Card

Smart card is again similar to credit card and debit card in appearance but it has a small

microprocessor chip embedded in it. It has the capacity to store customer work related/personal

information. Smart card is also used to store money which is reduced as per usage. Smart card

can be accessed only using a PIN of customer. Smart cards are secure as they stores information

in encrypted format and are less expensive/provide faster processing. Mondex and Visa Cash

cards are examples of smart cards.

4.2.2 E-Money

E-Money transactions refer to situation where payment is done over the network and

amount gets transferred from one financial body to another financial body without any

involvement of a middleman. E-money transactions are faster, convenient and save a lot of time.

Online payments done via credit card, debit card or smart card are examples of e-money

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transactions. Another popular example is e-cash. In case of e-cash, both customer and merchant

both have to sign up with the bank or company issuing e-cash.

4.2.3 Electronic Fund Transfer

It is a very popular electronic payment method to transfer money from one bank account

to another bank account. Accounts can be in same bank or different bank. Fund transfer can be

done using ATM (Automated Teller Machine) or using computer. Now-a-days, internet based

EFT is getting popularity. In this case, customer uses website provided by the bank. Customer

logins to the bank's website and registers another bank account. He/she then places a request to
transfer certain amount to that account. Customer's bank transfers amount to other account if it is

in same bank otherwise transfer request is forwarded to ACH (Automated Clearing House) to

transfer amount to other account and amount is deducted from customer's account. Once amount

is transferred to other account, customer is notified of the fund transfer by the bank.

4.2.4 Internet

Online payments involve the customer transferring money or making a purchase online

via the internet. Consumers and businesses can transfer money to third parties from the bank or

other account, and they can also use credit, debit and prepaid cards to make purchases online.

Current estimates are that over 80% of payments for online purchases are made using a credit

card or debit card. At present, most online transactions involve payment with a credit card. While

other forms of payment such as direct debits to accounts or pre-paid accounts and cards are

increasing, they currently represent a less developed transaction methodology.

4.2.5 Mobile Payments

Mobile phones are currently used for a limited number of electronic transactions.

However, the percentage seems likely to increase as mobile phone manufacturers enable the chip

and software in the phone for easier electronic commerce. Consumers can use their mobile phone

to pay for transactions in several ways. Consumers may send an SMS message, transmit a PIN

number and use WAP to make online payments, or perform other segments of their transaction

with the phone. As phones develop further, consumers are likely to be able to use infrared,

Bluetooth and other means more frequently to transmit full account data in order to make

payments securely and easily from their phone. Additionally, merchants can obtain an

authorization for a credit or debit card transaction by attaching a device to their mobile phone. A

consortium in the US also announced PowerSwipe, for example, which physically connects to a

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Nextel phone, weighs 3.1 ounces, and incorporates a magnetic stripe reader, infrared printing
port and pass-through connector for charging the handset battery.

4.2.6 Financial Service Kiosks

Companies and service providers in several countries, including Singapore and the US,

have set up kiosks to enable financial and non-financial transactions. These kiosks are fixed

stations with phone connections where the customer usually uses a keyboard and television-like

screen to transaction or to access information. Kiosks in the United States enable the customer to

send money via wire transfers, cash cheques, make purchases using cash, and make phone calls.

Located at convenient public locations such as bus or subway stations, convenience stores or

shopping malls, these kiosks enable electronic payments by individuals who may not have

regular access to the internet or mobile phones.

4.2.7 Television Set-Top Boxes and Satellite Receiver

Specialized boxes attached to a television can also be used for payments in some

locations. The set-top box attaches to the television and a keyboard or other device, and

customers can make purchases by viewing items on the television. Payment is made

electronically using a credit card or other account. While usage is presently low, it could grow

substantially in countries with a strong cable or satellite television network.

4.2.8 Biometric Payments

Electronic payments using biometrics are still largely in their infancy. Trials are

underway in the United States, Australia and a limited number of other countries. Most biometric

payments involve using fingerprints as the identification and access tool, though companies like

Visa International are piloting voice recognition technology and retina scans are also under

consideration. Essentially, a biometric identifier such as a fingerprint or voice could replace the

plastic card and more securely identifies the person undertaking the transaction. The electronic

payment is still charged to a credit card or other account, with the biometric identifier replacing

the card, cheque or other transaction mechanism.

4.2.9 Electronic Payments Networks

Various countries have electronic payments networks that consumer can use to make

payments electronically. ACH (Automated Clearing House) in the US, domestic EFTPOS

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networks in Australia and Singapore, and other networks enable electronic payments between

businesses and between individuals. The consumer can go online, to a financial service kiosk or

use other front-end devices to access their account and make payments to businesses or other

individuals.

4.2.10 Person-to-Person (P2P) Payments

P2P payments enable one individual to pay another using an account, a prepaid card or

another mechanism that stores value. PayPal in the US, which was recently purchased by Ebay,

is one of the most frequently used P2P mechanisms. P2P payments can be made through a

variety of means, including services like PayPal, transfers using card readers, or other. In the

future other devices, such as mobile phones or PDAs, could also be used to enable P2P electronic

payments.

Source www.epayment.com

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Types of E-payment and Initiatives

4.3 REQUIREMENTS FOR E-PAYMENTS

For making e-payments effective and successful the following requirements are essentials:

Critical mass

The success of a payment scheme depends on the number of users, both as regards

merchants and consumers, as financial institutions. Especially merchants play a crucial role in

the development of payment schemes, as their acceptance of e-payment systems creates the

market for such schemes. Providers face the so-called "chicken and egg" problem, as merchant
acceptance equally depends on customer acceptance.

Adoption at the EU-level

In order to foster cross-border payments in the Internal Market, it is essential that

payment schemes are developed that apply across the EU. Merely national payment schemes will

not increase cross-border e-shopping, because foreign customers cannot pay abroad with these

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national schemes. Payment schemes that are limited to the national level, should at least try to

enter into cross-national associations to gain customer and merchant recognition.

Limited costs

The cost of using an electronic payment system should be limited to a minimum, so as to

increase merchant and customer acceptance. This particularly holds true for low-value

transactions, which must be facilitated by low transaction costs. (For example, the online

purchase of a ringtone of 1 EUR should not result in the need to pay an additional 0,40 EUR for

transaction costs.)

User friendly / low effort

Electronic payment systems should be user-friendly and should allow users to personalise

the system to integrate their everyday activities and personal financials. Simplicity is key to

gaining wide acceptance, especially to persuade new Internet users who lack both experience and

confidence to cope with complicated protocols. In Japan, for example, most electronic payment

systems only require the user to enter a unique set of 16 digits for authentication and payment

finalisation purposes.

Speed

Electronic payment systems should be able to process transactions very rapidly. Their

speed allows them to be differentiated from other (offline) payment schemes such as credit cards,

which are often subject to transaction terms of several days. Settlement of transactions in real
time allows customers to be informed of their available funds at any moment.

Security

Fraudulent payment card transactions represent losses of roughly 1 billion EUR per year

in the SEPA area. Moreover, given their virtual nature, e-payment schemes do not allow to see

the money physically represented, which often results in the feeling of having no control. It is

therefore essential that e-payment systems provide a sufficient level of security, both on a

technological level as on a psychological level.

Balance of interests

The current financial crisis has demonstrated the importance of controlling financial

institutions. Payment instruments which transfer substantial amounts of money, should be strictly

regulated, regardless of the fact whether they constitute online or offline payment systems.

However, there also is a need for balance. Strict compliance requirements could cripple the

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further development of e-payment systems, particularly if small money transfer would also be

subject to such requirements. Hence, a balance between innovation incentives and the protection

of consumers is required.

Protection of privacy

As is possible with cash payments, consumers will want to have at least the option of

remaining anonymous in relation to e-payments. Moreover, the possibilities of profiling based on

financial transaction data should be limited. For example, the use of transaction-related data

outside the initial business context, of the sale of such data to third parties could lead to customer

discrimination. Such practices should therefore be contained by legal privacy provisions.

Transparency

Electronic payment schemes must be transparent to consumers, in particular with respect

to their personal financial data being handled by both merchants and financial institutions.
Transparency requires merchants and financial institutions to describe the way in which an

electronic payment system works, and how they intend to process any transactions requested by

consumers.

Predictability

For adapted legal rules to be effective, it is required that e-payment systems are generally

intelligible, clear and predictable to all actors involved. Any laws applicable to e-payment

systems must therefore clearly establish which services do and which do not fall within their

scope.

Trust

Both the electronic payment schemes themselves and the applicable legal framework

must present a trustworthy system. Customers and merchants will refrain from using such

payment schemes if the applicable laws cannot guarantee the protection of their interests.

Equally important is the need to address the issue of perceived trust: the public must be

convinced that cyber-cash is unforgettable.

Reliability

The legal framework applicable to electronic payments must be consistent in its effects

on all participants. In case of a dispute, the application of such laws should be predictable, and

the expected outcome of the dispute should be reliable

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4.4 DIGITAL TOKEN BASED PAYMENT SYSTEM

The digital token based payment system is a new form of electronic payment system

which is based on electronic tokens rather than e-cheque or e-cash. The electronic tokens are

generated by the bank or some financial institutions. Hence we can say that the electronic tokens

are equivalent to the cash which are to be made by the bank.

Electronic tokens are three types:

1. Cash or Real-time

In this mode of electronic tokens transactions takes place via the exchange of electronic

currency (e-cash). Example: on-line currency exchange is electronic cash (e-cash).

2. Debit or Prepaid

In this electronic payment system the prepaid facilities are provided. It means that for

transactions of information user pay in advance. This technology is used in smart card, electronic

purses etc. Example: prepaid payment mechanisms are stored in smart cards and electronic

purses that store electronic money.

3. Credit or Post-paid

These types of electronic token based on the identity of customers which issue a card,

their authentication and verification by a third party. In this system the server authenticates the

customers and then verifies their identity through the bank. After all these process the transaction

takes place. Example is E-Cheques. Example: post-paid mechanisms are credit/debit cards and

electronic cheques.

The Digital Token based system has following issues:

1. Nature of transaction for which instrument is designed:

In this category, the design issues of token take place. It may be designed to handle micro

payments. It may be designed for conventional products. Some tokens are designed specifically

and other generally. The design issue involve involvement of parties, purchase interaction and

average amount.

2. Means of Settlement:

The Digital Tokens are used when their format must be in cash, credit, electronic bill

payments etc. Most transaction settlement methods use credit cards while other used proxies for

values.

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3. Approach to Security, Anonymity and Authentication:

Since the electronic token are vary from system to system when the business transaction

take place. So it is necessary to secure it by intruders and hackers. For this purpose various

security features are provided with electronic tokens such as the method of encryption. The

encryption method uses the digital signatures of the customers for verification and

authentication.

4. Risk Factors:

The electronic tokens may be worthless and if the customer have currency on token than

nobody will accept it, if the transaction has long time between delivery of products and payments

to merchants then merchant exposes to the risk. so it is important to analysis risk factor in

electronic payment system.

Benefits of Utilizing an Electronic Payment System:

Many large global organizations are reaping the benefits from employing an electronic

payment system, which include:

1. Day Sales Outstanding (DSO) Improvements:

For suppliers, an electronic payment system can immediately improve DSO numbers by

allowing them to electronically receive and process payments from commercial customers.

2. Processing Cost Reduction:

A feature-rich electronic payment system lowers associate process time by automatically

initiating and processing payments.

3. Minimize Overdue Payments:

A best-in-class electronic payment system accelerates credit and collections by giving

customers, collections groups and internal customer service departments greater visibility into

payment status.

4. Simplify Dispute Management:

With an electronic payment system, companies enjoy improved data accuracy and

automated disbursement, receipt and payment processing to streamline vendor dispute

management.

5. Increased Compliance:

An electronic payment system makes it easier to track and monitor data to ensure

adherence to complex compliance regulations and all business rules.

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6. Enhanced Security:

An electronic payment system is highly secure, safeguarding cardholder data and

preventing payment fraud better than paper-based payments can achieve.

7. Improved Workflow Efficiencies:

Increased automation is a key feature of a robust electronic payment system, enabling

less reliance on time-consuming and costly manual business processes.

8. Greater Visibility into Financial Supply Chain:

With access to reports and comprehensive corporate financial history, an electronic

payment system gives management and other authorized users easy access to snapshots and

detailed reports to improve decision-making and process efficiency.

4.5 CREDIT CARDS AS E-PAYMENT SYSTEM

Payment cards are all types of plastic cards that consumers use to make purchases, viz,

 Credit cards: Such as a Visa or a MasterCard, has a preset spending limit based on the

user’s credit limit.

 Debit cards: Removes the amount of the charge from the cardholder’s account and

transfers it to the seller’s bank.

 Charge cards: Such as one from American Express, carries no preset spending limit.

Advantages:
 Payment cards provide fraud protection.

 They have worldwide acceptance.

 They are good for online transactions.

Disadvantages:

 Payment card service companies charge merchants per-transaction fees and monthly

processing fees.

Payment Acceptance and Processing

 Open loop (such as VISA) and closed loop (such as American Express) systems will

accept and process payment cards.

 A merchant bank or acquiring bank is a bank that does business with merchants who

want to accept payment cards.

 Software packaged with your electronic commerce software can handle payment card

processing automatically.

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Types of Credit Cards

There are two types of credit cards on the market todayCredit cards are issued based on the customer's
income level, credit history, and total

wealth. The customer uses these cards to buy goods and services or get cash from the

participating financial institutions. The customer is supposed to pay his or her debts during the

payment period; otherwise interest will accumulate. Two limitations of credit cards are their

unsuitability for very small or very large payments. It is not cost-justified to use a credit card for

small payments. Also, due to security issues, these cards have a limit and cannot be used for

excessively large transactions. There are two types of credit cards on the market today:

1. Credit cards issued by credit card companies (e.g., MasterCard, Visa) and major banks

(e.g. Is Bankasi, Ziraat Bankasi, Yapi Kredi, etc.)

2. Credit cards issued by department stores (e.g Boyner), oil companies (e.g. Shell)
Businesses extremely benefit from these company cards and they are cheaper to operate.

They are widely issued to and used by a broad range of customers. Businesses offer

incentives to attract customers to open an account and get one of these cards.

Credit card payment process:

Step Description

1 Bank issues and activates a credit card to customer on his/her request.

2 Customer presents credit card information to merchant site or to merchant from

whom he/she want to purchase a product/service.

3 Merchant validates customer's identity by asking for approval from card brand

company.

4 Card brand company authenticates the credit card and paid the transaction by

credit. Merchant keeps the sales slip.

5 Merchant submits the sales slip to acquirer banks and gets the service chargers paid

to him/her.

6 Acquirer bank requests the card brand company to clear the credit amount and gets

the payment.

7 Now card brand company asks to clear amount from the issuer bank and amount

gets transferred to card brand company.

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Figure: Online Credit Card (VISA) Transaction Process

Processing a Payment Card Order

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4.6 SMART CARD CASH PAYMENT SYSTEM

Smart Cards based Electronic Payment System “Smart cards‟ are receiving renewed

attention as a mode of online payment. They are essentially credit card sized plastic cards with
the memory chips and in some cases, with microprocessors embedded in them so as to serve as

storage devices for much greater information than credit cards with inbuilt transaction processing

capability.

This card also contains some kinds of an encrypted key that is compared to a secret key

contained on the user’s processor. Some smart cards have provision to allow users to enter a

personal identification number (PIN) code. Smart cards have been in use for well over the two

decades now and have been widespread mostly in Europe and Asian Countries. Owing to their

considerable flexibility, they have been used for a wide range of functions like highway toll

payment, as prepaid telephone cards and as stored value debit cards. However, with the recent

emergence of e-commerce, these devices are increasingly being viewed as a particularly

appropriate method to execute online payment system with considerably greater level of security

than credit cards. Compared with traditional electronic cash system, smart cards based electronic

payment systems do not need to maintain a large real time database. They also have advantages,

such as anonymity, transfer payment between individual parties, and low transactional handling

cost of files. Smart cards are also better protected from misuse than, say conventional credit

cards, because the smart card information is encrypted. Currently, the two smart cards based

electronic payment system- Mondex and Visa Cash are incompatible in the smart cards and card

reader specification.

Smart cards have been in existence since the early 1980s and hold promise for secure

transactions using existing infrastructure. Smart cards are credit and debit cards and other card

products enhanced with microprocessors capable of holding more information than the

traditional magnetic stripe. The smart card technology is widely used in countries such as France,

Germany, Japan, and Singapore to pay for public phone calls, transportation, and shopper loyalty

programs.

A smart card is about the size of a credit card, made of a plastic with an embedded
microprocessor chip that holds important financial and personal information. The microprocessor

chip is loaded with the relevant information and periodically recharged. In addition to these

pieces of information, systems have been developed to store cash onto the chip. The money on

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the card is saved in an encrypted form and is protected by a password to ensure the security of

the smart card solution. In order to pay via smart card it is necessary to introduce the card into a

hardware terminal. The device requires a special key from the issuing bank to start a money

transfer in either direction.

Smart cards can be disposable or rechargeable. A popular example of a disposable smart

card is the one issued by telephone companies. After using the pre-specified amount, the card

can be discarded. Smart-card technology can be used to hold information on health care,

transportation, identification, retail, loyalty programs and banking, to name a few.

Kalakota and Whinston (1996), classified smart cards based electronic payment system as

(1) relationship based smart cards and (2) electronic purses. Electronic purses, which may

replace money, are also known as debit cards.

Relationship-Based Smart Credit Cards

 It is an enhancement of existing cards services &/ or the addition of new services that a

financial institution delivers to its customers via a chip-based card or other device

 These services include access to multiple financial accounts, value-added marketing

programs, or other information card holders may want to store on their card

 It includes access to multiple accounts, such as debit, credit, cash access, bill payment &

multiple access options at multiple locations

Electronic Purses

To replace cash and place a financial instrument are racing to introduce “electronic

purses”, wallet-sized smart cards embedded with programmable microchips that store sums of
money for people to use instead of cash for everything

The electronic purse works in the following manner:

1. After purse is loaded with money at an ATM, it can be used to pay for candy in a vending

machine with a card reader.

2. It verifies card is authentic & it has enough money, the value is deducted from balance on the

card & added to an e-cash & remaining balance is displayed by the vending machine.

Further Diwan and Singh (2000) and Sharma and Diwan (2000), classified 38 smart cards

into four categories. These are: (1) memory cards: this card can be used to store password or pin

number. Many telephone cards use these memory cards (2) shared key cards: it can store a

private key such as those used in the public key cryptosystems. In this way, the user can plug in

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the card to a workstation and workstation can read the private key for encryption or decryption

(3) signature carrying card: this card contains a set of pre-generated random numbers. These

numbers can be used to generate electronic cash (4) signature carrying cards: these cards carry a

co-processor that can be used to generate large random numbers. These random numbers can

then be used for the assignment as serial numbers for the electronic cash.

Smart cards are broadly classified into two groups:

Contact: This type of smart card must be inserted into a special card reader to be read

and updated. A contact smart card contains a microprocessor chip that makes contact with

electrical connectors to transfer the data.

Contact-less: This type of smart card can be read from a short distance using radio

frequency. A contact-less smart card also contains a microprocessor chip and an antenna that

allows data to be transmitted to a special card reader without any physical contact. This type of

smart card is useful for people who are moving in vehicles or on foot. They are used extensively

in European countries for collecting payment for highway tolls, train fares, parking, bus fares,
and admission fees to movies, theatres, plays, and so forth.

Some of the advantages of smart cards include the following:

1. Stored many types of information • Not easily duplicated

2. Not occupy much space

3. Portable

4. Low cost to issuers and users

5. Included high security

Disadvantages:

1. Low maximum transaction limit (not suitable for B2B or most B2C)

2. High Infrastructure costs (not suitable for C2C)

3. Not (yet) widely used

4. Lack of universal standards for their design and utilization.

Smart Card Applications

• Ticketless travel

– Seoul bus system: 4M cards, 1B transactions since 1996

– Planned the SF Bay Area system

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• Authentication, ID

• Medical records

• E-cash

• Personal profiles

• Government

– Licenses

• Mall parking

4.7 MİCRO-PAYMENT SYSTEM

A micropayment is an e-commerce transaction-type with a low financial amount.

Micropayments are typically used to purchase online products and services such as e-books,

music and memberships.

A Micropayment is a financial transaction involving a very small sum of money, and

usually one that occurs online. Micropayments were initially devised as a way of allowing the

sale of online content as a way to pay for very low cost network services. Micropayments were

envisioned to involve small fractions of a currency. Micropayments would enable people to sell

content on the Internet, and this would be an alternative to advertising revenue.

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The term “micropayment” can be defined as a small sum of payment ranging from a

couple of dollars to a fraction of a cent in exchange for intellectual property or web-based

content. Micro-payments are becoming a popular form of payment in the e-commerce sales

sector. Many companies are providing their clients the option to pay for inexpensive transactions

through financial firms such as Paypal, Visa, Mastercard, etc. Each company has its own

maximum amount of money used in a micropayment transaction, for example for Paypal it is less

than $12 USD, and for Visa it is less than $20 USD.

“Micropayment system” is the name given to the online payments system, enabling

people to charge relatively small amounts of money for their online content or services. These

systems were developed during the 1990’s, however they are not efficiently implemented. Back

then, there are only a few websites that accept micropayments and implements this kind of

system. As the era changes, the term micropayment is commonly used to refer to the sale of

virtual goods.

Many consumers have the preference to pay these small sums of money online, as it is

timesaving and more convenient. Mobile technologies such as tablets running on the Android or

iPad system are also advancing rapidly and are incorporating applications from their app stores
to support micro-payments. Examples would include the eBay, Amazon, and Paypal applications

which allow users to make purchases online. EBay gives you the option to pay via Visa,

Mastercard, and Paypal. This new form of technology will change how we value money and

consider our purchases. This new convenience will accelerate our use of e-commerce and add

higher benefits to the end user by saving transportation costs

The key benefit to this process is the payment provider's ability to serve as a single secure

payment contact for sellers and buyers. Sellers can provide multiple websites and/or products

without the overhead of a merchant account, and buyers can pay many different sellers under one

secure transaction umbrella. Easy and secure adaptability is at the core of e-commerce growth at

the micro level.

How does this work?

With a prepaid system, cash, cheque, or credit payment is made to the online company

sponsoring the micropayment system; your online account is then credited with a commensurate

sum. You may then purchase goods or services online using this account. Often the purchases are

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digital in nature, and include, artwork, photos, images, audio, and video clips, privileges, perks,

virtual goods, and titles.

When you first setup your account, your contractual agreement, sensitive financial, and

personal account information, is transferred to the company you wish to do business with via an

encrypted link.

At the time you are setting up your account, your account information is scrambled using

a cipher code uniquely designed to protect that information and that information is then

transmitted encoded to the online company that is sponsoring the micropayment system... There,

your sensitive financial information is decoded, and your account is setup. That is the way

micropayment accounts are supposed to work.

Once your account is setup, you may then make micropayments at any time, simply by

selecting an item or payment option, and confirming your choice. This also usually occurs in a

secured online environment setup by the company sponsoring the micropayment system, and

often involves the purchaser verifying his or her identity prior to the purchase using a password,

access code, or a digital or physical key of some sort.

Advantages and Disadvantages of Micro Payment system:

Advantages:

1. Anonymity

Setting up an online account with a micropayment service provider allows one to conduct

financial transactions online with some anonymity.

2. Speed

Micropayment accounts allow for quick and convenient purchase of real and virtual

goods and services.

3. Scalability

Micropayment systems can grow easily to accommodate additional trades, and new

products, or services.

4. Security

Fewer online transfers of actual payment leads to fewer opportunities for actual theft or

abuse. It is much easier to contain the scope of theft or abuse using a micropayment system.

Disadvantages:

1. Insecure Data

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If sensitive account information is compromised, the account holder is left vulnerable to

more than just the losses from the investment in the account, often secondary or tertiary accounts

may be compromised as a result.

2. Dishonesty

Account holders may lose their investment in the micropayment system if the payment

processing company is dishonest, or otherwise deceptive.

3. Excessive, Taxes, Fees, and Charges

Individual transactions end up costing the buyer more over the long term as individual

taxes, fees, and charges, when combined and compared with a single larger purchase, reveal that

the purchases actually cost more than if a single large purchase was made.

4. Excessive Maintenance Costs

With the explosion in the sheer number of micro transactions, actually auditing or

reviewing such transactions quickly becomes extraordinarily expensive. Proportionally the

number of customer disputes over failed or undesired individual purchases increase as well.

In the next years the market for low value products such as online music and videos and

the role of micropayment systems for selling such products are expected to grow substantially.

4.8 Electronic Cash

Electronic cash is a general term that describes the attempts of several companies to

create value storage and exchange system that operates online in much the same way that

government-issued currency operates in the physical world.

Electronic cash (also called e-cash or digital cash) is any value storage and exchange

system created by a private (non-governmental) entity that does not use paper documents or

coins and that can serve as a substitute for government-issued physical currency. Since e-cash is

issued by many private companies, we need common standards for all e-cash issuers so that they

are accepted by each other. Until now those common standards were not met. Every issuer has its

own standards and e-cash is not universally accepted compared to government-issued physical

currency.

Electronic Cash (E-Cash) or electronic money are playing more significant role in our
daily life due to the rise of internet usage. Most of the money form today is in electronic.

However with new invention of tool doesn’t mean that it will bring all positive results as nothing

is perfect in this world.

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Concerns about electronic payment methods include privacy and security, independence,

portability, and convenience. Privacy and security issues are probably the most important issues.

E-cash has its unique security problems. E-cash must have two important characteristics

in common with physical currency. It must be spent only once and it must be anonymous.

E-cash is independent and portable. E-cash is independent, if it is not related to any

network or storage device. It is portable, if it can be freely transferable between any two parties.

Credit and debit cards are not portable. In a credit card transaction, the credit card recipient must

have an account established with a bank unlike the case in e-cash.

The most important characteristic of cash is convenience. If e-cash requires special

hardware or software, it will not be convenient for people to use.

Properties of Electronic Cash:

There are many ways that exist for implementing an e-cash system, all must incorporate a

few common features.

Features of E-Cash

1. Consumer buys e-cash from Bank

2. Bank sends e-cash bits to consumer (after charging that amount plus fee)

3. Consumer sends e-cash to merchant

4. Merchant checks with Bank that e-cash is valid (check for forgery or fraud)

5. Bank verifies that e-cash is valid

6. Parties complete transaction: e.g., merchant present e-cash to issuing back for deposit once

goods or services are delivered

Specifically, e-cash must have the following four properties:

1. Monetary value

2. Interoperability

3. Retrievability

4. Security

Electronic Cash in Action

• Electronic Cash is based on cryptographic systems called “digital signatures”.

• This method involves a pair of numeric keys: one for locking (encoding) and the other for

unlocking (decoding). (Through public key and private key)

Purchasing E-cash from Currency Servers

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The purchase of e-cash from an on-line currency server (or bank) involves two steps:

• Establishment of an account and

• Maintaining enough money in the account to bank the purchase.

Some customers might prefer to purchase e-cash with paper currency, either to maintain

anonymity or because they don’t have a bank account.

Using the Digital Currency

• Once the tokens are purchased, the e-cash software on the customer’s PC stores digital money

undersigned by a bank.

• The users can spend the digital money at any shop accepting e-cash, without having to open an

account there or having to transmit credit card numbers.

• As soon as the customer wants to make a payment, the software collects the necessary amount

from the stored tokens.

Electronic Cheques

• It is another form of electronic token.

• Buyers must register with third-party account server before they are able to write electronic

cheques

• The account server acts as a billing service.

Electronic Cash Storage

There are two methods of e-cash storage system. They are;

 On-line

o Individual does not have possession personally of electronic cash

o Trusted third party, e.g. e-banking, bank holds customers’ cash accounts

 Off-line

o Customer holds cash on smart card or electronic wallet

o Fraud and double spending require tamper-proof encryption

How a typical e-cash system works:

Similar to regular cash, e-cash enables transactions between customers without the need

for banks or other third parties. When used, e-cash is transferred directly and immediately to the

participating merchants and vending machines. Electronic cash is a secure and convenient

alternative to bills and coins. This payment system complements credit, debit, and charge cards

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and adds additional convenience and control to everyday customer cash transactions. E-cash

usually operates on a smart card, which includes an embedded microprocessor chip.

A customer or merchant signs up with one of the participating banks or financial

institutions. The customer receives specific software to install on his or her computer. The

software allows the customer to download “electronic coins” to his or her desktop. The software

manages the electronic coins. The initial purchase of coins is charged against the customer's bank

account or against a credit card. When buying goods or services from a web site that accepts ecash, the
customer simply clicks the “Pay with e-cash” button. The merchant's software

generates a payment request, describing the item(s) purchased, price, and the time and date. The
customer can then accept or reject this request. When the customer accepts the payment request,

the software residing on the customer's desktop subtracts the payment amount from the balance

and creates a payment that is sent to the bank or the financial institution of the merchant, and

then is deposited to the merchant's account. The attractive feature of the entire process is its

turnaround time which is a few seconds. The merchant is notified and in turn ships the goods.

Advantages and Disadvantages - Electronic Cash

Advantages:

We can transfer funds, purchase stocks, and offer a variety of other services without

having to handle physical cash or cheques as long as bank is providing such services online. The

significant effect is we do not have to queue in lines, thus saving our time.

Debit cards and online bill payments allow immediate transfer of funds from an

individual's personal account to a business's account regardless the designated place (around the

globe) by few clicks without any actual paper transfer of money. This bring convenience

individual like us and businessmen.

Consumers will have greater privacy when shopping on the Internet using electronic

money instead of ordinary credit cards.

 More efficient, eventually meaning lower prices

 Lower transaction costs

 Anybody can use it, unlike credit cards, and does not require special authorization

 Electronic cash transactions are more efficient and less costly than other methods.

 The distance that an electronic transaction must travel does not affect cost.

 The fixed cost of hardware to handle electronic cash is nearly zero.

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 Electronic cash does not require that one party have any special authorization.

Disadvantages:
E-cash and E-Cash transaction security are the major concern. Frauds on E-Cash are on

the catch recent years. Hackers with good skill able to hack into bank accounts and illegally

retrieve of banking records has led to a widespread invasion of privacy and has promoted

identity theft. There are many other tricks including through phishing website of certain banks

and emails.

Money flow and criminal/terrorist activities are harder to be traced by government. With

the continued growth of E-Cash, money flow in and out of countries at immediate speed without

being traced will weaken the government's ability to monitor and income in tax. Money

laundering and tax evasion could be uncontrollable in e-cash systems as criminals use

untraceable internet transaction to hide assets offshore.

E-Cash is not for everyone. Low income groups without computer and internet access are

unable to enjoy the usage of E-Cash. This issue shall be resolved so that E-Cash could be

implemented widely.

There is also a pressing issue regarding the technology involved in electronic cash such

power failures, internet connection failure, loss of records and undependable software. These

often cause a major setback in promoting the technology.

 Susceptible to forgery

 Electronic cash provides no audit trail.

 Because true electronic cash is not traceable, money laundering is a problem.

 Electronic cash is susceptible to forgery.

 So far, electronic cash is a commercial flop.