Most people think e-commerce means online shopping - workaholics pointing their browsers to Amazon.com to order an emergency present because they forgot someone's birthday again.
However, web shopping is only a small part of the e-commerce picture. The term also refers to online stock and bond transactions and buying and downloading software without ever going near a store. In addition, e-commerce includes business-to-business connections that make purchasing easier for big corporations. And many people hope that so-called microtransactions will let people pay small amounts--a few cents or a few dollars--to access online content or games.
Although Internet security breaches have gotten a lot of press, most vendors and analysts argue that transactions are actually less dangerous in cyberspace than in the physical world.
That's because a great deal of credit card fraud is caused by retail sales employees who handle card numbers. E-commerce systems remove temptation by encrypting the numbers on a company's servers. For merchants, e-commerce is actually safer than opening a store that could be looted, burned, or flooded. The difficulty is in getting customers to believe that e-commerce is safe for them.
Experts say that e-commerce transactions are safer than ordinary credit card purchases. Every time you pay with a credit card at a store, in a restaurant, or over an 0800 number - and every time you throw away a credit card receipt - you make yourself vulnerable to fraud.
But ever since the 2.0 versions of the Netscape Navigator and Microsoft Internet Explorer browsers, transactions can be encrypted using Secure Sockets Layer (SSL), a protocol that creates a secure connection from the client computer to the server, protecting information as it travels over the Internet. SSL uses public key encryption, one of the strongest encryption methods. One way to tell that a Web site is secured by SSL is when the adress in the browser window begins with "https://" instead of "http://". Another is to look at the padlock icon in the status bar of the browser.
Browser makers and credit card companies are promoting an additional security standard called Secure Electronic Transactions (SET). SET encodes the credit card numbers residing on servers so that only banks and credit card companies can read them.
No payment system system can guarantee 100-percent protection for your credit card, and e-commerce is no exception, but you're still much more likely to get your pocket picked in a real store than online.
Contact us to find out how we can implement your online shopping and purchasing solution.
In addition to the alphabet soup of standards that governs the Internet, e-commerce employs several of its own standards, most of which apply to business-to-business transactions.
Secure Sockets Layer (SSL): This protocol is designed to create a secure connection to the server. SSL uses public key encryption, one of the strongest encryption methods around, to protect data as it travels over the Internet. SSL was created by Netscape but has now been published in the public domain.
Electronic Data Interchange (EDI): Created by the government in the early 1970s and now used by 95 percent of Fortune 1,000 companies, EDI is a common document structure designed to let large organizations transmit information over private networks. EDI is now finding a role on corporate Web sites as well.
Open Buying on the Internet (OBI): This standard, created by the Internet Purchasing Roundtable, is supposed to ensure that all the different e-commerce systems can talk to one another. OBI, which was released by the OBI Consortium, is backed by leading technology companies such as Actra, InteliSys, Microsoft, Open Market, and Oracle.
The Open Trading Protocol (OTP): OTP is intended to standardize a variety of payment-related activities, including purchase agreements, receipts for purchases, and payments. It was created as a competing standard to OBI by a group of companies, including AT&T, CyberCash, Hitachi, IBM, Oracle, Sun Microsystems, and British Telecom.
The Open Profiling Standard (OPS): A standard backed by Microsoft and Firefly, OPS lets users create a personal profile of preferences and interests that they want to share with merchants. The idea behind it is to help consumers protect their privacy without banning online collection of marketing information.
Secure Electronic Transactions (SET): SET encodes the credit card numbers stored on merchants' servers. This standard, created by Visa and MasterCard, enjoys wide support in the banking community. The first SET-enabled commerce is already being tested in Asia.
Truste: This partnership of companies seeks to build public trust in e-commerce by putting a Good Housekeeping-style seal of approval on sites that don't violate consumer privacy.
E-commerce is rife with buzzwords and catchphrases. Here are some of the current terms people like to throw around:
Digital or electronic cash: Also called e-cash, these terms refer to any of several schemes that allow a person to pay for goods or services by transmitting a number from one computer to another. The numbers, just like those on a dollar bill, are issued by a bank and represent specified sums of real money. One of the key features of digital cash is that it's anonymous and reusable, just like real cash. This is a key difference between e-cash and credit card transactions over the Internet. For more information, see PC Webopaedia.
Digital money: This is a grab-bag term for the various e-cash and electronic payment schemes on the Internet. Yahoo lists 21 companies offering a form of digital money.
Disintermediation: Disintermediation is the process of cutting out the middleman. When Web-based companies bypass traditional retail channels and sell directly to the customer, traditional intermediaries (such as retail stores and mail-order houses) may find themselves out of a job.
Electronic checks: Currently being tested by CyberCash, electronic checking systems such as PayNow take money from users' checking accounts to pay utility and phone bills.
Electronic wallet: This is a payment scheme, such as CyberCash's Internet Wallet, that stores your credit card numbers on your hard drive in an encrypted form. You can then make purchases at Web sites that support that particular electronic wallet. When you go to a participating online store, you click a Pay button to initiate a credit card payment via a secure transaction enabled by the electronic wallet company's server. The major browser vendors have struck deals to include electronic wallet technology in their products.
Extranet: This extension of a corporate intranet connects the internal network of one company with the intranets of its customers and suppliers. This makes it possible to create e-commerce applications that link all aspects of a business relationship, from ordering to payment.
Micropayments: Transactions in amounts between 25 cents and $10, typically made in order to download or access graphics, games, and information, are known as micropayments. Pay-as-you-go micropayments were supposed to revolutionize the world of e-commerce.
Rest assured, there is a bright future for e-commerce. Once the details of online commerce are worked out, it and the Internet in general could reshape the structure of the business world.
The huge growth of virtual communities--people getting together in ad hoc interest groups online--promises to shift the balance of economic power from the manufacturer to the consumer. At least, that's the view of John Hagel and Arthur Armstrong, a pair of analysts at McKinsey & Company, an international management consulting firm.
These virtual communities are already making their presence felt. Investment site Motley Fool lets members exchange investment advice without the benefit of a stockbroker. ParentsPlace is a meeting ground for parents that gives smaller vendors an avenue to reach potential customers for products such as baby food and shampoo.
Virtual communities erode the marketing and sales advantages of large companies. A small company with a better product and better customer service can use these communities to challenge larger competitors--something it probably couldn't do in the real world.
In Net Gain: Expanding Markets Through Virtual Communities, published by Harvard Business School Press, Hagel and Armstrong argue that rather than fight the trend, smart companies will help build such communities and use them to reach customers.
Online Payment Processing is when customer credit cards are validated and checked for sufficient funds before the transaction is approved. If approved, the order will be "captured" and an authorization number will be assigned to the order. Next, the merchant informs the bank where his/her merchant account is held and the customer is sent the product. The customer is then debited the cost of the product and the bank deposits that amount of money into merchant's account.
This requires more work by the business owner. However, it is easiest because a business can use their existing credit card processor.