Chapter:1 Introduction to Electronic Commerce

1) Commerce:-

Buying & selling of goods, services & information is called as commerce

2) Electronic- Commerce:-

Business transaction that takes place via telecommunication networks ie., television,
internet, telephone, mobiles, P.D.A, bill boards, news papers & wireless media like radio.

It is a modern business technique that not only deals with buying & selling but also deals
with,

• Needs of Organization.
• Fulfillments of customer needs.
• Redetection market.

3) Architecture (or) Frame work of E~Commerce:-

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 E-Com applications will be built on the existing technology infrastructure of computers, communication
networks forming a information super highway. Building of any business stands on 2 main pillars.

• Business Policies: Public, legal & private policies.

• Technical Standards: electronic documents, Multimedia & network protocols.

Information Superhighway:-
Making of proper communication channel between the customer & the
seller is called as information super highway or I-WAY.
Ex* tv, net, telephone, pda.

Multimedia content and network publishing

for creating a product promotion seller have to create advertisements. For

doing that images, text, videos, holograms, graphics, numeric data animations & audio files are to be
developed that can make proper multimedia.

Messaging and information distribution:-

as means of sending and retrieving information the customer may need to

communicate with the seller regarding various doubts so we need to make a channel of communication from
customer to the seller..
 Ex* internet , telephone, tool free numbers

Common business services

Buying and selling process transaction are to be clear to the customer &
seller. So we need to explain all the details about mode of product transfer, money payment system, time for
product delivery, warranty. E.c.t..,

The two pillars supporting all e commerce applications and infrastructure are just as indispensable:

• Public policy to govern such issues as universal access , privacy and information pricing.
• Technical standards to dictate the nature of information publishing, user Interfaces and transport in the
interest of compatibility across the entire network.
• The I-way must be mesh of interconnected data highway of many forms Like telephone wires, cable TVs ,
radio based wireless- cellular and satellite and the nature of vehicular traffic is important .

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Multimedia:-

Multi media storage servers and e-commerce applications

Ecommerce uses robust servers to store and distribute large amount of
digital content to consumers and these servers capable of handling various contents including books .
newspapers , movies ,games and x-ray images. Digital technology mass storage which is feasible and less
cost.

client server architecture for electronic commerce

In this model allows the client to interact with the server through a request
reply sequence governed by a paradigm called “message passing”.

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Video servers and electronic commerce :
Video servers are important link between the content providers (entertainment/media)
and transport providers(telecommunication/videos/cable operators). The video servers tackle the
simultaneous overlapping “ supply problem that arises when providing on demand services to large numbers
of homes. All video servers need not be hardware based.

Information delivery/ transport and Ecommerce applications

Transport providers are telecommunications , cable, wireless industries, computer
networks including commercial networks like CompuServe and public network like Internet.

The various transport routes:

Information transport providers Information delivery methods

1.Telecommunications long-distances , local lines
2. Cable television coaxial cable, fiber optic
3.wireless communications cellular &radio network, paging Systems
4. Computer based online companies internet , commercial online service providers computer based online
companies: these providers are dial up linkage of lower bandwidth when compared to telecom and cable high
ways. Various providers like Prodigy, CompuServe .

Consumer access devices: These are devices which can provide access to information
and they are videophones, PCs, PDAs and television capable of handling two way
communication , cellular phones , mobile and portable computers

Information consumers Access Devices

1.Computer with audio &video PCS/ LAPTOPS, CDROMS
Capabilities
2. Telephone devices video phone
3.consumer electronics television+ set-top box
4.PDAs voice driven computing, software agents

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ELECTRONIC COMMERCE CONSUMER APPLICATIONS:
Consumers desires are difficult to predict, pinpoint in electronic markets whose shape, structure and
population are still in the early stages. Need envisioned include entertainment on demand ,video on demand,
games on demand, home shopping networks .

Consumer applications and social interactions:

TVs before 1945 no one have in USA. Bt 1960 86% house hold did using it and in1940 only 40% people used
telephone after that in 1980 95-98% of people are using now .Social revolutions are bearing on the
ecommerce applications example radio trends and television talk shows can be seen in the online news
groups. Social interactions are promoted by introduction of 800 tool free service in 1968. by1993 AT&T s
800s number business uses 40% of total call made- some 12billion 800calls. The four major 900 services are
fax back , interactive, recorded –sports score, financial services.

What are consumers willing to spend ?

The study of economist noted that consumers already spent 30% for advertising costs To pay for free
television. Network operators could target consumers with advertising and privacy issues not easily resolved.
consumers will be prefer to spend less cost frothier business rather then spending more.

Delivering products to customers :

Ecommerce should be distributed for example Blockbuster video its traditional distribution through stores
could become obsolete is actively exploring electronic media as a distribution channel ,blockbuster knows
what consumer want in entertainment . Blockbuster research shows that the typical consumer:

1.spends 1000 for month on home video expenditures

2.wants to go video shop and select
3. is on a limited budget
4. has time to kill.

Consumer Research and Electronic commerce

Evaluating a customer preference is uncertainty in electronic commerce . example Interaction television-
survey by Chilton research services and CBS News suggest that some degree of consumer and willingness to
pay less than $20 a month for a selection of interactive television services. A poll of 1000 adults found 63 %
interested interactive television service of that 685% use news channel .
A CNN consumer opinion about interactive TV yields the following :
* 46% “willing to pay personalized news summaries on interactive television
* 39% want to video phone calls
* 63% pay for movies on demand
*41% that it will be confusing to use.

ELECTRONIC COMMERCE ORGANIZATION APPLICATION:

Changing Business Environment:
The traditional business environment is changing rapidly as customers and business
seek flexibility to change trading partners , carriers and networks at will .The company

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can increase business communications , to help expand market share and to
maintain long term visibility in to days business environment. The I –way will
allow business to exchange information among constantly changing sets of customers and
suppliers and researchers in government and academia on a global.
Inter-networking whether internally or externally with customers and business partners
can be useful tool to time based competitive business. Internetworking via public
network provide a path ways to conduct ecommerce between trading partners ,support
collaboration with partners who can apply needed capabilities and stay close to the
customer.
In general firms utilize consumer and market research to form the assumptions that
shape its strategy , dictate its decisions about what to do and what not do.

The reaction to numerous business pressures are given in the below figure:
Marketing and Electronic Commerce:

Electronic commerce is forcing companies to rethink the existing way of doing target
Marketing and relationship marketing and event marketing (setting up virtual booth
Where interested people come and visit.
Interactive marketing performed via interactive multimedia catalogs that give same look
And feel as a shopping channel. A CUC is a shopping service that maintains detailed
Information about 250,000 products and it is services by dialing 800 number and
Speaking to a live person we can consult computer database.

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Inventory Management and organizational applications:
The adoption of computerized “paperless” operations to reduce trading costs and
facilitate the new business processes. In the manufacturing industry they are known as
just-in-time inventory systems , in retail industry they are quick response programs and
in transportation industry they are consignment tracking systems.
Just –in time manufacturing :It is viewed as integrated management systems
consisting of a number of different management practices dependent on the
characteristics of specific plants.
The following management practices associated with JIT systems are :
Focused factory , reduced setup times, group technology , total productive maintenance
,uniform workload . JIT purchasing, total quality control. To achieve JIT savings
many large corporations have installed private communication networks.
Quick Response Retailing :
Quick response is a version of JIT purchasing tailored for retailing. To reduce the risk
of out of stock retailers are implementing the QR systems. It provides for a flexible
response to product ordering and lowers costly inventory levels. QR retailing focuses
on market responsiveness while maintaining low level of stocks.
It creates a closed loop encompassing the retailer , vendor , consumer chain, and as
consumers make purchases the vendor automatically orders new deliveries from the
retailers through its computer network. figure below gives the various steps of QR
chain.

Supply Chain management :

Supply chain management (SCM) is also called ‘extending” which means integrating
the internal and external partners on the supply and process chain to get raw materials
to the manufacturer and finished products to the consumer. Most of the companies fails
because lack of integration due to fragmented supply chain management.

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Supply Chain management ( SCM ) have various functions:
1.Supply chain management: The goal is to reduce the num the number of suppliers
and get them to become partners in business in a win / win relationship.
2.Invetory management : Its goal is to shorten the order-ship-bill cycle.
3. Distribution management: Its goal is to move documents related to shipping.
4.Payment management : The goal is to link the company and the suppliers and
distributors so that the payment can be sent and received electronically.
5. Financial management : The goal is to enable global companies to mange their
Money in various foreign exchange accounts.
6. Sales for productivity : its goal is to improve the communication and flow of
information among the sales , customer and production functions

The business process models are divided into two types:

1.Merchantile’s model from the Consumer perceptive
2.Merchantile’s model from the Merchantile’s perceptive
1.Merchantile’s model from the consumer perceptive :
This model consists of seven different activities that can be grouped into Three different
Phases:.
1. Pre purchase phase
2. Purchase consummation phase
3. Post purchase interaction

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1. pre purchase phase : It includes search and discovery for a set of products in the
larger information space capable of meeting customer requirements and product
selection from the smaller set of products based on attribute comparison.
In general consumer are categorized into 3 types:
a) Impulse buyers - who purchase products quickly
b) Patient buyers – who purchase products after making some comparisons
c) Analytical buyers- who do substantial research before making the decision to
purchase products or services. In fact marketing researchers have isolated several
types of purchasing.
Specifically planned purchases : The need was recognized on entering the
store and the shopper bought the exact item planned.
Generally planned purchases: The need was recognized but the shopper
decided in-store on the actual manufacturer of the item to satisfy the need.
Remainder purchases: The shopper was reminded of the need by some store

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influence.
Entirely unplanned purchases: The need was not recognized entering the store

The Consumer Information Search Process :

Information search is defined as the degree of care , perception and effort directed
toward data related to the decision problem. It is of two types.
1.The organizational search process:
It can be viewed as process through which an organization adapts to change in its
external environment as new suppliers, new products , new services.
In general it is an activity designed to balance the cost of acquiring information with
the benefits of improved final decisions . This process can be determined in part
by market characteristics.
2.consumer search: need to examine how particular aspects of the buyers
situation and the shopping experience that is being sought affect the search process.
2. purchase consummation phase :
- It includes mercantile protocols that specify the flow of information and documents
associated with purchasing and negotiation with merchants for suitable terms like
price , availability and delivery dates.
-The buyer and seller must interact to provide mercantile transaction.
-Mercantile transaction is the exchange of information between the buyer and seller
followed by necessary payment.
It requires the following transactions.
a. Buyer contacts to purchase product or service and it performed through online -
www, email ,
b. Vendor states price
c. Buyer and vendor may or may not engage in negotiation.
d. if satisfied buyer authorizes payment to the vendor
e. vendor contacts his her billing service to verify it.
Merchantile’s process using Digital Cash:
It includes the following protocol.
a. Buyer obtains anonymous electronic cash from the issuing bank.
b. Buyer contacts the seller to purchase or buy a product.
c. Seller states the price.
d. Buyer sends the e-cash to the seller
e. Seller contacts his bank to verify the validity of the e-cash.
f. Bank gives positive signal to the seller after ensuring authentication
g. Seller delivers the product to the buyer.
h. Customer gets the product delivery.
3. Post Purchase Interaction Phase :
It includes Customer service and support to address customer complaints, products
returns and product defects.
In this we have three issues:
1.Inventory issues:
2.Database access and Compatibility issues
3.Customer service issues.
1.Inventory issues:

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To serve a customer properly company should inform the right way when an item
is ordered and sold out.
2.Database access and Compatibility issues:
The customer can access required data from the large amount of information
managed by the vendors. It is supported to the customer in the information super
highway.
3.Customer service issues:
Here customer questions about the product and other details in their mind regarding
to product can be resolved.

2.Merchantile’s model from the Merchantile’s perceptive :

It consists of eight different activities that are grouped into three phases:
1.Presale phase
2. Product service / delivery
3. Post sale interaction phase

1.Presale phase :
It consists of two activities namely
a) Customer enquiry and order planning and order generation
b) Cost estimation and price of product services
a) Customer enquiry and order planning and order generation:
Once the merchant receives the order enquiry they need to plan the products by
sales forecast with the help of people close the customer either in the sales force
or in the marketing group at company level and at the same time a group of in
manufacturing function details.
A capacity plan that specify how much money spend , how many people will be
hired and how inventory will be created.
Order planning leads to order generation and orders are generated by different
ways like sales force broad cast, sends emails to customers , create www web
pages etc.

b) Cost estimation and price of product services :

pricing is the bridge between the customer needs and company capabilities.
Company does not understand how to execute order based pricing in online
markets.
Pricing at individual order levels depends on understanding the value to the
customer. Although order based pricing is difficult to work that requires
meticulous thinking and deliberate execution.
2. Product service / delivery :
It consists of four activities:
a)order receipt and entry
b)order selection and prioritization
c) order scheduling
d)order full fillness and distribution

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a)order receipt and entry :
After acceptable price code the customer enters the order receipt and entry
phase of order management cycle(OMC).
This was under the purview of departments title customer service , order entry
And the inside sales desk. These departments are staffed by customer
service representatives.
b)order selection and prioritization :
The customer service representative are responsible for choosing which
orders to accept and which orders to decline. In fact all customer orders are

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created equal but some are simply better than others.
The desirable orders are those that fit the capabilities and offer healthy
company put efforts into order selection
link it their business strategy to make more money regardless of production
capacity. company gain by order prioritization.
c) order scheduling :
In this phase , the prioritized orders get started into actual production or
Operation sequence. It is difficult because various functional departments like
marketing , sales , customer service and production.
Due to this differentiation they may have conflicting goals. compensation
systems and communication between the systems is not existent.
Example : The customer service reporting to sales department they may
separated from physically( long distances) or production scheduling which
Reports to manufacturing unit which is far away.
d)order full fillness and distribution :
Here actual service /product is made where details vary from industry to
industry And it involves order fulfillment that requires multiple functions in
multiple locations.
The different parts of the order may be created in different manufacturing
units and are merged at another site.
3.Post sale interaction phase :
It consists of two different activities namely:
a. Order billing and account payment management
b. Customer services and support
a. Order billing and account payment management:
After the product distribution , billing is handled by the finance staff who
view their job is getting the bill out efficiently , collectively and quickly.
Billing is designed to ensure the needs and interests of the company but not
the interest of the customers.
b. Customer services and support :
It plays an important role in the company profit equation.
It includes elements like physical installation of products ,repair , maintenance
and Customer training and equipment upgrading and disposal

ELECTRONIC PAYMENT SYSTEMS:

Electronic payment system are used in banking ,retail, online government.
Organizations are motivated by the needs of deliver products and services of efficiently
with less cost and provide higher quality of services to the customers.
• Electronic funs transfer (EFT): It is introduced in early 1970s.
• It is defined as any transfer of funds initiated through an electronic terminal or
computer or magnetic tape so as to order , instruct or authorize a financial
institution to debit or credit an account.
Electronic funs transfer (EFT ) work divided into three categories :
1.Banking and Financial Systems
* large scale / whole sale payments

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* small scale / retail payments
* Home banking
2. Retailing payment systems
* credit cards
* private label credit /debit cards
*charge cards example: American express
3. Online payment system
It is further divided into two types which are as follows
a) Token based system
* e-cash
* e-check and Digi cash
* net cheques and smart cards
b) Credit card system
* encrypted credit card
* third party authentication or authorization numbers
DIGITAL TOKEN BASED ELECTRONIC PAYMENT SYSTEMS
Electronic token is a form of electronic cash or money or cheque.
This tokens are designed as electronic analog of various forms of payments
backed by bank or financial institution .
1. Cash or real-time :
In this transactions are settled with exchange of electronic currency (e –cash)
2. Debit /pre paid :
In this , users pay in advance for privilege of getting information or service.
3. Credit or post paid :
In this users need not pay in-advance but getting the total service.
The server authenticates customer and verifies with bank fund or adequate
before service.
Example : credit card , debit card
The following view points are evaluated for the payment instrument in
electronic commerce :
1. The nature of transaction for which the instrument is designed.
2. The means of settlement used tokens are backed by cash , credit , e-cash etc
3. Approaches to the security and anonymity
4. The question of risk at what time occurs , tokens suddenly become worthless and
customer have currency that no body will accept.

Electronic cash (E-Cash) :

- It combines the computerized convenience with security and privacy that
improves on paper cash.
- It makes an alternative for payment over the internet.
- It replaces the cash as principle payment vehicle in consumer – oriented electronic
payment system.
a) Properties of e-cash:
It has the following four properties :
i) Monetary value
ii) Interoperability

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iii) Retrievability
iv) Security
i) Monetary value :
It must be backed by either cash or currency , bank authorized credit or bank
certified cashiers check.
ii) Interoperability :
E-cash exchangeable as payment for the other e-cashes or goods or services.
iii) Retrievability :
It must be storable and retrievable means that the remote storage and retrieval
would allow to exchange electronic cash(e-cash).
iv) Security :
e-cash should not be easy to copy or tampered while being exchanged.
b) E-Cash in Action:
It is based on cryptography system called digital signature Method.
This method involves a pair of numeric keys that work in tandom
one for encoding and other key is used for decoding .
The encoded message within one numeric key can only be decoded
with other Valid numeric key and none other.
c) Purchasing E-Cash from Currency Server:
- E-Cash purchased an online currency server ( bank).
It involves the following two steps
i) Establishing of an account
ii) Maintaining enough money in that account.
- E-Cash transactions in which multiple customers (internationally ) have account
With central online bank , so that they can do international currency transactions
Like foreign services as well as local services etc.
- The customer use the electronic cash software on a computer to generate a random
Number which serves as note.
- It can be exchanged for debited transaction ,the bank issue its private key to
Digitally sign the note for amount to be requested and transmitted the note back
to the customer.
- The new currency server is issuing a bank note with a serial number and a dollar.
Risk operations and e-cash :
It is performed by imposing constraints like limits on e-cash
• Time limit : means that over a given time period electronic money is valued
• How much can be stored on and transformed by electronic money.
• The number of exchanges that can takes place before a money needs to be re
deposited with a bank.
• The number of cash transactions that can be Made during a period of time .

Business issues and E-cash :

E-cash full fills two main functions with respective to business.
1. As a medium of exchange
2. As a store of value
1. As a medium of exchange :
It is used as digital money (cash) as medium of exchange by moving monetary clients

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quickly and by effecting instant credit and viabilities that characterize today’s business
2. As a store of value :
E-Cash had to be convertible into legal tender on demand , then every unit there would
be unit of cash reserved in the real economy.
ELECTRONIC CHECKS
They are designed to accommodate many individual and entities that might prefer to
pay on credit or other than cash.

From the above diagram the buyer must register with a third party accounting server
before they are able to write electronic check.
-The accounting server acts as billing a servicing and the registration process
depends on the accounting server , they may require a credit card or bank account
details to back the checks .
-Once the customer registered a buyer can contact seller goods and services to
complete a transaction .The buyer sends the check to the seller for a certain amount of
money.
-These checks may be sending using email or other transport.
-When deposited the check authorize transfer of account balance from the current

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against the check was drawn to the account.
-Accounting server authenticates digital signature on the check using the key
method of cryptographic algorithm.
E-Check have the following advantages:
They work same as traditional checks , thus simplifying customer education.
It is well suited for clearing micro payments.
It creates float and availability of transaction cost.
Financial risk is taken by accounting server so easier acceptance.
Another check called “netcheque” was developed by Information science institute(ISI)
by Clifford Newman.
It include software for writing and depositing checks independent of other applications.
The API will provide common functions to be called as automatically when with other
transaction functions

Smart cards and electronic payment systems:

1.Smart cards are credit and debit cards which are enhanced with micro processors
capable of holding more information then the traditional magnetic chips.
2. Smart cards technology widely used in countries like Germany and Japan and
France to pay public transportation , phone calls etc.
3. Smart cards are basically of two types:
a. Relationship based smartcard
b. Electronic purses and debit cards
a. Relationship based smartcard :
It is an enhancement of existing card service or the addition of new
services that a financial institutions delivers to its customers via chip
based or other device.
The new service includes access multiple accounts , value added
market programs etc.
The enhanced credit card store more information of card holder like
birth date , personnel shopping preference and other his own details.
Advantages or use of smart cards :
The following are the advantages of the smart cards:
i ) It is used to access multiple accounts like credit , debit and stored value for
e-cash on one card or on electronic device.
ii) It performs different functions like cash access , bill payment , balance
enquiry etc.
iii)It is used as to access multiple account located at different locations by
using multiple device types like PDA ,PC , screen phone and an ATM.
b. Electronic purses and debit cards :
It is a wallet – sized smart card embedded with programmable micro chip
that stores some of money for people to use instead of cash.
It works in the following manner of activities are performed in it.
After the purse is loaded with money at ATM it can be used to pay for the
vending machine need only verify that a card is authenticate or not and there
is enough money or not.

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The value of purchase deducted from the balance on the card and in the
vending machine. The remaining balance in the card is displayed by ATM
on the screen.
The amount in the purse is empty then it can be filled with more money.
Smart Card Reader And Smart Phones :
Smart card readers are used to communicate with the chip on the smart card.
In addition to reading from and writing to smart cards these devices can also
support different key management methods.
Some smart card readers combines the elements of PC, POT , phone and so
on.
Some Smart card readers have the display features of two lines X 16
Characters display that shows the both prompt and response entered by the
user.
It can communicate full range of bandwidth.
Smart card readers can be customized for specific environments like c
program operating system which used to create and modify applications
with full devised security function.
To promote Smart card readers usage a smart card forum is to be maintained
by a group of 300 companies and government agencies drawing up to
provide common specifications to the multiple applications to the smart
card users.
Smart phones :
These have the features of smart card readers with additional features of
four lines screen , phone key pad , and menu prompt to do transactions and
magnetic strip card readers for storage.
Credit Card based Electronic payment systems:
Credit card payment on line network divided into three basic types:
1.Payments using Plain credit card details
2. Payments using encrypted credit card details
3.Third party processors and credit cards details
1.Payments using Plain credit card details :
In this type of payment the plain credit cards transactions are performed.
The exchange of unencrypted credit cards over a public network like telephone or
internet.
2.Payments using encrypted credit card details:
In this type of payment the encrypted credit cards transactions are performed.

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encrypt your credit card before sending them out.
following operations are performed on the secure credit card.
Customer presents his / her credit card information to the merchant.
The merchant validates the customer identity is the owner of the credit card.
The merchant relays credit card charge information and signature to its bank.
The bank or the processing party replays the information to the customers
bank for authorization approval.
The customers bank returns the credit card charge authentication and
authorization to the merchant

3.Third party processors and credit cards details :

In this consumers register with a third party on the internet to verify
electronic micro transactions. It use various mechanisms with attribute of
electronic tokens.
It differs from electronic tokens in TWO aspects:
a. they depends on existing financial instruments
b.They require online involvement of more then one party at a time.
The companies who providing third party payment services on the internet
are: 1. First virtual ( www.fv.com) and

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2.open market ( www.openmarket.com )
The online third party processors (OTPPS) created a six step process to
buy information on line.

1. The consumer acquires an OTPP account number by filling out

registration form.
2. to buy anything online , the consumer requests item from the merchant by
quoting his OTPP account number.

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3. The merchant payment contacts the OTPP payment server with the
customers account number.
4. The OTPP payment server verifies the customers account number for nthe
vendor and check for sufficient funds.
5. the OTPP sends (the payment server) electronic message to the buyer by
using automated message from www or sent by OTPP server or sent by
simply email .
6. If the customer payment server gets yes from the customer then the
merchant is informed and customer is allowed to do the transaction.
OTPP server has two servers namely :
a. Merchant server and b. payment server
- With the payment server user may can make account then by using client
browser a user server by clicking online payment URL.
- The online payment URL encodes the following information to the status of
page duration it specifies how long customer gets access to the target URL.
- This payment URL send the above data is to the payment server.
-The merchant runs an HTTP server that is modified to access URLS.
It should includes the business pros and cons

Record keeping with credit cards my leads to disputes and mistakes in billings.
The complexity of credit card processing takes place as a potential bottleneck
due to high volume of the network traffic and card transaction traffic etc.
Encryption and transaction speed must be balanced.
Infrastructure for online credit card processing:
They are includes the following: They are EFT networks , credit card
association , software developers , bill Payment companies and telephone
communication providers.
RISKS AND ELECTRONIC PAYMENT SYSTEMS:
They are three major risks occurs in payment systems , they are as follows:
1. Mistake or fraud
2. Privacy issues
3. Credit card risks
1. Risks from mistakes and disputes:
By virtually electronic payment systems need some ability to keep automatic
records for the transaction.
The various features of automatic records are permanent storage , payment
database system , data transfer to bank and payment makes etc.
The need of record keeping is conflicts with the transaction anonymity of cash
2.Privacy issues are managing information privacy:
The e-payment system must ensure and maintain privacy. Users must be
assured that knowledge of transaction will be confidential and limited to the
only parties not for others.
Privacy must be maintained against eavdroppers on the network and
against unauthorized insiders.
All details of consumer payments are aggregated and are given privacy.
3. Managing Credit Risks :

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Credits are systemic risk is major concern in net settlement systems because a
banks failure to settle its net position could leads to chain reaction of bank
failures.
So that the digital central bank must develop policies to deal with this possibility
The central bank can guarantee on settlement and removes the risks from the
net system.

ELECTRONIC DATA INTERCHANGE (EDI) :

EDI is the electronic transfer from one computer to another computer process able data
using agreed standard to structure the data.
Example EDI transaction EDI handbook etc.
EDI is developed in 1960s means of accelerating the movements to shipments and
transportation.
It is aimed at forcing boundary less relationship that means it bringing down the
boundaries that restrict how they interact and do business each other.
Layered architecture of EDI is shown below:
EDI Semantic layer Application level services
EDI Standard layer EDIFACT business form standards
ANSI X12 business form standards
EDI transport layer Email and X.435 ,MIME
POINT TO POINT,
FTP ,TELNET,WWW,HTTP
Physical layer Dial –up lines, internet ,I-way
1.EDI Document standard layer :
1.It specifies business form structure and to some extent influence content seen at the
application layer.
Example: purchase order name field x12 standard might be to hold 50 characters and 75
characters field produced name truncating during translation from application layer to
document standard layer.
2.EDI Transport layer :
It corresponds with non electronic activity of sending business from one company to
another company .It can send using postal service ,registered mail and certified mail
and email etc.
Generally EDI transport layer chooses email As the carrier services.
3.EDI Physical layer : It describes the physical devices which involved in transaction.
They use various devices like dial –up systems ,internet ,I-WAY,
EDI in Action :
Edi has been used in the procurement function to steam-line the interaction between the
Buyer and seller .the other uses for EDI are universities use EDI to exchange transcripts
quickly.
Automatically units uses EDI to transmit large complex engineering design created on
the specialized computers.
Large multinational companies use EDI to send online price catalogs to customers
Listed products , prices ,discounts and terms.
The EDI Transaction for a purchase ,shipment and payments are as follows :
These are the various steps as follows:

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1.Buyers computer sends purchase order to sellers computer
2.Sellers computer sends purchase order confirmation to buyers computer
3.sellers computer sends booking request to transport companies computer.
4.Transport companies computer sends booking confirmation to sellers computer
5.sellers computer sends advance ship notice to buyers computer.
6.Trnasport company’ s computer sends status to sellers computer.
7.buyers computer sends receipt advice to sellers computer.
8.Sellers computer sends invoice to buyers computers.
9.Buyers computer sends payment to sellers computer

In short . a firm adopting EDI as fast , inexpensive and safe methods of sending invoices
and purchase orders , custom documents , shipping notices etc.
EDI used as a strategic tool that enhances completeness of companies involved.
It speed ups business processes.
Tangible benefits of EDI are:
It has the following benefits:
1.Reduced paper based system: It does not require any paper related supplies and other
modes of things. It uses Inexpensive manner of system.
2.Improved problem resolution and customer services: EDI minimize the time ,
companies spend to identify and resolve inner business problems.
Example : some problems comes from data entry errors.
3.Improve service by quick transfer of business documents
4.expanded customer supply base /supplier base:
Many large manufactures and retailers with the necessary clout are ordering their
suppliers to institute an EDI program. Like to get order from unknown company and
build bridges to other companies .it evaluates new products .
2.EDI APPLICATION IN BUSINESS :
It involves the various of applications in business , they are
i. International Trade and EDI and ii.The components of international trade
iii. The customs and international trade and iv. The logics of transport.
The below diagram describes the various processing of operations involved in
The design of product.

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3.EDI :LEGAL ,SECURITY ,AND PRIVACY ISSUES

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