Implementing basic eCommerce: shopping carts, payment gateways, security, fulfillment

1. Implementing basic eCommerce: shopping carts, payment gateways, security, fulfillment MGMT 230 WEEK 4

2. After today’s class you will understand… • The basic requirements for an organization or business to conduct eCommerce (basic selling on the web) • Shopping carts and merchant solutions • Payment systems and payment gateways • Security • Fulfillment and logistics

3. Small / medium businesses and ecommerce requirements

4. SMEs and EC • Many small /medium businesses are uncertain how to deal with the technical issues and potentially high costs of getting into full electronic commerce • Creating an online selling environment requires time, money, and expertise - most businesses look to outsourcing in one form or another

5. Key functions of an electronic commerce system (merchant solutions) • The e-commerce system must provide: • Product information (catalogue database, metadata, search functionality) • Shopping cart and inventory systems • Secure transaction capability / payment gateway • Shipping / fulfillment • Linkages with other IT systems in the firm (inventory, financial systems etc) • Customer service

6. A basic electronic commerce transaction: the process Catalogue browse and search Secure transaction Order verified and processed Fill out shipping details Enter CC # $$$ Chapters.ca CC verified by provider

7. Options for acquiring eCommerce functionality • Build from scratch – custom programming • Build from pre-programmed components • Build using templates, infrastructure and services provided by a vendor (hosted solution) • Use someone else’s storefront technology

8. 1. Build from scratch – custom programming • Programmers create the software (including databases and middleware) required for all the functionality • Can be slow to develop, expensive, and error-prone • But, can have whatever features and functionality is desired • Usually only v. large companies, or very small internet startups take this approach • Can give exclusivity and competitive advantage • Amazon and Craigslist

9. 2. Build from pre-programmed components • Built for scaleability – can handle large numbers of simultaneous transactions • Shopping cart, catalog and payment gateway managed by the company itself • Can be customized to some extent, but may not fit business purpose as well as custom-built solution • Advantage is that it can be customized to work with legacy accounting and inventory systems • Usually faster to deploy • Medium to large sized companies are major user group of this type of software

10. 3. Build using templates, infrastructure and services provided by a vendor (outsourced / hosted solution) • Relatively inexpensive – targeted at small business • Limited functionality and tailoring for particular business needs • Your site may look very similar to a competitor’s site • Pricing often depends on sales volume / usage • Vendor will take care of all the management of the software so no IT experience is required • Yahoo Small Business Merchant Solutions is an example of this

11. 4. Use someone else’s storefront technology • Place products in another company’s store • Use their payment and fulfillment functionality • Eg. Amazon Services • Selling on Amazon • Fulfillment by Amazon • Payment by Amazon • Price: subscription fee + commission fee • What are the advantages & disadvantages of this model? • Or you could use the Amazon infrastructure for your Amazon Webstore via your own domain

12. Focus on payment systems and gateways…

13. Electronic payments • Confidence in a secure payment environment is one of the most important success factors in eCommerce • B2B transactions • Electronic Data Interchange (EDI) • Electronic Funds Transfer (EFT) • Consumer eCommerce • Credit cards • Person-to-person transactions (eg. PayPal) • Other forms of eCash such as BitCoin P2P Digital currency

14. Credit cards • The most popular form of payment on the web • The process of using a credit card involves several parties • Cardholder - purchaser • Merchant - the entity that accepts the card in exchange for goods or services • Card issuer - financial institution (usually a bank) that establishes an account for the cardholder, and issues credit • Acquirer - financial institution (usually a bank) that establishes the merchant account, and acquires the credit card vouchers / sales slips • Card association - association of issuers and acquirers eg. Visa, MasterCard - authorizes the credit transaction, and guarantees payment to the merchant • Third party processors - outsourcers who perform some of the duties of issuers and acquirers • signing up merchants, billing customers etc

15. Cost of credit card payment provision • $100 purchase (approximate division of amount) • merchant $98 • acquirer $0.67 (bank that establishes the merchant account) • association $0.08 (issuers and acquirers) • issuer $1.25 (bank that issues the card to the customer)

16. Electronic payment gateway: handling online credit card transactions • Electronic payment gateway: software and hardware interfacing merchants and credit-card authorization networks. • When an order is received, the gateway passes the payment information to an off-site server run by the gateway company • The gateway company then handles the processing activities and authorizations • Moneris and Dejardins are examples of gateway providers used by Canadian banks

17. What happens when someone uses a credit card on a website • Submits card number and purchase amount (protected by SSL) to merchant • The information plus merchant’s ID# is passed to the merchant’s acquirer • The acquirer sends the information to the customer’s issuing bank for approval • The issuer sends its response (approve/disapprove) back to the acquirer, where it is passed on to the merchant • After the transaction is complete, the issuer settles the transaction Merchant Merchant’s acquirer (bank) Source: Electronic Commerce 7th ed. Schneider. Thompson. 2006

18. Credit card fraud • Serious problem for merchants • The merchant has to bear the loss • treated as “card not present” transactions, where the merchant takes the risk - not the card holder or the credit card company • merchant loses the value of the sale, and has to pay the credit card company not only the commission, but also a “charge-back” fee (typically $25 - $100) • VerifiedByVisa program

19. Person-to-person payments • Enables the transfer of funds between individuals • PayPal is the most successful - there were several competitors, including Yahoo for a while (strong network effect makes it difficult) • User must open an account with the selected service, and provide a credit card number or bank account number • Put money into the account • Specify the email address of the recipient of the payment and the payment amount • PayPal emails the specified email address and puts the money into an account for the recipient, that can be credited to a bank account or credit card

20. Some payment service providers • PayPal is now offering a range of services to help small businesses take payments on the web (including credit cards) • PayPal Business Solutions • Similar range of services offered as part of Yahoo hosting and merchant services • Moneris targets medium and large firms • B2B focus with EFT Canada

21. Trends toward other electronic payment options • Broader markets - now including more and more people who don’t have credit cards • Low value transactions (micropayments) - pay per view, pay per song, online gaming, MMOGs, mobile payments etc • Electronic micro-payments include smart cards, digital cash, digital checks (often using credit cards for an initial payment) • They all allow money to be transferred over a network, without any face to face transaction • Many firms have tried to get proprietary forms of eCash to work (eg. Peppercorn) – difficult to do: has a strong “network effect” • Now seeing other forms of eCash such as BitCoin P2P Digital currency

22. Making your transactions secure

23. Transport Security Layer / Secure Socket Layer • If the average user had to figure out how to encrypt and decrypt messages in order to pay for something on the web, there would be far less eCommerce • All these issues are handled automatically and transparently by web browsers and web servers - primarily through a protocol called Transport Security Layer - previously known as Secure Socket Layer (SSL) • When a website user clicks on a link whose web address begins with https rather than http, the communication is then encrypted using SSL • The client (web browser) negotiates with the server to obtain a session key and to pass the message (eg. credit card number) in a secure fashion (in IE - indicated by a padlock symbol) • Simple explanation of digital encryption using toolbox and key example

24. Digital certificates and certificate authorities • For these security measures to work, we need “trusted third parties” to ensure that firms are who they say they are • Digital certificates verify that holders of public and private encryption keys are who they say they are • Digital certificates are issued by Certificate Authorities (CAs) - the most well known of these is VeriSign (now owned by Symantec) • SSL Certificates: What are they? (video)

25. Fulfillment: Making sure your customer gets the goods….on time

26. Fulfillment • The term fulfillment includes: • Logistics • Supply chain management • Transportation and inventory management • Physical distribution management

27. Fulfillment issues • How will the customer pay for the product or service? • What is the best way to deliver the product or service to the customer on time? • The “last-mile” problem • What customs issues are involved for international orders? • How will I maintain sufficient inventory to ensure that I can fulfill all the orders? • What business processes will need to be altered to accommodate these fulfillment issues?

28. Customer Support: Questions eCommerce customers ask • Where is my order? • Can I change my order? • When will my order arrive? • The only way to effectively answer these is to move information along with goods and services. • provide customers with real-time, 24/7 access to the status of their shipments. • supply chain from the factory through transportation to delivery must be completely visible

29. Outsourcing logistics • Tie the eCommerce front end to a fulfillment back-end • Very often outsourced to a third-party logistics specialist • Fulfillment by Amazon • Package tracking • Full service example • Reverse logistics (returns) • Increased likelihood of returns in eBusiness