Ecommerce in India (Part I): The Basics

What is Ecommerce: If we go by dictionary, it would mean "Electronic Commerce" i.e. the conducting of business communication and transactions over networks and through computers. In particular, ecommerce is the buying and selling of goods and services, and the transfer of funds, through digital channels (modes of communication).

E-Business (Electronic Business/ Online Business) Models
There are two basic types of ebusiness models available. These can well be termed as 'Distribution' and 'Retail' (as opposed to B2B and B2C) in order to reflect the manner in which traditional business is conducted in these two sectors.

The retail model
Let us compare this to our day-to-day shopping activity. In the Retail model, customers, to all intents and purposes, remain anonymous. Any guest is permitted to add items to their basket and, when they have finished shopping, can proceed to the checkout where payment may be requested.This model is intended to reflect the way in which traditional retail shopping is carried out and therefore be easy for customers to use; but its very nature makes it unsuited to conducting business worldwide on the Web. That is because the destination of the goods cannot be ascertained until the customer reaches the checkout-point and, therefore, the value of the customer's basket (including turnover tax) cannot be accurately calculated until then.The retail model also raises two important security implications for businesses using it. Firstly, where the ecommerce system provides real-time stock control, anonymous guests can easily disrupt online shopping by selecting large quantities of high demand products that they have no intention of purchasing. Such disruption can lead bona-fide customers to conclude that insufficient stock is available for their own immediate needs and encourage them to shop elsewhere. Secondly, just as traditional retail businesses suffer their unfair share of credit card fraud, so to do online businesses using the retail model. In both cases, fraud is prevalent because no attempt is made to ascertain the true identity of the customer. When the value of goods is modest, some firms see this as an acceptable risk; but it is a risk that will rise continually for as long as the same Retail model is employed. Generally speaking, the Retail model is only useful when product prices remain constant for all destinations or when sales levels depend primarily upon impulse buying.

The Distribution Model (B2B)
Traditionally, distributors do not sell direct to the public. Instead their customer base consists mainly of firms operating in the value added and retail sectors with whom they enjoy a close working relationship. In this ecommerce model there are no 'anonymous' customers. In order to be able to conduct online shopping the guest must first have a valid account and identify themselves to the system. The Distribution model does not suffer any of the disadvantages or security implications of the Retail model; but, because new customers are required to apply for an account before any goods may be chosen, it can discourage impulse buying from fleeting Internet guests. On the plus side, this model provides the ability to perform detailed client tracking and compile appropriate statistics to ensure that the service provided is meeting all customer needs.

Now, let us take a close look at the most crucial part of this process i.e. online payment/transaction.

Online Payment Process (some facts)
Online payment facilities can be added to both types of ecommerce solution (generally client side & server side solutions) and business model; but there is also a considerable amount of marketing hype from the Merchant Account and Online Banking sectors. One should bear in mind that, if it is easy for you to obtain payment electronically, it is often just as easy for your customers to cancel their transactions on a whim. In the trade, such cancellations are known as 'charge backs' and they are now becoming fairly common. If a customer pays traditionally by cheque you will normally know if their payment has cleared within three working days; but, depending upon the credit card company, customers may have up to 30 days in which to cancel an online credit card payment - and you may not get to know of the chargeback or "charge back" until considerably later. Often the cost of recovering the goods supplied (and often tracing the customer) can significantly outweigh the cost of delivery and the products lost.


What to expect as End User while making an online payment?
Well, if you are making an online payment using your credit card, you should be careful about the followings (at minimum):

• Ensure that the site has a clearly defined support system in place (& the telephone numbers/emails work & are truly reachable)
• Try to get clarity on possible refund norms
• Go through the help sections to understand what to expect after successful payment (e.g. mostly a successful transaction would return you a success message along with a transaction reference number, which could be used for any future communication)
• The payment page should ideally be under SSL (e.g. instead of normal http://www.innindia.com/, it would become https://www.innindia.com/).
• Payment page should ideally ask you for CVV number (& that too as password filed i.e. as you key in your CVV, it shouldn't appear as clear text).
• Finally, do ensure that you are on a steady Internet connection (coz quite frequently it has been noticed that as you key in all your transaction information like Credit Card number, Name, Address, Card Type, CVV, Expiry Date etc. & pressed submit...if at this point you lose your connectivity, unnecessarily there might be a confusion as to whether the payment went through before your details were logged by merchant or was it that the payment was through, but you missed the success screen).

Now, the question is how does this really work?
Let us take a broad look on the steps that actually happen as you or me (say, consumer) make an online transaction:

1. Consumer places an order with the merchant (e.g. http://www.innindia.com/ or http://www.ebay.in/ or http://www.irctc.co.in/) through the secured web page (i.e. a SSL page, where consumer fills in the Credit Card related information)
2. Typically the merchant (e.g. http://www.innindia.com/ or http://www.ebay.in/ or http://www.irctc.co.in/) would have integrated a payment mechanism by taking service from an Online Payment Processing Authority who basically act as a "Payment Gateway" (e.g. http://www.innindia.com/ uses PayPal; http://www.irctc.co.in/ uses ICICI; http://www.ebay.in/ uses PaisaPay amongst many other gateways). So, when consumer makes a payment, this Payment Gateway would pick this request (submitted by consumer), then it would typically encrypt (for security purpose) and forward the Authorization Request to the Consumer's Credit Card Issuer (e.g. say consumer used a SBI Credit Card on IRCTC website, then the ICICI Payment Gateway used by IRCTC would communicate the transaction request to SBI) to verify the consumer's credit card account and funds availability.
3. Then the Authorization/Approval (or Decline) Response is returned via the Payment Gateway back to the merchant website. This entire authorization process happens in or around 3 seconds or less.
4. Upon approval, merchant would show a success screen to consumer & would allocate the product/service to the consumer.
5. On the other hand, the Payment Gateway would send the settlement request to the Merchant Account Provider.
6. The Merchant Account Provider deposits transaction funds into the Merchant's (i.e. the website where consumer made the purchase) Checking Account.