Introduction to E-Commerce, E-Business & E-Banking |
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E-Commerce Electronic commerce (E-Commerce or EC) is an emerging
concept that describes the process of buying and selling or exchanging of
products, services, and information via computer networks including the
Internet. It is the use of the Internet and the Web to transact business.
Doing business online, typically via the Web. It is also called
"e-business," "e-tailing" and "I-commerce."
Although in most cases e-commerce and e-business are synonymous,
e-commerce implies that goods and services can be purchased online,
whereas e-business might be used as more of an umbrella term for a total
presence on the Web, which would naturally include e-commerce (shopping)
component. E-Business
E-Business is a revolution that is transforming companies
round the world, and it is impacting all the industries. E-business is
much more than online purchase and implementation of computer applications
by the IT departments; or putting up a company website.
E-business affects the whole business and the value
chains in which it operates. It enables a much more integrated level of
collaboration between the different components of a value chain than ever
before. Adopting e-Business also allows companies to reduce costs and
improve customer response time. Organizations that transform their
business practices stand to benefit immensely from innumerable new
possibilities brought about by technology.
Although it's early days for e-Business in India, we
believe there are greater opportunities over the long term for India and
Indian businesses. There is urgent need to usher in farsighted policies
& practices to become a major economic force in the emerging world of
E-Business.
E-business includes
E-business is not just about selling over the Internet.
It's a 'catch-all' term for any business done electronically. Amongst
other things, it can include:
Electronic banking
It is an umbrella term for the process by which a customer may perform
banking transactions electronically without visiting a brick-and-mortar
institution. The following terms all refer to one form or another of
electronic banking: personal computer (PC) banking, Internet banking,
virtual banking, online banking, home banking, remote electronic banking,
and phone banking. PC banking and Internet or online banking are the most
frequently used designations. It should be noted, however, that the terms
used to describe the various types of electronic banking are often used
interchangeably. Opening an Account
There are several ways to open and fund an electronic
banking account in the United States. Customers who have existing accounts
at brick-and-mortar banks and want to begin using electronic banking
services may simply ask their institution for the software needed for PC
banking or obtain a password for Internet banking. Either approach
requires minimal paperwork. Once they have joined the system, customers
have electronic access to all of their accounts at the bank. New customers
can establish an account either by completing a PC banking application
form and mailing it to an institution offering such a service or by
accessing a bank's web site and applying online for Internet banking. In
either instance, the customer can fund the new online account with a
check, wire transfer, or other form of remittance. No physical interface
between the customer and the institution is required.
Definition of E-Banking
E-banking is defined as the automated delivery of new
and traditional banking products and services directly to customers
through electronic, interactive communication channels. E-banking includes
the systems that enable financial institution customers, individuals or
businesses, to access accounts, transact business, or obtain information
on financial products and services through a public or private network,
including the Internet.
Customers access e-banking services using an
intelligent electronic device, such as a personal computer (PC), personal
digital assistant (PDA), automated teller machine (ATM), kiosk, or Touch
Tone telephone. While the risks and controls are similar for the various
e-banking access channels, this booklet focuses specifically on
Internet-based services due to the Internet's widely accessible public
network. Accordingly, this booklet begins with a discussion of the two
primary types of Internet websites: informational and transactional.
Informational Websites
Informational websites provide customers access to general
information about the financial institution and its products or services.
Risk issues examiners should consider when reviewing informational
websites include:
Transactional Websites Transactional websites provide customers with the ability to conduct transactions through the financial institution's website by initiating banking transactions or buying products and services. Banking transactions can range from something as basic as a retail account balance inquiry to a large business-to-business funds transfer. E-banking services, like those delivered through other delivery channels, are typically classified based on the type of customer they support. The following table lists some of the common retail and wholesale e-banking services offered by financial institutions. Table 1: Common E-Banking Services
Since transactional websites typically enable the electronic exchange of confidential customer information and the transfer of funds, services provided through these websites expose a financial institution to higher risk than basic informational websites. Wholesale e-banking systems typically expose financial institutions to the highest risk per transaction, since commercial transactions usually involve larger dollar amounts. In addition to the risk issues associated with informational websites, examiners reviewing transactional e-banking services should consider the following issues:
E-Banking Components E-banking systems can vary significantly in their
configuration depending on a number of factors. Financial institutions
should choose their e-banking system configuration, including outsourcing
relationships, based on four factors:
Financial institutions may choose to support their e-banking services internally. Alternatively, financial institutions can outsource any aspect of their e-banking systems to third parties. The following entities could provide or host (i.e., allow applications to reside on their servers) e-banking-related services for financial institutions:
E-banking systems rely on a number of common components or processes. The following list includes many of the potential components and processes seen in a typical institution:
These components work together to deliver e-banking services. Each component represents a control point to consider. Through a combination of internal and outsourced solutions, management has many alternatives when determining the overall system configuration for the various components of an e-banking system. However, for the sake of simplicity, this booklet presents only two basic variations. First, one or more technology service providers can host the e-banking application and numerous network components as illustrated in the following diagram. In this configuration, the institution's service provider hosts the institution's website, Internet banking server, firewall, and intrusion detection system. While the institution does not have to manage the daily administration of these component systems, its management and board remain responsible for the content, performance, and security of the e-banking system. Second, the institution can host all or a large portion of its e-banking systems internally. A typical configuration for in-house hosted, e-banking services is illustrated below. In this case, a provider is not between the Internet access and the financial institution's core processing system. Thus, the institution has day-to-day responsibility for system administration. E-Banking Support Services Web Linking A large number of financial institutions maintain sites on the World Wide Web. Some websites are strictly informational, while others also offer customers the ability to perform financial transactions, such as paying bills or transferring funds between accounts. Virtually every website contains "weblinks." A weblink is a word, phrase, or image on a webpage that contains coding that will transport the viewer to a different part of the website or a completely different website by just clicking the mouse. While weblinks are a convenient and accepted tool in website design, their use can present certain risks. Generally, the primary risk posed by weblinking is that viewers can become confused about whose website they are viewing and who is responsible for the information, products, and services available through that website. There are a variety of risk management techniques institutions should consider using to mitigate these risks. These risk management techniques are for those institutions that develop and maintain their own websites, as well as institutions that use third-party service providers for this function. The agencies have issued guidance on weblinking that provides details on risks and risk management techniques financial institutions should consider. Account Aggregation Account aggregation is a service that gathers information from many websites, presents that information to the customer in a consolidated format, and, in some cases, may allow the customer to initiate activity on the aggregated accounts. The information gathered or aggregated can range from publicly available information to personal account information (e.g., credit card, brokerage, and banking data). Aggregation services can improve customer convenience by avoiding multiple log-ins and providing access to tools that help customers analyze and manage their various account portfolios. Some aggregators use the customer-provided user IDs and passwords to sign in as the customer. Once the customer's account is accessed, the aggregator copies the personal account information from the website for representation on the aggregator's site (i.e., "screen scraping"). Other aggregators use direct data-feed arrangements with website operators or other firms to obtain the customer's information. Generally, direct data feeds are thought to provide greater legal protection to the aggregator than does screen scraping. Financial institutions are involved in account aggregation
both as aggregators and as aggregation targets. Risk management issues
examiners should consider when reviewing aggregation services include:
Electronic Authentication Verifying the identities of customers and authorizing
e-banking activities are integral parts of e-banking financial services.
Since traditional paper-based and in-person identity authentication
methods reduce the speed and efficiency of electronic transactions,
financial institutions have adopted alternative authentication methods,
including:
The authentication methods listed above vary in the level of security and reliability they provide and in the cost and complexity of their underlying infrastructures. As such, the choice of which technique(s) to use should be commensurate with the risks in the products and services for which they control access. Additional information on customer authentication techniques can be found in this booklet under the heading "Authenticating E-Banking Customers." The Electronic Signatures in Global and National Commerce
(E-Sign) Act establishes some uniform federal rules concerning the legal
status of electronic signatures and records in commercial and consumer
transactions so as to provide more legal certainty and promote the growth
of electronic commerce. The development of secure digital signatures
continues to evolve with some financial institutions either acting as the
certification authority for digital signatures or providing repository
services for digital certificates. Some financial institutions host websites for both themselves as well as for other businesses. Financial institutions that host a business customer's website usually store, or arrange for the storage of, the electronic files that make up the website. These files are stored on one or more servers that may be located on the hosting financial institution's premises. Website hosting services require strong skills in networking, security, and programming. The technology and software change rapidly. Institutions developing websites should monitor the need to adopt new interoperability standards and protocols such as Extensible Mark-Up Language (XML) to facilitate data exchange among the diverse population of Internet users. Risk issues examiners should consider when reviewing website hosting
services include damage to reputation, loss of customers, or potential
liability resulting from:
Payments for E-Commerce Many businesses accept various forms of electronic payments for their products and services. Financial institutions play an important role in electronic payment systems by creating and distributing a variety of electronic payment instruments, accepting a similar variety of instruments, processing those payments, and participating in clearing and settlement systems. However, increasingly, financial institutions are competing with third parties to provide support services for e-commerce payment systems. Among the electronic payments mechanisms that financial institutions provide for e-commerce are automated clearing house (ACH) debits and credits through the Internet, electronic bill payment and presentment, electronic checks, e-mail money, and electronic credit card payments.. Most financial institutions permit intrabank transfers between a
customer's accounts as part of their basic transactional e-banking
services. However, third-party transfers - with their heightened risk for
fraud - often require additional security safeguards in the form of
additional authentication and payment confirmation. Bill payment services permit customers to electronically instruct their financial institution to transfer funds to a business's account at some future specified date. Customers can make payments on a one-time or recurring basis, with fees typically assessed as a "per item" or monthly charge. In response to the customer's electronic payment instructions, the financial institution (or its bill payment provider) generates an electronic transaction - usually an automated clearinghouse (ACH) credit - or mails a paper check to the business on the customer's behalf. To allow for the possibility of a paper-based transfer, financial institutions typically advise customers to make payments effective 3-7 days before the bill's due date. Internet-based cash management is the commercial version
of retail bill payment. Business customers use the system to initiate
third-party payments or to transfer money between company accounts. Cash
management services also include minimum balance maintenance, recurring
transfers between accounts and on-line account reconciliation. Businesses
typically require stronger controls, including the ability to administer
security and transaction controls among several users within the business.
Financial institutions can offer bill payment as a stand-alone service or in combination with bill presentment. Bill presentment arrangements permit a business to submit a customer's bill in electronic form to the customer's financial institution. Customers can view their bills by clicking on links on their account's e-banking screen or menu. After viewing a bill, the customer can initiate bill payment instructions or elect to pay the bill through a different payment channel. In addition, some businesses have begun offering electronic bill presentment directly from their own websites rather than through links on the e-banking screens of a financial institution. Under such arrangements, customers can log on to the business's website to view their periodic bills. Then, if so desired, they can electronically authorize the business to "take" the payment from their account. The payment then occurs as an ACH debit originated by the business's financial institution as compared to the ACH credit originated by the customer's financial institution in the bill payment scenario described above. Institutions should ensure proper approval of businesses allowed to use ACH payment technology to initiate payments from customer accounts. Cash management applications would include the same control considerations described above, but the institution should consider additional controls because of the higher risk associated with commercial transactions. The adequacy of authentication methods becomes a higher priority and requires greater assurance due to the larger average dollar size of transactions. Institutions should also establish additional controls to ensure binding agreements - consistent with any existing ACH or wire transfer agreements - exist with commercial customers. Additionally, cash management systems should provide adequate security administration capabilities to enable the business owners to restrict access rights and dollar limits associated with multiple-user access to their accounts. Person-to-Person Payments Electronic person-to-person payments, also known as e-mail money, permit consumers to send "money" to any person or business with an e-mail address. Under this scenario, a consumer electronically instructs the person-to-person payment service to transfer funds to another individual. The payment service then sends an e-mail notifying the individual that the funds are available and informs him or her of the methods available to access the funds including requesting a check, transferring the funds to an account at an insured financial institution, or retransmitting the funds to someone else. Person-to-person payments are typically funded by credit card charges or by an ACH transfer from the consumer's account at a financial institution. Since neither the payee nor the payer in the transaction has to have an account with the payment service, such services may be offered by an insured financial institution, but are frequently offered by other businesses as well. Some of the risk issues examiners should consider when reviewing bill
payment, presentment, and e-mail money services include:
Wireless E-Banking Wireless banking is a delivery channel that can extend the reach and enhance the convenience of Internet banking products and services. Wireless banking occurs when customers access a financial institution's network(s) using cellular phones, pagers, and personal digital assistants (or similar devices) through telecommunication companies' wireless networks. Wireless banking services in the United States typically supplement a financial institution's e-banking products and services. Wireless devices have limitations that increase the security risks of wireless-based transactions and that may adversely affect customer acceptance rates. Device limitations include reduced processing speeds, limited battery life, smaller screen sizes, different data entry formats, and limited capabilities to transfer stored records. These limitations combine to make the most recognized Internet language, Hypertext Markup Language (HTML), ineffective for delivering content to wireless devices. Wireless Markup Language (WML) has emerged as one of a few common language standards for developing wireless device content. Wireless Application Protocol (WAP) has emerged as a data transmission standard to deliver WML content. Manufacturers of wireless devices are working to improve device usability and to take advantage of enhanced "third-generation" (3G) services. Device improvements are anticipated to include bigger screens, color displays, voice recognition applications, location identification technology (e.g., Federal Communications Commission (FCC) Enhanced 911), and increased battery capacity. These improvements are geared towards increasing customer acceptance and usage. Increased communication speeds and improvements in devices during the next few years should lead to continued increases in wireless subscriptions. As institutions begin to offer wireless banking services to customers, they should consider the risks and necessary risk management controls to address security, authentication, and compliance issues. Some of the unique risk factors associated with wireless banking that may increase a financial institution's strategic, transaction, reputation, and compliance risks Conclusion e-banking creates issues for banks and regulators alike. For our part we will continue our work, both national and international, to identify and remove any unnecessary barriers to e-banking. For their part, banks should: Have a clear and widely disseminated strategy that is driven from the top and takes into account the effects of e-banking, together with an effective process for measuring performance against it.Take into account the effect that e-provision will have upon their business risk exposures and manage these accordingly. Undertake market research, adopt systems with adequate capacity and scalability, undertake proportional advertising campaigns and ensure that they have adequate staff coverage and a suitable business continuity plan.Ensure they have adequate management information in a clear and comprehensible format. Take a strategic and proactive approach to information security, maintaining adequate staff expertise, building in best practice controls and testing and updating these as the market develops. Make active use of system based security management and monitoring tools.Ensure that crisis management processes are able to cope with Internet related incidents. References Bracken, Ben (2006).The e-Commerce Solution Guide - Esay UK eCommerce on a Budget. Retrieved July 30,2006. Chaudhury, Abijit; Jean-Pierre Kuilboer (2002). E-Business and e-Commerce Infrastructure. Mc Graw- Hill.ISBN 0-07-247875-6. Kessler, M. (2003). More shoppers proceed to checkout online. Retrieved January 13,2004 Nissanoff, Daniel (2006),Futureshop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell and Get the Things We Really Want,Hardcover, The Penguin Press, 246 Pages.ISBN 1-59420-077-7. Seybold, Pat (2001). Customers.com.Crown Business Books
(Random House).ISBN 0-60960772-3. |
Ecommerce for Organization & Consumer |
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