Chapter 11: e-Business
A customer in a small town orders a laptop late at night from a seller several hundred kilometres away. The order is confirmed within seconds, payment is made through a banking app, and the goods are dispatched the following morning. Neither party has seen the other, and no shop has been visited. For centuries, business rested on the physical presence of buyer and seller in the same place; that condition no longer holds. This chapter deals with e-business, which is the conduct of business activities through computer networks. It concerns a practical decision that almost every firm now faces: how much of its buying, selling, servicing and internal coordination should move online, what it must put in place before it can do so, and what new risks it takes on when it does. By the end of the chapter you should be able to explain what e-business is, describe the directions in which electronic transactions extend, compare e-business with traditional business, and outline the payment, security and emerging technologies that support it.
Figure
Fig. 11.0-1 — Placing An Order On A Retail Website Photograph of a customer completing an online purchase on a laptop, with the payment page visible on the screen.
11.1 What e-Business Means
For centuries a business transaction required the buyer and the seller to be present in the same place. The offer was made across a counter, the goods were handed over physically, and payment passed from one hand to the other. The spread of computer networks has removed that requirement, because an offer and its acceptance can now be exchanged electronically between parties who never meet.
e-business is the conduct of industrial and commercial activities through computer networks, that is, through the internet. The buyer and the seller interact electronically over telecommunication networks, and the whole commercial cycle — enquiry, order, invoice, dispatch, delivery and payment — can be completed in electronic form.
A firm adopts this mode for two reasons. Internally, it is looking for greater speed and lower cost in its own operations. Externally, competitive pressure and customers who expect service at any hour push it towards a system that does not close at the end of the working day.
What Falls Within e-Business
The term covers far more than the act of selling. The following activities are all part of it.
- Trading in goods and services — physical goods such as cars, computers and household appliances, and services such as ticketing, banking, insurance, education and entertainment.
- Trading in digital products — software, music, e-books and information, which can be delivered over the network itself without any physical movement.
- Advertising and promotion — displaying products, announcing new launches and reaching prospective buyers electronically, which costs far less than print or display.
- Pre-sale and post-sale support — answering enquiries before purchase and handling complaints, repairs and returns afterwards, so that the relationship continues beyond the sale.
- Dealings with government — filing returns, paying taxes and dues and obtaining licences and approvals online.
- Internal coordination — exchanging information between departments and with employees within the same firm.
e-business is therefore best understood as the result of information technology and communication technology coming together. It is a comprehensive electronic system of trading that uses networks of computers to buy and sell goods and services, and it now operates in domestic and foreign markets alike.
11.2 Concept And Nature Of e-Business
Buying and selling is only the visible part of what a firm does. Behind every sale lie planning, purchase, production, storage, accounting, servicing and coordination with suppliers. e-business is the carrying on of these activities on the internet, and not merely the placing of an order on a website.
The concept is therefore a wide one. It covers the technologies, processes and management practices that a firm uses to strengthen its competitive position through the planned use of electronic information. Servicing existing customers and collaborating with business partners fall inside it just as much as selling to a new buyer does.
This is where e-business is to be distinguished from e-commerce. e-commerce is the buying and selling of goods and services over the internet. e-business takes that trading activity and ties it tightly into the firm’s own operations, so that an order received electronically also updates production schedules, stores records and accounts without being re-entered by hand. e-commerce is thus one part of e-business, not another name for it.
Nature Of e-Business
- Wider than trading — it extends to planning, organising, marketing, production and finance, so the whole management process comes within its ambit.
- Network based — it depends on computer networks and telecommunication links, which means the quality of the firm’s technology directly limits what it can offer.
- Continuous in operation — a website does not keep shop hours, so the firm remains available to customers on a round-the-clock basis.
- Free of physical presence — buyer and seller need not meet, which is what allows a small firm to serve a distant market it could never have reached through a shop.
- Integrative — it links front-end selling with back-end operations, and it is this linking that improves performance and creates value rather than the website by itself.
11.3 Scope Of e-Business
A firm does not deal with one kind of party alone. It buys from suppliers, sells to customers, communicates within its own departments and files papers with government offices. Once these dealings move on to computer networks, each of them becomes a form of electronic transaction, and the scope of e-business is best understood by asking who stands at the two ends of the transaction.
On that basis electronic transactions extend in six directions, as set out in FC 11.1.
Flowchart
FC 11.1 — Directions Of Electronic Transactions Electronic Transactions → Business to Business (B2B), Business to Consumer (B2C), Consumer to Consumer (C2C), Intra-B Commerce, Business to Government and Government to Business (B2G / G2B), Government to Citizen (G2C)
11.3.1 Business-To-Business (B2B)
Transactions that take place between two business units are known as business-to-business (B2B) transactions. Neither party is the final consumer; the goods or services bought are used for further production or resale, so the quantities are large and the dealings are repeated.
- Collaboration between firms — joint work on design, development or distribution arranged electronically.
- Commercial negotiations — settling price, quantity and delivery terms with a supplier over the network.
- Inviting tenders — placing requirements online so that several suppliers may quote.
- Distribution of goods — a manufacturer supplying its various distributors and dealers through an online ordering system.
11.3.2 Business-To-Consumer (B2C)
Transactions between a business unit and its individual customers are known as business-to-consumer (B2C) transactions. Because the website stays open at all hours, the firm remains in touch with its customers on a round-the-clock basis, which no shop can do.
- Selling and distribution — displaying products, taking orders and arranging delivery to the buyer’s address.
- Promotion and marketing — advertising and offers directed at individual buyers.
- After-sale services — installation, repair and replacement arranged online.
- Resolving queries and complaints — helplines, call centres and chat services that answer the customer directly.
Where the customer approaches the business rather than the other way round, as when a buyer contacts a call centre or a freelancer offers services to a firm, the dealing is described as consumer-to-business (C2B). It is treated as part of the B2C segment.
11.3.3 Consumer-To-Consumer (C2C)
Transactions in which one individual deals directly with another over a web platform are known as consumer-to-consumer (C2C) transactions. No business unit stands at either end, although a platform usually provides the meeting place and the payment arrangement.
- Sale of used articles — second-hand books, clothes, furniture and electronic items sold by one individual to another.
- Sale of antiques and collectibles — items for which the seller is an individual owner rather than a trader.
- Sharing of experience — consumers posting opinions and feedback on the quality and durability of products, which guides other buyers.
- Warning against fraudulent sellers — buyers alerting one another on web-based consumer forums.
11.3.4 Intra-B Commerce
Transactions between persons and departments who are all part of one firm are known as intra-B commerce. Nothing is bought or sold outside; what moves is information, and it moves over the firm’s own internal network.
- Interaction between departments — marketing informing production of a change in design so that action follows at once.
- Circulation of information — notices, policies and instructions communicated to the whole organisation together.
- Human resource activities — recruitment, selection and training conducted electronically.
- Reporting by employees — staff sending reports and returns to their managers without coming to the office.
The gain here is coordination. Because departments remain connected, decisions are taken faster, work flows more smoothly and the duplication that arises from delayed information is largely avoided.
11.3.5 B2G And G2B Commerce
Dealings between a business unit and a government department may run in either direction. Where the business approaches the government the transaction is business-to-government (B2G); where the government provides a service to the business it is government-to-business (G2B). Both make communication faster, more transparent and free of paper.
- Registration and licensing — obtaining registrations, licences and permits online.
- Filing and payment — filing returns and paying taxes and other government dues.
- E-tendering — participating in government procurement through electronic tenders.
- Compliance — submitting statutory documents and compliance reports.
- Approvals and notifications — renewals granted and notifications issued to businesses electronically.
11.3.6 G2C Commerce
Transactions between a government department and citizens through digital platforms are known as government-to-citizen (G2C) transactions. Public services are delivered online, which saves the citizen a visit to the office and makes information available at all times.
- Application and delivery of services — forms submitted and services delivered through a portal.
- Issue of documents — certificates such as birth, income and domicile certificates issued electronically.
- Payment of dues — utility bills, fees, taxes and fines paid through online portals.
- Grievance redressal — complaints lodged and tracked, with citizen support services available online.
11.4 How e-Business Works
A transaction conducted electronically passes through the same stages as one conducted across a counter. What changes is the medium through which each stage is completed, and the point at which the physical world has to be brought back in. The sequence is summarised in FC 11.2.
Flowchart
FC 11.2 — How An e-Business Transaction Is Completed Buyer searches for information on the network → buyer selects goods and settles terms → order is placed and confirmed electronically → goods or services are delivered → payment is made → post-sale service is provided
Getting Information And Placing The Order
The buyer no longer moves from shop to shop to find out what is available. Information about products, specifications and prices is obtained from the internet, and offerings of several sellers can be compared at the same time.
Once the buyer has the information needed, the order is placed on the network itself. Both the offer and its acceptance are recorded electronically, which is what makes the contract complete without either party being present.
Delivering The Goods Or Services
Delivery is the one stage where e-business divides into two paths. Where the product is digital — software, an air ticket, a hotel booking, a subscription — it can be delivered on the buyer’s computer immediately. This is called online distribution, and here the entire transaction stays inside the network.
Where the product is physical, the network can carry the order but not the goods. A car ordered online must still be handed over at the buyer’s address by the dealer, so a carrier or delivery arrangement has to be in place. The saving in such cases lies in the ordering and the paperwork, not in the delivery itself.
Making The Payment
Payment for the articles purchased can be made over the internet, most commonly by transferring funds from the buyer’s account to the seller’s account. This system of payment is known as electronic funds transfer (EFT). Cards, banking applications and digital wallets all work on the same principle: the money moves as a message between accounts rather than as cash between hands.
11.5 Importance Of e-Business To The Seller
Every seller faces the same three constraints: how many customers it can reach, what it costs to reach them, and how long the shop stays open. A physical establishment answers all three by its location and its working hours. Selling over a network loosens each constraint, and that is where its importance to the seller lies.
- Access to a worldwide market — a website can be reached from anywhere, so the seller’s market is no longer limited to the people who can travel to its premises. Even the smallest supplier can sell beyond its own town, because the cost of being visible does not rise with distance.
- Ease of expansion — growth does not require a new shop, a new lease or a new set of staff in each city. The seller expands by serving additional customers on the same platform, so the outlay that ordinarily blocks expansion is largely avoided.
- Reduction in operational costs — advertising, transfer of information and the carrying of stock for display all become cheaper or unnecessary. A product shown on a page need not be stocked in fifty shop windows.
- Direct reach to the customer — the traditional chain of wholesalers and retailers shortens, and in some cases disappears. The producer deals with the buyer directly, which saves the intermediaries’ margin and gives the seller the customer’s response first-hand.
- Round-the-clock selling — orders can be received at any hour of the day and on any day of the week, so sales are no longer confined to the hours during which staff are present.
- Ease in launching new products — complete information about a new product can be placed before customers and other businessmen the moment it is ready. Demand can therefore be created before the product reaches any shop.
- Ability to personalise the offering — electronic interaction lets the seller gather detailed information on what each customer buys and prefers. Products and services can then be tailored to individual needs instead of being offered in one standard form to everyone.
Two cautions follow. These gains are available only to a seller who has the technical arrangements in place, which is the subject of section 11.7, and they come with risks the seller did not previously carry, which section 11.10 takes up.
11.6 Importance Of e-Business To The Buyer
A buyer in a traditional market is limited by what the shops within reach happen to stock, by the hours those shops keep, and by the time the journey takes. e-business relaxes each of these limits, and the benefits to the buyer follow from that.
- Global choice — the buyer can select from suppliers in any part of the country or the world, and is no longer confined to whatever the local market offers. Products that never reached the local shop are now within reach.
- Saving of time — the same product can be looked at and evaluated from several sellers at nearly the same moment, without going around the market. What was a day’s work of comparison becomes a few minutes at a screen.
- Convenience of purchase — ordering can be done from home or the workplace, at any hour, on any day. This matters most to buyers who cannot shop during ordinary working hours.
- Fuller information before buying — specifications, prices, terms of warranty and the experience of earlier buyers are all available before the order is placed, so the decision rests on more than the shopkeeper’s word.
- Rapid response to needs — because the chain between producer and buyer is shorter, the precise product wanted can be obtained quickly instead of being ordered through a series of intermediaries.
- Products and services in remote areas — goods and services can be made available where there is no physical outlet at all, so a buyer in a small town is not shut out of a market for want of a shop.
- Personalised service — since the seller can record what a buyer needs, the offering can be adjusted to the individual instead of being uniform for everyone.
Figure
Fig. 11.6-1 — A Delivery Reaching A Household Photograph of a parcel being handed over at the door of a house by a delivery agent.
The benefit to the buyer is not unmixed. The goods cannot be handled before purchase, the seller is not known personally, and the buyer must part with payment details over a network. These are the risks taken up in section 11.10.
11.7 Resources Required For Successful e-Business
A firm does not become an e-business by putting up a website. When a buyer several hundred kilometres away places an order, the firm has promised a stranger that the goods will arrive, that the money will be safely taken and that someone will answer if something goes wrong. Each of those promises has to be backed by an arrangement made in advance. The resources below are what those arrangements consist of, and they are needed by both the seller and the buyer for transactions to be conducted successfully.
- Adequate computer hardware — computers of sufficient speed and memory to carry the expected volume of business. Hardware that is adequate for a hundred orders a day will fail at a thousand, and the failure is visible to every customer at once.
- Effective telecommunication system — reliable internet connectivity capable of handling the information traffic the business generates. Without it the site is slow or unreachable, and a buyer who cannot load a page simply moves to another seller.
- A well-designed website — the site is the firm’s only point of contact with the buyer, so it must communicate clearly with customers and business partners. Everything the shopkeeper’s presence would have conveyed has to be conveyed by the page.
- Technically qualified and responsive workforce — staff who can handle a large number of sales enquiries, process the orders received, ensure prompt delivery of the product and ensure prompt receipt of payment. The skill required is technical as well as commercial.
- Online order processing system — a well-documented order acceptance form carrying all the required information about the customer and about the product ordered, including specifications, quantity, price and delivery details. An incomplete order form is the commonest cause of a wrong delivery.
- Reliable system of receiving payment — arrangements with banks and card agencies so that receipts and payments can be made electronically, together with a sound system for making refunds where excess payment has been received.
- Logistics and delivery system — a dependable carrier network to ship goods to customers. Where the product is digital, this takes the form of arrangements for downloads.
- System for handling returns and refunds — a clear mechanism to accept returned goods and process refunds smoothly. Since the buyer could not examine the goods before ordering, returns are more frequent here than in counter selling, and a firm that handles them badly loses the customer permanently.
- Warranty and after-sales support — an effective arrangement for warranty claims, repairs and replacements where these apply.
- Customer support services — call centres, email support or chat services to handle customer queries, since the buyer has no counter to walk up to.
11.8 e-Business And Traditional Business Compared
Traditional business rests on physical presence: premises, a stock of goods on display, staff at a counter and a buyer who comes to them. e-business replaces the premises with a network. Almost every practical difference between the two follows from that one change, and the main points of difference are set out in Table 11.1.
Why The Differences Arise
The cost differences arise from what each form must own. A traditional business pays for premises in every market it wishes to serve and holds stock for display in each of them; an electronic seller carries neither, so both setting-up cost and running cost fall, and expansion no longer means duplicating the whole establishment.
The difference in risk runs the other way. Where buyer and seller never meet, neither can verify the other, and the possibility of a false order, a wrong delivery or a disputed payment is greater. What e-business saves in cost it partly gives back in the arrangements it must make for verification and security.
The shorter business cycle follows from the same absence of physical steps. In traditional business purchase, production and sale usually happen in sequence; on a network several of these can be set in motion at the same moment, because the information reaches every department together.
Neither form is superior in the abstract. Goods that a buyer must examine, and services that depend on personal dealing, still favour the traditional form; standardised goods, digital products and widely scattered customers favour the electronic one. A great many firms now use both, which is why the comparison is best read as a list of trade-offs rather than a verdict.
11.9 Online Transactions And Payment Mechanism
Online shopping opens up the whole world as one shop. With a few clicks a buyer can order a commodity from almost any part of the world, and the cyber space so created allows buyers and sellers to exchange information and enter into dealings without meeting. For the seller, however, an online transaction is not a single act. It has to be prepared for, set up, worked and paid for, and each of those is a distinct phase.
Phases Of Doing Business Online
The four phases are summarised in FC 11.3.
Flowchart
FC 11.3 — Phases Of Doing Business Online Preparing the e-business plan → executing the plan → accepting orders and delivering goods or services → receiving payment
- Preparing the e-business plan — deciding what will be sold, to whom, and on what terms, before any technical work begins.
- Executing the plan — choosing a shopping solution, designing the logo and the website, setting up a merchant account for card payments, and putting online advertising and web promotion in place.
- Accepting orders and delivering — contracts are concluded over the network through servers. Digital goods are delivered electronically; physical goods and services are delivered in the ordinary way.
- Receiving payment — collecting the price through one of the mechanisms described below.
Modes Of Online Payment
- Cash on delivery — the buyer pays in cash when the goods are handed over. Nothing about the payment is electronic, and the arrangement survives because it suits buyers who are unwilling to part with money before seeing the goods.
- Payment by cheque — the seller sends a representative to collect a cheque from the buyer. It is slow, and is used mainly where the parties know each other.
- Electronic funds transfer — the buyer transfers funds from his or her account to the seller’s account over the network. Banks provide this facility, and the money moves directly between accounts.
- Credit or debit card — the buyer furnishes the card details online and the amount is charged to the card account. Cards remain the most widely used medium of payment on the internet.
- Digital cash — digital cash is a form of cash that exists only in cyber space. The user deposits funds with a bank, which then permits withdrawal of digital cash through special software for making payments.
How A Card Payment Is Completed
A card payment is not one step but three, and each answers a different question. The sequence is set out in FC 11.4.
Flowchart
FC 11.4 — Steps In A Card Payment Credit card authentication → credit card authorisation → settlement
- Authentication — this establishes that the card number furnished by the customer is a valid one, which protects the seller against a fabricated card.
- Authorisation — this checks whether funds are in fact available in the card account, since a valid card with no balance is of no use to the seller.
- Settlement — once the product has been dispatched or delivered, the bank releases the funds and transfers them to the seller’s account.
Precautions For The Buyer
- Read the seller’s security policy and check that the browser is secure and encrypts personal and financial information during the transaction.
- Check the privacy policy of the site before furnishing bank or card details, and find out how the information will be used and with whom it will be shared.
- Give payment information only to firms that are known and whose security arrangements are trusted.
- Keep a record of every online transaction, since the record is the buyer’s only evidence in a dispute.
- Review card and bank statements regularly, and inform the bank or the card agency at once if an error is noticed.
11.10 Security And Safety Of Business Transactions
In a physical exchange the parties stand before each other, the goods are handed over and the money is counted. An online transaction has none of these safeguards, so the possibility of something going wrong is higher. Risk here refers to the probability of a mishap that results in financial, reputational or psychological loss to a party to the transaction. Because that probability is greater on a network, security and safety become the central concern of e-business.
The risks fall under three heads, as shown in FC 11.5.
Flowchart
FC 11.5 — Risks In Online Transactions Risks in online transactions → transaction risks, data storage and transmission risks, threat to intellectual property and privacy
Transaction Risks
These arise because neither party can verify the other at the time of dealing.
- Default on order taking or giving — the seller denies that the customer ever placed the order, or the customer denies having placed it. Since no signature was exchanged across a counter, either denial is difficult to disprove.
- Default on delivery — the intended delivery does not take place, the goods reach the wrong address, or goods other than those ordered are delivered.
- Default on payment — the seller does not receive payment for goods supplied, while the customer claims that payment was made.
Such situations are largely averted by verifying identity and address at the time of registration, and by obtaining authorisation both for confirmation of the order and for realisation of payment. Sellers also verify the details a customer has entered from cookies, which are small records of the customer’s name, address and earlier dealings held by the site, and which serve much the same purpose as caller identification on a telephone. From the buyer’s side, the practical protection is to deal with well-established sites, which disclose the seller’s identity, location and service record and often carry ratings of sellers by earlier buyers.
Data Storage And Transmission Risks
Information stored in a system, and information travelling between systems, is exposed to theft and alteration. Data may be stolen or modified for gain or merely for mischief, and two forms of attack are commonly met with. A virus is a program that replicates itself on other computer systems, and its effect may range from an irritating display on the screen to disruption of working, damage to data files and destruction of the system. Hacking is unauthorised entry into a system. Installing antivirus software, updating it regularly and scanning files and disks give protection against the first.
Data may also be intercepted while it is being transmitted, and the safeguard against interception is cryptography.
Threat To Intellectual Property And Privacy
The internet is an open cyber space. Once information is placed on it, it leaves the private domain and becomes difficult to protect from being copied, which is a serious matter for a firm whose product is a design, a text or a piece of software. Personal data has the same difficulty. Details furnished in the course of an online transaction may be passed on to others, who then fill the buyer’s inbox with advertising and promotional matter that the buyer never asked for and cannot easily stop.
11.11 Blockchain As An Emerging Technology
Every business record raises the same question: who keeps it, and what stops that person from altering it later? In ordinary practice the answer is a trusted central party — a bank, a registrar, a company’s own accounts department — and the parties dealing with each other must trust it. Blockchain answers the question differently, by keeping the record on many computers at once in a form that cannot be quietly changed.
Data is organised into blocks, which are linked together in chronological sequence to form a chain. Each block holds a list of transactions, and once the data is entered it becomes immutable, that is, it can no longer be changed. The record is secured by cryptographic methods, which is what makes it resistant to fraud and tampering.
How Blockchain Works
The working rests on four features, and the sequence in which a record is added is set out in FC 11.6.
Flowchart
FC 11.6 — How A Record Is Added To A Blockchain Transaction takes place → transactions grouped into a block → block given a unique code called a hash → participants on the network verify the block → block linked to the previous block → chain updated on every computer
- Blocks and chains — each block contains a list of transactions and carries a unique code called a hash. Every new block is linked to the one before it, so the blocks form a chronological chain and any change to an earlier block would break the link.
- Decentralisation — the ledger is held on a network of computers, called nodes, and no single authority controls it. Every participant has access to the whole chain, and they work together to verify and validate new transactions.
- Transparency — because all participants can see the ledger, every transaction recorded is visible to those permitted to view it, which builds accountability into the record itself.
- Security and immutability — once a transaction is added it cannot be altered or erased, since the cryptographic linking of blocks would expose the alteration at once.
Application Of Blockchain In e-Business
- Secure transactions — an online payment is recorded in a secure and immutable form, so the record cannot afterwards be manipulated by either party.
- Transparency and trust — participants can verify the authenticity of transactions, products or services without relying on a central authority to vouch for them.
- Smart contracts — a smart contract is a self-executing contract whose terms are written directly into code, so that it performs automatically when the stated conditions are met. Payment can be released to a seller the moment the buyer confirms receipt of goods, without a bank or verification agency in between.
- Supply chain management — every stage of a product’s journey from manufacture to delivery is recorded, giving accurate and current information about where the goods are and where they came from.
- Data integrity and security — data relating to transactions, contracts and customers is protected from tampering and unauthorised access, which matters most to firms holding sensitive customer information.
- Eliminating middlemen — businesses can deal directly with customers and suppliers without banks, payment processors or clearing houses, which reduces transaction fees and processing time.
- Decentralised applications — applications can be built to run on a blockchain network rather than on a central server, offering the user greater security and privacy.
- Cryptocurrency payments — since blockchain is the foundation of cryptocurrencies, a firm may accept payment in that form directly.
- Cost reduction — fewer intermediaries, lower transaction fees and faster processing together reduce the firm’s operating and overhead expenses.
The technology is still developing, and its use in Indian business is at an early stage. Its significance for e-business lies in the direction it points: towards records that the parties can rely on without having to rely on each other.
11.12 Crypto Assets: Meaning And Role
Money and financial assets have always depended on a central authority to issue them and to vouch for them. A note is backed by the central bank, a share by a depository, a deposit by the bank that holds it. Once a record can be kept on a blockchain, an asset can exist without any such authority, and that is what a crypto asset is.
Forms Of Crypto Assets
The best known form is cryptocurrency, such as Bitcoin and Ethereum, which is used to make payments. Crypto assets also take the form of tokens that stand for ownership of some other asset, of non-fungible tokens (NFTs), each of which represents one specific item, and of central bank digital currencies (CBDCs), which are digital versions of a country’s own currency issued by its central bank. The forms are set out in FC 11.7.
Flowchart
FC 11.7 — Forms Of Crypto Assets Crypto Assets → Cryptocurrencies, Tokens Representing Other Assets, Non-Fungible Tokens (NFTs), Central Bank Digital Currencies (CBDCs)
Because all of them rest on a blockchain, transactions in crypto assets are recorded securely, are visible to the participants, and are practically impossible to alter once processed.
Role Of Crypto Assets In e-Business
- Cryptocurrency payments — a firm can accept payment directly in cryptocurrency without a bank or payment processor in between. This makes cross-border payment faster and cheaper, and reaches customers who prefer to pay in this form.
- Tokenisation of assets — a high-value asset such as property or a work of art can be divided into digital tokens representing small portions of it. Customers who could never have bought the whole asset can then invest in a part of it, which widens the market for the seller.
- Non-fungible tokens — because each token stands for one specific item, a firm can sell exclusive, rare or limited-edition digital goods with ownership that can be verified on the blockchain. This opens a revenue stream that did not exist for digital products, which were otherwise endlessly copyable.
- Decentralised finance — lending, borrowing and earning of interest carried on through blockchain platforms and smart contracts rather than through banks and financial institutions.
- Central bank digital currencies — being issued and regulated by the central bank, these offer a more stable form of digital payment than a cryptocurrency, whose value fluctuates. They are expected to make digital payment more efficient where cashless dealing is already common.
Cautions
Crypto assets are still an unsettled area, and a business considering them must weigh three difficulties. The value of a cryptocurrency is volatile, so a payment accepted today may be worth appreciably less tomorrow. The regulatory position is uncertain and differs between countries; in India, crypto assets are not legal tender, and only currency issued by the Reserve Bank of India is. And acceptance among ordinary customers remains limited, which restricts how much of a firm’s business can practically be conducted in this form.
11.13 Summary
- e-business is the conduct of industrial and commercial activities through computer networks, in which buyers and sellers interact electronically and both the offer for sale and its acceptance are made in electronic form.
- e-business covers trading in physical goods and digital products, advertising and promotion, pre-sale and post-sale support, dealings with government and internal coordination within the firm.
- e-commerce is only the buying and selling of goods and services over the internet. e-business is wider, since it ties electronic trading into the firm’s own operations such as planning, production, finance and servicing.
- Electronic transactions extend in six directions:
- B2B — between two business units.
- B2C — between a business unit and individual customers, with C2B as its reverse direction.
- C2C — between one individual and another over a web platform.
- Intra-B commerce — between departments and persons within one firm.
- B2G and G2B — between a business unit and a government department.
- G2C — between a government department and citizens.
- An e-business transaction runs from search for information, to selection and placing of the order, to delivery, to payment and post-sale service. Digital products are delivered over the network itself, which is called online distribution; physical goods still require a carrier.
- To the seller, e-business gives a worldwide market, easy expansion, lower operating costs, direct reach to the customer, round-the-clock selling, easier launching of new products and the ability to personalise the offering.
- To the buyer, it gives global choice, saving of time, convenience, fuller information before purchase, rapid response to needs, availability of goods in areas without outlets and personalised service.
- Successful e-business requires adequate hardware, effective telecommunication, a well-designed website, a technically qualified workforce, an online order processing system, a reliable payment arrangement, logistics and delivery, a returns and refunds mechanism, warranty support and customer support services.
- Compared with traditional business, e-business is easier to form, cheaper to set up and run, easier to expand and shorter in business cycle, but it lacks personal touch, carries higher risk because the parties do not meet, and needs technically qualified staff.
- Business online is conducted in four phases: preparing the e-business plan, executing the plan, accepting orders and delivering, and receiving payment. Payment may be made by cash on delivery, cheque, electronic funds transfer, credit or debit card, or digital cash, and a card payment is completed through authentication, authorisation and settlement.
- Online transactions face three kinds of risk:
- Transaction risks — default on order taking or giving, on delivery, and on payment.
- Data storage and transmission risks — theft or alteration of data, viruses and hacking, met by antivirus software and by cryptography.
- Threat to intellectual property and privacy — copying of material placed on the internet and misuse of personal data furnished during transactions.
- Blockchain is a decentralised, distributed digital ledger whose records, once entered, cannot be altered. It rests on linked blocks, decentralisation, transparency and immutability, and is applied in e-business to secure transactions, smart contracts, supply chain tracking, data integrity, removal of intermediaries and cost reduction.
- Crypto assets are digital assets existing on a blockchain, taking the form of cryptocurrencies, tokens, non-fungible tokens and central bank digital currencies. Their role in e-business lies in payments, tokenisation of assets, sale of unique digital goods, decentralised finance and stable digital currency, subject to volatility, regulatory uncertainty and limited acceptance.
11.14 Key Terms
- Blockchain A decentralised, distributed digital ledger that records transactions across many computers in a way that the data cannot be altered afterwards without altering every later record as well.
- Business-to-Business (B2B) An electronic transaction that takes place between two business units, neither of which is the final consumer.
- Business-to-Consumer (B2C) An electronic transaction that takes place between a business unit and its individual customers.
- Central Bank Digital Currency (CBDC) A digital form of a country’s national currency, issued and regulated by its central bank.
- Consumer-to-Consumer (C2C) An electronic transaction in which one individual deals directly with another over a web platform, with no business unit at either end.
- Cookies Small records held by a website of a customer’s name, address and earlier dealings, used to verify the details a customer has entered.
- Crypto Assets Digital assets that exist on a blockchain and use cryptographic techniques for security, maintained by a network of computers instead of a government or a bank.
- Cryptocurrency A crypto asset used to make payments, which is decentralised and is not issued by any government.
- Cryptography The art of protecting information by transforming it into an unreadable form called cipher-text, which only a holder of the secret key can convert back into plain-text.
- Digital Cash A form of cash that exists only in cyber space, withdrawn against funds deposited with a bank and used for making payments.
- e-Business The conduct of industrial and commercial activities through computer networks, in which buyers and sellers interact electronically and both the offer for sale and its acceptance are made in electronic form.
- e-Commerce The buying and selling of goods and services over the internet, which forms one part of e-business.
- Electronic Funds Transfer (EFT) A system of payment in which money is transferred from the buyer’s bank account to the seller’s bank account over a network.
- Intra-B Commerce Electronic dealing between departments and persons who are all part of one firm, carried on over the firm’s internal network.
- Non-Fungible Token (NFT) A unique digital token that represents ownership of one specific asset, whether physical or digital.
- Online Distribution Delivery in which the product itself travels over the network to the buyer, as in the case of software or an air ticket.
- Payment Gateway The arrangement that authorises an online payment and passes the money between the buyer’s bank and the seller’s bank.
- Smart Contract A self-executing contract whose terms are written directly into code, so that it performs automatically when the stated conditions are met.
11.15 Points To Ponder
- e-business lowers a seller’s costs but raises the risk it carries, since the parties never meet. For a small firm with limited funds, is that a trade worth making, and what would the answer depend on?
- The personal touch of a shopkeeper who knows a customer’s needs cannot be reproduced on a website, yet firms try to substitute for it by recording what each customer buys. Are these two things the same in effect, and what does the customer gain or lose by the exchange?
- Intra-B commerce lets any department reach any other instantly. Where a firm’s departments are all connected in this way, what new difficulties might arise that did not exist when information travelled slowly through the chain of command?
- A buyer online has fuller information about a product than a buyer in a shop, but cannot handle the goods before paying. Which of the two is in the better position to judge what is being bought, and does the answer change with the kind of product?
- Blockchain removes the need for a trusted central authority such as a bank or a registrar. What is gained when that authority disappears, and what is lost when there is no one to approach if something goes wrong?
- Crypto assets promise faster and cheaper payment but fluctuate in value and are unevenly regulated. Should a business accept payment in a form whose worth may change before the money is banked, and on what terms might it reasonably do so?
11.16 Objective Questions
- A student sells her old textbooks to another student through an online platform. This transaction is an example of: [1]
- Business-to-business commerce
- Business-to-consumer commerce
- Consumer-to-consumer commerce
- Intra-B commerce
- There are two statements given below, marked as Assertion (A) and Reason (R). Read the statements and choose the correct option. Assertion (A): e-business is wider in scope than e-commerce. Reason (R): e-business covers internal coordination, servicing and dealings with government in addition to buying and selling. [1]
- Both (A) and (R) are true, and (R) is the correct explanation of (A).
- Both (A) and (R) are true, but (R) is not the correct explanation of (A).
- is true, but (R) is false.
- is false, but (R) is true.
- Delivery in which the product itself travels to the buyer over the network, as in the case of software, is called ____________. [1]
- State whether the following statement is true or false: In a card payment, authorisation establishes that the card number furnished by the customer is a valid one. [1]
- Match each form of electronic transaction in Column A, numbered (i) to (iv), with the dealing it describes in Column B, lettered (a) to (d), and write the correct pairs. [1]
| Column A | Column B |
|---|---|
| a. Business-to-business | i. A firm files its tax return on a departmental portal |
| b. Business-to-government | ii. A person sells a used bicycle to another person on a web platform |
| c. Intra-B commerce | iii. A manufacturer invites tenders from its suppliers online |
| d. Consumer-to-consumer | iv. A sales team sends the day’s order summary to the production floor |
11.17 Check Your Concepts
- Distinguish between online distribution and physical delivery in e-business. [2]
- Explain, with one example each, any three directions in which electronic transactions extend. [3]
- Intra-B commerce involves no buying or selling at all. Why is it then treated as part of e-business, and what does a firm gain from it? [3]
- Distinguish between e-business and traditional business on any four bases. [4]
- ‘A firm becomes an e-business the moment it puts up a website.’ Evaluate this claim with reference to the resources a successful e-business requires. [6]
11.18 Case-Based Questions
- Meghna Handlooms sells bed linen from a single shop in a district town. It now takes orders through its own website as well, arranges delivery through a hired carrier, and accepts payment by card and by bank transfer. Orders have begun arriving from three other states. In the first month, however, one consignment reached the wrong address, and a customer claimed to have paid for goods for which the firm has received no money.
- Identify the type of electronic transaction the firm is carrying on with these customers, and state two benefits it has gained from adopting it. [2]
- Name the two transaction risks the firm has met with, and state one measure it could take against each. [2]