Chapter 10 Electronic Commerce Payments, Order Fulfillment, and Other Support Services

Chapter 10

Electronic Commerce Payments, Order Fulfillment, and Other Support Services

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Learning Objectives

1. Understand the shifts that are occurring with regard to noncash and online payments.

2. Discuss the Crucial factors that determine whether a method of e-payment achieves critical mass.

3. Discuss the different categories and potential uses of smart cards.

4. Discuss various online alternatives to credit card payments and identify under what circumstances they are best used.

5. Describe the processes and parties involved in e-checking.

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Learning Objectives

6. Describe payment methods in B2B EC, including payments for global trade.

7. Define EC order fulfillment and describe the EC order fulfillment process.

8. Describe the major problems of EC order fulfillment.

9. Describe various solutions to EC order fulfillment problems.

10. Discuss support services provided by general consulting and outsourcing firms.

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The Payment Revolution

Crucial factors that determine whether a method of e-payment achieves critical mass: Independence – must not need specialized SW Interoperability and Portability – compatible with

many platforms Security Anonymity Divisibility – min/max ranges – credit cards will not

do for too small costs Ease of Use Transaction Fees – merchant pays 3% + fixed fee Regulations International support

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Using Payment Cards Online

Payment cards —electronic cards that contain information that can be used for payment purposesCredit cards—provides holder with credit to make

purchases up to a limit fixed by the card issuerCharge cards—balance on a charge card is

supposed to be paid in full upon receipt of monthly statement

Debit card—cost of a purchase drawn directly from holder’s checking account (demand-deposit account)

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Using Payment Cards Online

PROCESSING CARDS ONLINEauthorization

Determines whether a buyer’s card is active and whether the customer has sufficient funds.

settlement

Transferring money from the buyer’s to the merchant’s account.

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Using Payment Cards Online

Three basic configurations for processing online payments. Merchants may: Own the payment software Use a point of sale system (POS) operated by an

acquirerpayment service provider (PSP)

A third-party service connecting a merchant’s EC systems to the appropriate acquirers. PSPs must be registered with the various card associations they support

Use a POS operated by a payment service provider

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Using Payment Cards Online

Fraudulent Card Transactions In the online world, merchants are held

liable for fraudulent transactionsMerchants can incur additional fees and

penalties imposed by the card associationsCosts associated with combating fraudulent

transactions are also the merchant’s responsibility

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Using Payment Cards Online FRAUDULENT CARD TRANSACTIONS

Key tools used in combating fraud:Address Verification System (AVS)

Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder’s issuing bank.

card verification number (CVN)Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank.

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Using Payment Cards Online

Key tools used in combating fraud (cont.):Negative listsFraud screens and automated

decision modelsCard association payer

authentication servicesManual review

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Smart Cards

SMART CARDAn electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card.

APPLICATIONS OF SMART CARDSRetail PurchasesTransit Fares

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Smart Cards

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Smart Cards

TYPES OF SMART CARDS contact card

A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip.

contactless (proximity) cardA smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader.

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Smart Cards

smart card readerActivates and reads the contents of the chip on a smart card, usually passing the information on to a host system.

smart card operating systemSpecial system that handles file management, security, input/output (I/O), and command execution and provides an application programming interface (API) for a smart card.

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Stored-Value Cards

stored-value card

A card that has monetary value loaded onto it and that is usually rechargeableAnyone can obtain a stored-value card

without regard to prior financial standing or having an existing bank account as collateral

The stored-value card market is growing rapidly

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E-Micropayments

e-micropayments

Small online payments, typically under $10. Five basic micropayment models that do not

depend solely or directly on credit or debit cards: Aggregation Direct payment Stored value Subscriptions Á la carte

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E-Checking

e-check

A legally valid electronic version or representation of a paper check.

Automated Clearing House (ACH) Network

A nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions.

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E-Checking

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Order Fulfillment and Logistics—An Overview

order fulfillmentAll the activities needed to provide customers with their ordered goods and services, including related customer services. back-office operations

The activities that support fulfillment of orders, such as packing, delivery, accounting, inventory management and shipping

front-office operationsThe business processes, such as sales and advertising, that are visible to customers.

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Order Fulfillment and Logistics—An Overview

logistics

The operations involved in the efficient and effective flow and storage of goods, services, and related information from point of origin to point of consumption.

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Order Fulfillment and Logistics—An Overview

THE EC ORDER FULFILLMENT PROCESSStep 1: Making sure the customer will payStep 2: Checking for in-stock availabilityStep 3: Arranging shipmentsStep 4: InsuranceStep 5: ReplenishmentStep 6: In-house productionStep 7:Use contractorsStep 8: Contacts with customersStep 9: Returns

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Order Fulfillment and Logistics—An Overview

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Order Fulfillment and Logistics—An Overview

reverse logistics

The movement of returns from customers to vendors.

Traditional versus EC Logisticse-logistics

The logistics of EC systems, typically involving small parcels sent to many customers’ homes (in B2C).

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Traditional versus EC Logistics

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Order Fulfillment and the Supply Chain

Order fulfillment and order taking are integral parts of the supply chain.

Flows of orders, payments, and materials and parts need to be coordinated among Company’s internal participants External partners

The principles of supply chain management must be considered in planning and managing the order fulfillment process

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Problems in Order Fulfillment and the Supply Chain

Typical Supply Chain ProblemsDemand forecasting is difficultMany of the problems along the EC supply

chain stem from the need to coordinate several activities, internal units, and business partners in the face of uncertainties, caused by demand forecast.

third-party logistics suppliers (3PL)

External, rather than in-house, providers of logistics services.

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Other EC Support Services

CONSULTING SERVICES EC OUTSOURCING SERVICES

Major reasons why many companies outsource: A desire to concentrate on the core business The need to have services up and running rapidly Lack of expertise for many of the required support

services The inability to have the economy of scale enjoyed by

outsourcers Inability to keep up with rapidly fluctuating demands if an

in-house option is used The number of required services, which usually are simply

too many for one company to handle

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Solutions to Order Fulfillment Problems

Solutions to Order Fulfillment Problems Improvements in the Order-Taking ProcessWarehouse management system (WMS)

A software system that helps in managing warehouses.

Automated Warehouses

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Solutions to Order Fulfillment Problems

Other inventory management improvementsReducing inventory and decreasing the

incidence of out-of-stocksMaintaining an inventory of repair itemsPicking items out of inventory in the warehouseCommunicatingManaging product inventoryReceiving items at the warehouse automating

the warehouse

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Solutions to Order Fulfillment Problems

Partnering Efforts and Outsourcing LogisticsComprehensive Logistics Services Outsourcing logistics

Speeding Deliveries - same day, even same hour Handling Returns (Reverse Logistics)

Return the item to the place of purchaseSeparate the logistics of returns from the logistics of

deliveryCompletely outsource returnsAllow the customer to physically drop the returned

item at a collection stationAuction the returned items

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Other EC Support Services

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Order Fulfillment in B2BUsing BPM to improve order

fulfillmentUsing e-marketplaces and

exchanges to ease order fulfillmentOrder fulfillment in services

Solutions to Order Fulfillment Problems

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