Electronic Commerce

Northernlight E-Commerce

CommerceNet

Definition

A large number of definitions for electronic commerce exist. One defines electronic commerce, or e-commerce, as the wide range of business activities that are accomplished through electronic means. This wide definition includes business-to-business, business-to-administration and business-to-consumer activities. The initial target market for PayPerNet will be the business-to-consumer market. If we refer to electronic commerce or e-commerce in this document then it is assumed to refer to the business-to-consumer part of the entire electronic commerce universe.

History

Business-to-consumer e-commerce got its start after the first non-technical people were able to, as it were, turn pages in the user-friendly HTML "brochures" presented to them by Internet sites. Commercial people realised that the medium would be suited not only to present the latest information on products but also to sell these products. The first Internet sites specialised in selling goods and services quickly followed. Even though nowadays most commercial Internet sites are elaborately designed and often use dedicated presentation software and Internet-commerce specific software, a basic "shopping window on the world" can still be created on the Internet simply by using a HTML editor to create a list of articles on sale and place it on an Internet site. Add a way for people to pay for your goods and you're potentially selling through the "Net".

How the Internet revolutionises shopping

The e-shopping revolution is based on three basic premises: more customers, more vendors and lower prices.

More customers: The merchant can present and sell his products and/or services to customers anywhere in the world, instead of just to customers local to his retail shop. This, without incurring any additional charges, and with 24h/day accessibility.
More vendors: Similarly, customers can shop and buy world-wide with any merchant at any time, causing a high level of competitive pressure.
Cost reductions to vendors:
1. Lowered costs to merchants: elimination of the expensive traditional storefront, reduced inventory costs per customer.
2. Direct sales models avoid "the man in the middle": lower distribution overhead.
Lower prices: market forces will translate the heightened competition and cost reductions to lower prices

Due to the huge number of competing vendors, advertising will gain in importance. Higher advertising budgets will to some extent reduce the cost advantages passed on to consumers.

Current situation

The development of e-commerce is in an early phase. The local shopping centre continues to offer important advantages to the customer when compared to on-line shopping.

Issues for customers

If potential customers resort to these more traditional vendors then it is usually due to one or more of the following factors:

customers do not have access to the Internet [technical]
customers cannot/do not feel comfortable paying on-line [trust, technical]
vendors prefer to ship goods to customers only after payment has been received, but customers prefer to wait with paying until after they have received non-defective goods [trust]
customers fear that the physical distance between them and the vendor effectively reduces the possibility to complain if the goods ordered do not match specification [trust]
customers do not receive enough information about the product to be able to decide [information]
customers do not understand the foreign language used by the on-line vendor [information]
customers are not used to, able to, or willing to convert foreign currencies as presented on the Internet into their own, hampering price comparisons [information]
customers may fear that their personal information and purchase pattern are electronically registered, affecting their privacy [trust]

Issues for vendors

The e-vendor's immediate preoccupation is to receive payment for his goods. As it is, this issue usually translates into a check on the validity of the customer's credit card. [trust]

Compared with a shop-based vendor the differences are obvious. Customers walk into a shop, look at the product from all sides, try it out (or on), ask questions about it, and, if they like it, hand the vendor the money and take the product home. If the client pays using a payment card then he will present his card, which can be checked in real time, put his signature on a receipt and take a copy of it home. One of the reasons that many people feel uncomfortable with e-shopping is that much of this security and information is still lacking when purchasing on-line today. Many of the same issues have faced mail-order businesses for many years without being resolved.

Improving today's e-commerce situation

We encountered either technical problems, informational problems and trust-based problems.

Technical: Obviously, if the user does not have access to the Internet then he cannot participate in e-shopping. But equally obvious is that if he does have Internet access but instead lacks a way to pay for e-purchases, then he cannot participate either. An e-payment provider should thus focus on providing the easiest and widest possible access to his e-payment system.

Informational: More information can be supplied to a prospective buyer through the use of more and more advanced technology. Higher bandwidth connections will allow a customer to better visualise his purchase, e.g. through the use of video streams. More elaborately written descriptions of the product including more pictures and detailed specifications go some way to accomplishing this goal. Also, higher-quality automatic translation tools are under development and may lead to real 'on-demand localisation' of web pages.

Trust: A fundamental lack of trust exists between the two parties during a transaction.

The customer requests a level of protection against less than scrupulous vendors. Payment cards offer some protection, but security and availability issues cannot be overlooked.

The vendor is limited in his ability to exact payment in an international transaction if problems arise. The resulting insecurity makes the vendor resort to the use of restrictive (in terms of target population), complicated, potentially insecure and/or inconvenient payment methods, such as credit cards, elaborate EPS constructions or even advance payment. These methods provide the necessary guarantees to the vendor, but at the same time limit and obstruct e-shopping because of a lack of acceptance on the side of the consumer.

A payment system that functions as a trusted independent third party, able to protect both sides involved in the transaction but without the security and availability disadvantages of credit cards would satisfy these requirements and would, we believe, be rapidly accepted.