Electronic Commerce Khaled M. Elleithy, Ph.D. [email protected] Department of Computer Engineering King Fahd University of Petroleum and Minerals.

Electronic Commerce Electronic Commerce

Khaled M. Elleithy, Ph.D.Khaled M. Elleithy, Ph.D.

[email protected]@ccse.kfupm.edu.sa

Department of Computer Engineering Department of Computer Engineering

King Fahd University of Petroleum and King Fahd University of Petroleum and MineralsMinerals

Dhahran, Saudi ArabiaDhahran, Saudi Arabia

Internet ServicesInternet Services

E-mailE-mail FTPFTP TelnetTelnet fingerfinger Mailing listsMailing lists USENET USENET

WWW

Gopher

Veronica

Archie

WAIS

Internet: Strengths and WeaknessesInternet: Strengths and Weaknesses

Worldwide connectivityWorldwide connectivity 148 out of 185 UN countries (1995)148 out of 185 UN countries (1995) 73 out of 159 UN countries (1991)73 out of 159 UN countries (1991)

InteractiveInteractive Relatively InexpensiveRelatively Inexpensive No central authorityNo central authority Reliability ?Reliability ? Security ?Security ?

RationaleRationale

A recently published report by Ernst & Young entitled A recently published report by Ernst & Young entitled Internet Shopping reported that 41 percent of US Internet Shopping reported that 41 percent of US households have computers, 20 percent are online, households have computers, 20 percent are online, with 11 percent more planning to go online within the with 11 percent more planning to go online within the next twelve months, bringing the total up to 1 in 4 US next twelve months, bringing the total up to 1 in 4 US households online. 32 percent of those online have households online. 32 percent of those online have purchased online with another 30 percent interested in purchased online with another 30 percent interested in web shopping. Computer products, books, travel, web shopping. Computer products, books, travel, clothing and music are the most commonly purchased clothing and music are the most commonly purchased online products.online products.

Electronic CommerceElectronic Commerce

What is Electronic Commerce?What is Electronic Commerce?

Electronic commerce is using the networks Electronic commerce is using the networks to facilitate the selling and buying of goods to facilitate the selling and buying of goods and services and related activities involved and services and related activities involved in the transaction of business.in the transaction of business.

Big business has been conducting electronic Big business has been conducting electronic commerce for several years using electronic commerce for several years using electronic Data Interchange (EDI)Data Interchange (EDI)

Now wide scale electronic commerce over Now wide scale electronic commerce over the Internet and the World Wide Web the Internet and the World Wide Web (WWW) is becoming possible.(WWW) is becoming possible.

Global electronic commerce and payments Global electronic commerce and payments business on the Internet will reach $800 business on the Internet will reach $800 billion within five years.billion within five years.

An annual growth rate of 16 percentAn annual growth rate of 16 percent

AdvantagesAdvantages

Cut the cost of finding customers and Cut the cost of finding customers and supplierssuppliers

*Expand trading areas from local to global*Expand trading areas from local to global Speed the time it takes to purchase and Speed the time it takes to purchase and

receive goods and servicesreceive goods and services Pay for and receive goods as they are needed Pay for and receive goods as they are needed

without having to rely on large inventorieswithout having to rely on large inventories

DisadvantagesDisadvantages

The perception that transacting business is The perception that transacting business is risky for both buyers and sellersrisky for both buyers and sellers

The lack of standards for digital money and The lack of standards for digital money and other electronic payment systemsother electronic payment systems

New Technologies in Using Internet for Electronic CommerceNew Technologies in Using Internet for Electronic Commerce

Conventional Electronic CommerceConventional Electronic Commerce

Online catalogs in hypertext formatOnline catalogs in hypertext format Fax, telephony, imagingFax, telephony, imaging Electronic ordersElectronic orders

New TechnologiesNew Technologies

Digital cashDigital cash MallsMalls Virtual companiesVirtual companies

CashCash

Characteristics:Characteristics: AnonymityAnonymity LiquidityLiquidity

WeaknessesWeaknesses High risk of robberyHigh risk of robbery Expensive to store and moveExpensive to store and move

$60 billion a year in USA for transportation$60 billion a year in USA for transportation

Electronic PaymentsElectronic Payments

Agents: buyer, seller, intermediaryAgents: buyer, seller, intermediary StepsSteps

buyer initiate transaction with the seller,buyer initiate transaction with the seller, seller demands payment,seller demands payment, buyer obtains a certification from intermediary,buyer obtains a certification from intermediary, buyer gives the certification to the seller,buyer gives the certification to the seller, the seller gives the certification to intermediarythe seller gives the certification to intermediary

Advantages of Electronic Fund TransferAdvantages of Electronic Fund Transfer

Saved timeSaved time Reduced costs for paper handlingReduced costs for paper handling FlexibilityFlexibility

ATMATM

Disadvantages of Electronic Fund TransferDisadvantages of Electronic Fund Transfer

Non-anonymityNon-anonymity Low LiquidityLow Liquidity

Prepaid CardsPrepaid Cards

AdvantagesAdvantages AnonymityAnonymity SecuritySecurity

DisadvantagesDisadvantages LiquidityLiquidity

Digital CashDigital Cash

StepsSteps Withdrawal of the digital cash from client’s Withdrawal of the digital cash from client’s

digi-cash accountdigi-cash account Transfer of the digi-cash to client and storing it Transfer of the digi-cash to client and storing it

in an electronic formatin an electronic format Transfer of digi-cash from client to seller using Transfer of digi-cash from client to seller using

Internet services (ftp, e-mail, ..)Internet services (ftp, e-mail, ..) All transferred digit-cash should be encryptedAll transferred digit-cash should be encrypted

MeritsMerits

AdvantagesAdvantages AnonymityAnonymity (cash)(cash) SecuritySecurity (ETF)(ETF) Low risk of robbery Low risk of robbery (ETF)(ETF) Non Expensive to store and move Non Expensive to store and move (ETF)(ETF)

ProblemsProblems LiquidityLiquidity

more people should have access to the Internetmore people should have access to the Internet

US. Export restrictions on advanced encrypted US. Export restrictions on advanced encrypted systems.systems.

Example: EcashExample: Ecash

Developed by Digicash Co. of AmsterdamDeveloped by Digicash Co. of Amsterdam Implemented by Mark Twain Bank in US.Implemented by Mark Twain Bank in US. Ecash accounts:Ecash accounts:

Funds are not deposits in the bankFunds are not deposits in the bank Funds are not insuredFunds are not insured

ProcedureProcedure Withdraw Ecash using InternetWithdraw Ecash using Internet Store Ecash in hard disk (electronic wallet)Store Ecash in hard disk (electronic wallet) Ecash is stored electronically and encryptedEcash is stored electronically and encrypted Transfer Ecash to others using InternetTransfer Ecash to others using Internet EncryptionEncryption

Asymmetric RSAAsymmetric RSA 768 bits key size768 bits key size

Internet MallsInternet Malls

Malls on WWW housing some thousands Malls on WWW housing some thousands retailersretailers

The number of malls is doubling every yearThe number of malls is doubling every year

List of some established online shopping List of some established online shopping malls:malls: http://www.homeport-sd.com/marketplace/http://www.homeport-sd.com/marketplace/ http://www.industry.nethttp://www.industry.net http://www.interwebinc.comhttp://www.interwebinc.com http://www.cts.comhttp://www.cts.com http://www.shoppping2000.comhttp://www.shoppping2000.com

First Virtual Companyhttp://www.fv.com/pubdoscs/fv-austin.txtFirst Virtual Companyhttp://www.fv.com/pubdoscs/fv-austin.txt

Four Founders lived in San Diego, Orange county, Four Founders lived in San Diego, Orange county, Silicon Valley, and Northern New Jersey.Silicon Valley, and Northern New Jersey.

Formed early 1994, first product announced Formed early 1994, first product announced October 1994October 1994

No Physical offices until 15 months after the No Physical offices until 15 months after the company was founded (eight months after system company was founded (eight months after system become operational)become operational)

The servers were setup in ClevelandThe servers were setup in Cleveland The data 800 numbers were in PortlandThe data 800 numbers were in Portland

First Virtual CompanyFirst Virtual Company

The voice 800 numbers were in OregonThe voice 800 numbers were in Oregon Marketing from WashingtonMarketing from Washington Public relations in San DiegoPublic relations in San Diego Most of transactions, marketing, public relations, Most of transactions, marketing, public relations,

maintenance of machines are done through the maintenance of machines are done through the Internet.Internet.

Internet payment systemInternet payment system Intermediary payment systemIntermediary payment system Does not relay on encryptionDoes not relay on encryption Sensitive information (postal service)Sensitive information (postal service)

Credit card numbers, PIN numbers (buyer)Credit card numbers, PIN numbers (buyer) Bank account (seller)Bank account (seller)

Non sensitive information (Internet)Non sensitive information (Internet)

StepsSteps The buyer issues a transaction using Internet The buyer issues a transaction using Internet

protocols (web pages, email, ftp ,…)protocols (web pages, email, ftp ,…) The server check for the PIN numberThe server check for the PIN number An email message is sent to the buyer to An email message is sent to the buyer to

confirm transactionconfirm transaction Transaction is initiated by the payment systemTransaction is initiated by the payment system

ImpactsImpacts

Velocity of money flowVelocity of money flow credit cards (ETF)credit cards (ETF) Digi-cashDigi-cash

Evolutionary stepsEvolutionary steps gold coins to fiat currencygold coins to fiat currency bills in wallet to electrons on hard diskbills in wallet to electrons on hard disk

Interest rate marginsInterest rate margins 40% of interest charged on loans is for branch 40% of interest charged on loans is for branch

delivery and management costs (citicorp).delivery and management costs (citicorp).

AmbiguitiesAmbiguities

Technological constraintsTechnological constraints Institutional constraintsInstitutional constraints Financial institutions acceptanceFinancial institutions acceptance Consumer acceptanceConsumer acceptance