eCommerce and Online payments Ari Koponen

1. Research Seminar on Telecommunications BusinessT-109.7510spring 2006 eCommerce and Online payments Ari Koponen Operations Logistics/WS

2. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

3. What is e-Commerce ? • Conducting of business transactions… • Sharing of business information, delivery of information/goods… • Maintaining business and customer relationships via an electronic network… • E-Commerce affects the way that business interactions occur, influences how end customers negotiate, order, and pay for goods and services… Operations Logistics/WS

4. What is e-Commerce ? • Majority of businesses have a presence on the Web • Global market has attracted millions of businesses and organizations to the Internet and e-commerce • E-commerce enables businesses to provide services to customers, partners, employees, and the general public. • Internet is driving the development of a new generation of information systems. Operations Logistics/WS

5. e-Commerce Benefits • Easy comparison shopping • Reduced costs and increased competition • Convenience • 24 × 7 × 365 operation • Global access • Lower entry barriers • Increased market (customer) knowledge Operations Logistics/WS

6. e-Commerce Disadvantages • Hidden costs • Vulnerability to technical failure • Lack of security • Invasion of privacy • Low service levels • Legal issues Operations Logistics/WS

7. Issue Traditional eCommerce Advertising Sales “counter” Fund transfer Delivery Costs Tradional vs. eCommerce Usually a local event. Reaching 10-50K people Can reach all 275 million people in the US, or a large portion of the world 1 Seller can handle only hundred of people per day Website can process millions of orders per day Can take up to 7 business days Instant pick up in Person, Mail… Traditionally or Instantly by email or download Employee salaries IT –cost of the webpage Operations Logistics/WS

8. Different eCommerce types • Business to Consumer (B2C) • Retail Sales • Customer Support • 24 x 7 access to customers • Global marketing • Mass customization of products/services • Lower costs and higher profits • No reduced storefront related costs • Eliminate the “middleman” (wholesale…) • Business process efficiencies • Technical Challenges • International commerce • Multi-lingual content management • Cost effective distribution and fulfillment Operations Logistics/WS

9. Different eCommerce types • Business to business (B2B) • Many issues are the same as for B2C electronic commerce, but … • Larger volume orders; ongoing contracts • Established, focused relationships • Joint-planning and partnerships • More precise record keeping (e.g. shipping docs, funds transfer) • Integration with internal systems desirable • Integration along the value chain (with suppliers) desirable) • Automating supply • Increasing business efficiency • Technical Challenges • International commerce • Automation of custom, non-consistent processes Operations Logistics/WS

10. Different eCommerce types • Individual selling to individual By means of electronic auctions or classified ads • Auctions where buyers and sellers will probably never meet face-to-face  • Sellers post descriptions and buyers submit bids electronically • Consumer to Consumer (C2C) Operations Logistics/WS

11. eCommerce and different eCommerce types • Mobile Commerce (m-Commerce) • Access to: • information, goods and services any time and in any place by mobile device. • Purchase of • tickets for events, public transport, pay for parking or carwash, download music or games. • m-commerce features:  • Portability - The customer can access services and be reached anywhere anytime. • Trustworthiness - Sensitive information can be stored securely on the mobile device, secure transactions can be carried out. • Localization - Information and services can be adapted to the user‘s position. • Access to user profiles - Information and services can be adapted to the user‘s preferences. Operations Logistics/WS

12. eCommerce success area • Adult • Travel / Tourism • Retail - items that don’t need personal touch - objectivity in product quality and performance • music, books, gifts, Computers, electronic items • Auctions • Real Estate - houses and investment properties. • Customer support services • More efficient and effective processes between businesses (B 2 B) Operations Logistics/WS

13. eCommerce, not so successful areas • Items which require “touch and trial” • Luxury goods • Clothes - beyond T-shirts • Groceries - it works for some people but market is restricted Note: Many OFF line factors determine success of Online service. • i.e. if the target segment is elderly => they rather do business the old fashion way (money in the mattress) Operations Logistics/WS

14. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

15. Online payments methods • Virtual credit cards • ePayment systems in which a credit card issuer gives a special transaction number that can be used online in place of regular credit card numbers • eWallets • Software component in which a user stores credit card numbers and other personal information; when shopping online, the user simply clicks the eWallet to automatically fill in information needed to make a purchase • Smart cards • Electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card • Used to purchase products and services, control access to accounts • eCash (digital cash): • eCash is purchased from an online currency server • Digital equivalent of paper currency and coins, which enables secure and anonymous purchase of low-priced items Operations Logistics/WS

16. Online payments software • Software has typically following components • Front-end • For Visitors and Customers • Web-based by definition • Backend • For enterprise business managers • Merchandisers, Account Managers, Customer Support, etc. • Middleware • To interface with existing systems • Customer, Inventory, Credit, Payment and Order Processing systems Operations Logistics/WS

17. High Level Online Purchasing Architecture Seller Buyers Local Processing Home Pages Order processing, Inventory, payment Back-end Integration Front-end Integration Supply Chain Management Business layer External Partner Network Order processing, Inventory, payment Catalog Business Operations Logistics/WS

18. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

19. Internet Fraud Statistics, 2005 (USA) • The total loss in 2005 was $13,863,003, significantly higher than the $5,787,170 reported losts in 2004. • The average loss in 2005 was $1,917, also much higher than the $895 average loss in 2004. Source: National Internet Fraud Watch Information Center. Data is on complaints by consumers. Operations Logistics/WS

20. Internet Fraud Statistics, 2005 (USA) Instance % compl. Average Loss • Auctions 42% $1155 • Goods never delivered or misrepresented • General Merchandise 30% $2528 • Goods never delivered or misrepresented • Nigerian Scam 8% $6937 • False promises of riches • Fake Checks 6% $4361 • Consumers paid with phony checks • Lotteries 4% $2919 • Requests for payment to claim lottery • Info / Adult services 1% $504 • Cost and terms of services not disclosed Source: National Internet Fraud Watch Information Center Data is on complaints by consumers. Operations Logistics/WS

21. Type of problems 2004 • Delivery 41 % • Partial or non-delivery • Product 25 % • Non Working, not what was ordered • Price & Payment 8 % • Hidden Cost • Redress 7 % • Problem solving, warranty • Contract Terms 6 % • Return Policy • Other 13 % Operations Logistics/WS

22. What makes Online Payment more safe? • Integrity • Data is not changed during the transaction • Non-repudiation • is a way to guarantee that the sender of a message cannot later deny having sent the message and that the recipient cannot deny having received the message. • Digital signatures • Authenticity • Identify yourself and prove that. • Confidentiality • ensures that information can be read only by authorized entities. • Privacy • Deals with the rights of individuals and organizations to determine the “who, what, when, where, and how” of data use • Availability • Services is available with reasonable response time for those (and only those) whom are authorized to use them. Operations Logistics/WS

23. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

24. Applications SSL Record TCP IP SSL ,Security Socket Layer • Developed by Netscape (1994+...) • Meanwhile extended to “Transport Layer Security” (TLS) • Works at TCP level • “Applications” includes: • Handshake, Alert, Cipher Spec Change • Packets encoded by SSL Record Protocol • Implemented in web server, browser Operations Logistics/WS

25. SSL ,Security Socket Layer • SSL was created with 3 primary goals in mind: • Prevent a third party from ‘listening in’ on a web transaction. • Ensure that data hasn’t been tampered with, while in route from source to destination. • Finally, both parties want to be sure that they are communicating with whom they think they are communicating with. Operations Logistics/WS

26. SET , Secure Electronic Transactions • Developed by Visa and MasterCard • Designed to protect credit card transactions • Confidentiality: • all messages encrypted • Trust: • all parties must have digital certificates • Privacy: • information made available only when and where necessary Operations Logistics/WS

27. SET Transaction Operations Logistics/WS

28. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

29. Case Finnair • Booking Engine—was replaced by Amadeus’ Planitgo • Between March and Decembers 2005, there were 237950 internet bookings • January – February 2006, 68179 bookings • Travelers Touch Points • www.finnair.com, • internet campaigns, Finnair plus online, Internet Booking Engine • Contact center, booking, cancellations, changes • IVR (Interactive Voice Response), schedule info, vacancies • WAP/ SMS services, Schedules, Flight status, access to Finnair Plus, eCheck-In • Customer feedback (APJ), Customer feedback • email, phone, and letter or via the web site Operations Logistics/WS

30. Agenda • eCommerce and different eCommerce types • Online Payments • Security Issues related to Online Payment • SSL & SET protocols • Case Finnair • Conclusions Operations Logistics/WS

31. Conclusions • From eCommerce to eBusiness • It covers business processes along the whole value chain • There is expectations for exponential growth. • Must in the future for Companies • Building a trust is essential • “Fraud fight” is a continues process Operations Logistics/WS