What is E-Business - Web viewQUESTIONS FOR E-BUSINESS & Enterprise Planning System (EPS) Contents....

EBZ & EPS Question Bank | Notes by Peeyush

QUESTIONS FOR E-BUSINESS & Enterprise Planning System (EPS)

Contents1. What is E-Business ?...................................................................................................................................................................................................................................... 2

2. Different ways to do or can do Business.............................................................................................................................................................................................. 2

3. Is india mature for E-Commerce ?........................................................................................................................................................................................................... 5

4. What is Business Model ?............................................................................................................................................................................................................................ 6

5. What is Revenue model ?............................................................................................................................................................................................................................. 7

6. How Payment gateway works ?................................................................................................................................................................................................................ 8

7. What is ERP..................................................................................................................................................................................................................................................... 14

8. Explain the advantages and disadvantages of ERP in brief....................................................................................................................................................... 15

9. Explain ETVX criteria ?.............................................................................................................................................................................................................................. 16

10. What are the steps of data migration for successful ERP implementations?................................................................................................................. 17

11. Additional Reading................................................................................................................................................................................................................................... 19

12. Pointers (Keywords)................................................................................................................................................................................................................................ 22

Note: In order to build flow in the writeup, I have included my understanding in between the pointers from Prasad’s notes and audio

recording of Prof Anuj’s sessions. I have tried to mark external references, if any, in between the answers so that you are able to correct

unintentional mistakes committed in my writeup. Have put up additional reading section in order to keep the pointers which were not used

in any answers as well as whatever I could find worthwhile from net

1


1. What is E-Business ? (Source: Prasad’s notes & Audio recordings.)

eBusiness Definition: Exchange of Goods and/or Service over electronic medium.

eBusiness shifts business towards digitalization. The objective here is to use internet as the medium as was the case in the first phase.

In the new wave, key will be application of Cloud for conducting eBusiness.

Salient features of eBusiness:

eBusiness has not contributed to GDP.

New jobs were created in the first phase of IT Revolution.

eBusiness, in its first avtaar, didn’t attain its true potential as it was only mapping rudimentary traditional models into online

mechanism.

In the new revolution, it is cannibalizing on existing jobs and business by getting rid of intermediate layers. It therefore is

changing the way Business is done. For example, Amazon has taken away business of book shops.

The need for eBusiness:

Working with people is very difficult. They don’t follow standards, rules and policies.

Government policies are not very conducive either. Business world is begging for cost while common may is begging for survival.

Government which is largest employer contributes virtually zero to GDP. The answer lies in application of Technology which will

change the way business is done. Example given is of Google which tracks your location and recommends you choices as per the

time of the day in addition to reminding you of events scheduled by you in your calendar.

Penetration of Internet through Mobile devices have increased interest in building mobile based eBusiness solutions

2. Different ways to do or can do Business

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Every business needs a business model and revenue model for it to succeed. It is essential to understand that no business can do

everything or meet all requirements. It is important for entrepreneurs to work out the segments and functions in which they would like

to operate, apply business model to it, test it against the revenue model and then decide which of the needs can their business meet

effectively. For example, when colorplus is to decide whether to launch red colored trousers or jeans for a college crowd, the idea could

be tested through following business model.

Type of

Business

#

Person

s

Capita

l

Locatio

n

Clients Target

Audienc

e

Resources

(Skills/Technology

)

Alliances

(Agents/Franchise

)

Seasona

l

Competito

r

Outsourcin

g

Targeting

kids, teens,

young crowd

in metros

Large Metro

cities

Middle

class &

fashio

n

freaks

Kids,

Teens,

Young

crowd

Good quality fabric

production,

different

shades/dyes of red

Advertisement,

Own shops,

Franchisee

Summer Levis, To Jabong,

Flipkart etc

Target rural

mass through

advertisemen

t & brand

endorsement

Large Towns Rural

class,

middle

class,

upper

class

Young

crowds

Acceptable quality

with lower cost

Local shops,

promotions

through posters,

tv advertisements

Summer

, Winter

Local shops,

promotions

Legal Status

Sole

proprietor

Partnership

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Private

Limited

Large

Operating

Model

Agencies : LIC

Multilevel

marketing :

Amway

Strategic

Business

Model

B2B

B2C

C2C

C2B

This sheet would then be assessed against the Revenue model which is estimated through following steps

1) Demand estimation through public survey

2) Potential sales estimate

3) Cost estimation & Comparative analysis

Cost depends on factors like volume and market. Only when profit is estimated

[ (Selling Price – Cost) X No. of units ] the activities is given a go-ahead.

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Also refer [WaysToDoBusiness.xls]

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3. Is india mature for E-Commerce ?

India definitely has seen emergence of eCommerce/eBusiness in last decade through success of

Flipkart, Snapdeal, Jabong, IRCTC etc. However, the maturity is still debatable. This needs to be

understood in multiple perspectives. Am listing the critical ones here

Market readiness

Indian market in urban sector is very much geared up for conducting business online. B2B

transactions are happening very much online except for movement of raw material and/or

finished goods. Similarly B2C transactions are also picking up with Internet Devices (such as

Computers, Mobiles, Smart TVs etc) wherein exchange is happening digitally except for the final

delivery of the goods and/or services which still is happening offline.

Government policies

Government while is enabling technologies though through regulated medium, however is not

helping business sector by bringing in imbalance through inappropriate labour laws and

economic policies. The recent declaration of food security bill has put tremendous burden on

business sector which was already reeling under pressures of meeting labour demands. While

eBusiness is helping Business world in eliminating middle layers and connect directly with

consumers, it still relies upon people to the extent of their role in manufacturing or

product/service delivery.

Infrastructure

Infrastructure is available in terms of Information highway readiness and ERP systems to serve

as back-end to eBusiness. Physical infrastructure and resources are still limited. eBusiness will

meets its true potential the day the dependency on physical resources is reduced to nil and

entire solution space is delivered on technology platform in entirety.

Security Issues

There have been too many cyber attacks with the latest incident reported of Mr Sanjay Dhande,

member in-charge of cyber-security (ref: http://articles.timesofindia.indiatimes.com/2013-09-

18/pune/42181702_1_19-lakh-sim-card-bank-account) wherein 19 lakhs rupees were

withdrawn from his account wherein hacker even intercepted his cell network preventing any

notification to reach his cell phone. This latest attack has raised doubts on ability of 2-factor (or

MIM 2011 – 2014 | Prof. Anuj 6


multi-factor) authentication in protecting from such crimes. In other words, security by no

means is a responsibility of one entity any longer in this connected world.

India is still growing through these experiences, constraints and opportunities before it matures

completely in the eBusiness space.

4. What is Business Model ? The essence here is for Strategic Business Model which also was part of the excel sheet matrix.

Strategy that a company employs to go to market to establish itself, become a leader or eliminate

competition. Strategy (as defined by Michael Porter) is the creation of a unique and valuable

position, involving a different set of activities

Serving few needs of many customers

Serving broad needs of few customers

Serving broad needs of many customers

Strategy requires one to make trade-offs in order to select the best choice in the given

circumstances. Business is more of quantitative and gives psychological advantage as well that

reflects into its numbers. We will discuss some of the strategic business model adopted by

companies in past.

Nirma vs HUL

HUL through surf had established itself as market leader in the detergent segment. Instead of

taking HUL head-on on the quality, Nirma played the price game. They launched detergent which

had an acceptable quality but at a drastically lower price. They not only established themselves

into the low price segment but also ended up reducing market share of HUL.

Cherry vs Kiwi shoe polish

Cherry placed itself as a premier segment product even though fundamentally it has same

composition as that of other shoe polish.

Kelloggs launched its corn flakes product at 60% discount in japan and gave free to schools for

breakfast for more than three years. By the time, children passed out of school they got used to

Kelloggs as breakfast cereal. In this example, having deep pocket enabled Kelloggs to go with this

strategy and establish itself in Japanese market in gradual manner. On the contrary, if the

Kelloggs would have tried to launch without any such strategy, quite possibly it would have

failed to survive in that market.

Also there is change in the way Business are conducted with penetration of internet through

IPV4 and IPV6. We now live in a connected world with Internet of Things. It is like having a

bread basket which is connected to Internet. Through internet technology will replenish the

basket as the items are picked from it.

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IPV6 will connect all kinds of devices such as TV etc. Computers will not longer be required for

consumers to seek services from eBusiness. Hence the spread of eBusiness will grow beyond the

computer age. EDI – Specialized avtar / superior form of E-Commerce because security is a big

issue with e-commerce. EDI has standardization and creates a virtual net.

Information highway is the new way of doing business. Currently it is location independent and

soon will become person independent. You might decide to have your own robot doing and

sitting the tasks while you will be taking strategic decision. eBusiness is fabuolous way of doing

business using someone elses resources and services. Differentiator will be how your

organization implements strategic business model. One can also collaborate with other players.

Also the markets are no longer local and one can tap into any geography now. In last two

decades, the Geo-political map is as follows:

China – known as Manufacturing hub

India – known for its IT talent

US / UK – known for Financial strength

Europe / Middle east – typically the Consumer space

S.E.Asia – Knownd for affordable Labour

As the purchasing power has improved, there’s rise of Irrational behavior among consumers

which allows Businesses to exploit the psychology of consumers:

Example would be buying of Samsung S4 @ Rs.38000/- at an average life of 2 years against

which consumers might walk down daily rather than catching a Bus / Cab to save that much of

money for an year or two. Consumers have even bought TVS scooters only because Tendulkar

became brand ambassador for it for a limited period of time. Though it might look illogical and

unreasonable on behalf of consumer space, this is a well known tool up for exploits by Business

community.

Strategic Business model is derived from considerations of such factors in consumer behavior

pattern and the financial strength of the business house.

5. What is Revenue model ?Revenue model is worked out through following steps

1) Demand estimation through public survey

2) Potential sales estimate

3) Cost estimation & Comparative analysis

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Demand estimation can be done using following:

Survey or Past Data

Where to be sold

Whom to be sold

This will help in estimating Potential sales (#). Next would be to derive Cost Estimation &

perform Comparative analysis with existing benchmark, if any. Competitve prices are the

benchmark. Cost depends on factors like volume, market

Eg. Orange selling at churchgate station

What price will a orange cost me at the sales, not at purchase

If I order 20 oranges – it will cost 6 Rs.

If I order 30 oranges – it will cost 5 Rs.

For each incremental rs. What is the decrease in my price… this marginal utility curve will show

me the profit maximization or we have Sales maximization

After the base for revenue – we need to find a way to make the revenue model work with a

viable Business Strategies. But it must be noted that there is Revenue Model are not permanent.

One can alter the revenue, business as well as the delivery model in E-Commerce.

Eg.:

1) Vegetable market in Vile Parle (W) VS Vile Parle (E).

Initially West market was in demand.

After the skywalk repairing etc, the JVPD customers were unable to enter the road through car.

So the demand decreased, which made a massive crisis in West.

6. How Payment gateway works ?

A Payment Gateway is an application that facilitates transaction of purchases over internet. It

uses Internet as the communication medium for this activity to happen.

A Customer selects to purchase over internet with a credit, debit card or netbanking.

The Internet browser uses Secure Socket layer and encrypts the information being sent

by user, generates session and forwards user to payment gateway service page where

user fills up credentials required for making payment.

Payment Gateway in turn sends this information to the Card Associations ( VISA, MASTER

etc).

The Card association forwards the information to the bank that issued the card.

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The Bank checks if there are sufficient funds in the card and sends an authorization code

to the Card association.

This code confirms to the payment processor to process if there are funds in the card or

decline if they are not with proper reasons.

The payment processor sends this authorization code to the payment Gateway.

Payment Gateway then sends the code to the Business to process or decline the payment.

Finally the Business or website takes the action accordingly and sends receipts to the

customer.

Customers & RBI’s perspective

Following provisions are must to ensure minimum security levels for electronic payments

requiring payment gateways. Example taken here is from RuPay services enabled by NPCI (Ref:

http://www.npci.org.in/PaySecure.aspx)

Customers will be authenticated by their issuing bank using methods like OTP (One Time

Password)/net banking credentials or challenge questions etc. or any other parameters

defined by the issuer bank for the first successful transaction. The customer will have to

complete one successful transaction to be registered.

Customer will have to select an image and enter a phrase to register his RuPay card for

online usage during his first transaction on e-merchants website.

In subsequent transactions, the customer will have to identify the correct registered

image in order to get primary validation and acknowledge the phrase along with last

three online transactions. This is an anti-phishing measure.

Subsequently the image and phrase become level one validating factors (please note

there validations only permit customer access to PIN Pad page and is not considered for

final transaction authorisation). In case the customer forgets or exceeds the number of

MIM 2011 – 2014 | Prof. Anuj 10

http://www.npci.org.in/PaySecure.aspx


attempts for image selection they will need to wait till next business day for card to be

unblocked or re-register to enter new phrase and select a new image.

Customer is required to use a valid ATM PIN for authorization of the e-Commerce

transactions. Customer will have to enter PIN on the “bank themed” (Look of the page will

be exactly similar to the physical card used by the customer) scrambling PIN pad using

mouse clicks only. The PIN pad will shuffle each time a digit is entered. This is an

additional security measure.

The customer will now be notified about the successful transaction on submitting a valid

PIN.

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From the eBusiness perspective,

Business owner has to consider following criteria in mind before selecting payment gateway

integration

(Source: http://www.nextbigwhat.com/payment-gateways-in-india-297)

1) Paperwork required to setup the account: It may seem daunting at first, but is not an issue

normally with EBS/CCAvenue. They ask for an agreement to be printed and signed on a stamp

paper to be sent to them. They will provide you with the agreement.

2) Setup Fee – Payment gateways charge an initial amount that can range from Rs. 5000 to Rs.

40000. They also charge an annual maintenance fee that is deducted from your account each

year.

3) TDR Rate – This is the amount that is deducted from each transaction, and can vary for

credit cards/debit cards and net banking transactions. Some payment gateways charge more for

American Express (or any other card/bank).

4) Site Integration – Check what options/environment is available (Java only or ActiveX as

well)? Which language is used and is support.

5) Transaction failure – One can refer the transaction failure cases reported on IRCTC website.

This is important as this can lead to revenue loss, and customers may go to the competitor..

6) Cancellation –For some payment gateways, fee is not charged for credit cards, but full fee is

charged for debit card, net banking even if you cancel a transaction.

7) Chargebacks – Check what the policy is on chargebacks. It seems third party Payment

Gateways do not want to confront the banks, and end up favoring the customer even when

customer is claiming a false chargeback. It is recommended to learn about the hold period for

chargeback.

8) Fraud alert – Some times unnecessary fraud alerts will lead to order cancellation. Find out

how fraud alerts are handled by the gateway, as too much documentation requirement may

drive off customers.

9) Payments – When and how banks payout, via NEFT or cheque and choose the option that

works for you. Some banks levy fee for each NEFT or courier charges for the cheque.

10) Customer Service –You will definitely need to contact them from time to time to resolve

issues related to transactions. Check if they have a toll free number for customer service and

how long is the wait time.

(Source: http://www.nextbigwhat.com/costs-of-setting-up-an-e-commerce-business-in-india-

analysis-297/)

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(Source: http://www.nextbigwhat.com/comparison-payment-gateways-in-india-297/)

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The different payment gateways available

(Source: http://www.viprasoft.com/blog/item/1-comparision-of-indian-payment-

gateways.html)

S.

N

o.

Gateway

Name

Setup

Fee

Transa

ction%

Credit-

Debit

Cards

Transa

ction%

Internet

bankin

g

AMC

Cost-

INR

Credit Cards

supportBank Support

1 CCAvenue 7500 7% 4% 1200Visa,Master Card,

Amex,Diners,JCB

Total 43 banks for

netbanking

2Direcpay.com

10,000 6.5% 6% 2400 Visa,Master CardTotal 27 banks for

netbanking

3ICICI Merchant

Service30,000 3-4% Nil Visa, Master Card

4 HDFC Bank 50,000 3.5-6% 12000 Visa, Master Card

5 IndiaPay 6,000 5% 3600

Visa, Master

Card,American

Ex, Diners, JCB,

Discover

Major banks(debit

card only)

6 Transecute Nil 5% Nil Master/Visa None

7EPaymentsGl

obal9,990 7% 2700

8 EBS 6,000 6% 6% 2400Visa, Master Card,

Diners

48 Banks for

Netbanking

9 PAYSIGNET 3000** 5% 5% 1500

10 CellPay 15,000 4.5% 4.5% 2500Visa,MasterCard,

Cash cardsMajor banks

11 iPayIn Nil 3.99% 3.99% 2499 Visa 20 Banks

12 PayU 6000 5.4% 5.4% 2400Visa,MasterCard,

Netbanking9 Major banks

13 HSBC 60,000 2.75%No

support0 Visa,MasterCard

Only credit card/debit

cards & companies

with 2 years existence

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14 Atom 20,000 3% 3% 5000

Visa,MasterCard,

AMEX,Diners,HC

B etc

SBI,HDFC,

ICICI( total 20 banks)

15 Citibank Only for High transactions( > Rs. 50 lacs)

Only

Diners/Master/Vis

a Credit & Debit

Cards

None

16 Bank of Baroda 15,000 4% - 2500 Visa, Mastercard Not supported

17 WhizPay 30000 3.5% 3.5% Visa,MasterCard Major banks

19 ABCPayment

s

10,000 7% 7% NilMaster

Card,Visa,Diners

ICICI, Citibank, HDFC,

Axis, IndusInd, IDBI

20TechProcess

Solutions Ltd30,000 2.5% 2.5% Rs. 5000

Master

Card,Visa,Diners27 banks

7. What is ERP(Source: Pointers from Prasad, Audio lecture & PPT content)

Motive here is to build an Intelligent Enterprise through application of ERP. Intelligent

enterprise follows processes, keep a check and do not take rash decisions. Enterprise takes

informed decisions enabled by reports/data from MIS which senses from environment,

interprets and provides information. It empowers Entrepreneur to decide from repertoire of

available responses, execute decision with speed and intensity. Example would be identifying

deviations by supervisor from the regular business process resulting in low production output.

MIS would enable Production Manager to question such actions of supervisor and prevent such

deviations from happening in future.

ERP reflects an Enterprise. An Enterprise is like an intelligent being having aspirations derived

from Vision. Vision dictates Mission which in turns evolve Vision further. In other words, Vision

and Mission keep evolving each other in an iterative cycle.

ERP essentially is a packaged software that was traditionally in client-server form and has now

evolved to web-based format. ERP is real time and its main task is to integrate Business

Processes. It ties diverse geographies with each other there by creating an enterprise wide

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database. ERP processes company transactions impacting data in real time and enables

transaction processing and planning.

ERP enables Business without barriers through its four pillars viz., Business Management,

Business Architecture, Business Insight and Business Anywhere.

Business Management involves convergence of geographies with embedded capabilities of the

Virtualized enterprises. Business Architecture comprises of adaptable business processes

resulting in adaptable user experience. Business processes are the heart of any Organization and

their adaptability dictates how a business will evolve as the world changes. It also imposes logic

on strategy, culture and organization. It improves collaborative productivity. An intelligent ERP

will have user driven KPIs, facilitates search based analysis and shall provide with Information

on demand thereby improving Business Insight of decision makers. Lastly Business anywhere is

enabled through smart engine design of ERP enabling information tracking and delivery over

smart devices 24X7.

8. Explain the advantages and disadvantages of ERP in brief

(Source: PPT & external content)

Advantages (Copied from previous answer)

ERP enables Business without barriers through its four pillars viz., Business Management,

Business Architecture, Business Insight and Business Anywhere.

Business Management involves convergence of geographies with embedded capabilities of the

Virtualized enterprises. Business Architecture comprises of adaptable business processes

resulting in adaptable user experience. Business processes are the heart of any Organization and

their adaptability dictates how a business will evolve as the world changes. It also imposes logic

on strategy, culture and organization. It improves collaborative productivity. An intelligent ERP

will have user driven KPIs, facilitates search based analysis and shall provide with Information

on demand thereby improving Business Insight of decision makers. Lastly Business anywhere is

enabled through smart engine design of ERP enabling information tracking and delivery over

smart devices 24X7.

ERP enforces Processes and eliminates person dependency to large extent thereby maintaining

consistent and/or superior performance.

Disadvantages

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ERP product are complex product and have extensive infrastructure requirements in order to

achieve its full potential. They have cost overhead and takes lot of time for implementation. ERP

implementations fail because analysis is not correct to identify business process mapping or the

business processes are not ready. ERP also at times demand Business Process Re-engineering

which is recommended by consultants but face resistance from the in-house staff. Also ERP

implementation may not work out if entire organisation level commitment is missing.

9. Explain ETVX criteria ?

Business Architecture is defined with adaptable business processes which is the heart of

Business. ETVX is applied to detail out these business processes for detailing out their

functionality as well as integration with other business processes. ETVX stands for Entry, Tasks,

Validations and Exit. Entry defines the trigger point or entry point for the process. Tasks lists out

the steps to be performed by the computer. They essentially will map to program instructions

that will be executed by the computer. Validations are the checks applied in order to ascertain

that tasks are not violating and leading process to invalid state. Exit indicates

closure/completion of the process. As pre-requisite to ETVX, one needs to list out all the data

stores that will be read or updated by the process. In order to understand how a Business

process is detailed through ETVX, let us study the example of salary processing function.

Salary processing will contain data related to:

• Employee records

• Their designations and salary structures including basic, allowances, perquisites, awards,

deductions

• Employee bank account details

• Leave Accruals

• Allowances List

• Deductions List

• Perquisites List

• Awards List

• Pay History

• Employee termination details

• Bank Code list

• Tax scales list

• Reports

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Entry -

• Date reaching end of month

• Employee resigning from organization

Task -

• Get salary structure of employee

• Compute basic, allowances, perks etc.

• Calculate any pro-rata salary components if applicable for the month

• Apply deductions

• Calculate TDS

In case employee has left the organization

• In addition to basic salary and allowances, encash leaves as per organization's policy

• Apply deductions and calculate TDS

• Compute full and final settlement

Validation -

• Ensure salary calculation is done as per the structure defined for each employee

• Check if defined rules have been considered. For e.g. in case a Salesman has made sales

greater than Rs. 10L for the month, then he gets 5% commission.

• Rules may differ for permanent and contract to hire employees.

Exit -

• Generate paysilp of the employees

• Credit salary to employee's savings bank account

• Credit employee's PF account, gratuity, superannuation etc.

• Email payslip to employees and update in all systems

10.What are the steps of data migration for successful ERP implementations?

ERP implementation would mean defining Business Architecture starting from building of Vision

and Mission till the point of Business Process definitions.

Vision is typically an unattainable Dream which is also evolved from the gaps and the

opportunities arising from them. Vision is the DNA which says how long a company will live.

Vision develops over a period of time and is a challenging exercise. Marketing, branding comes

from Vision. Vision energies. Vision is the desire.

MISSION on the other hand is the action identified in order to attain the Vision. Mission becomes

an collective positioning to achieve certain goals. Mission would be detailed out as short term,

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medium term and long term goals. In essence Mission is tools, technology and process to attain.

Mission is realistic and moves gradually towards vision. Vision desires and Mission fulfills.

Mission and vision are evolved in iterative process in cycle as you go from vision to mission and

sometimes from mission to vision.

Nuts and bolts of the organization would be Processes, structures and systems. An organization

is connected by Roles. Build structures and map processes to structures. For each role, describe

Job Description. This is called Influencing Organization Behavior.

Structure is what you need to deliver the vision and the mission. Processes capture business

logic. Business logic should remain same irrespective of trade. Technology to be non-coupled as

it allows you freedom to exploit whatever you want to shift in future.

Then one needs to understand how the system shall work. Is there inventory and

manufacturing? Or am I just sourcing and selling? (like jabong). Processes work on structure.

Change the structure and processes will collapse. Processes are non coupled to the systems but

are coupled to the structure. Structure is aligned to your star (strength area). One pointed star

moves from local player to becoming international player.

For the process, you use ETVX Criteria to detail out the processes and their integration. Typically

an organization will have following processes

ERP implementation will involve selection of vendor having product capable of supporting these

process and customizable/configurable enough to keep Business Processes adaptable. Then

identify a cross-functional team and prepare a plan to have the business processes mapped into

ERP. For an organization spread across geographies, phase wise deployment of geographic

regions through the local users is recommended. Identify the types of transactions permitted

MIM 2011 – 2014 | Prof. Anuj 19


against the roles previously identified and the reports that these roles will consume. Finally

existing data needs to be migrated and the ERP is rolled out into operation. ERP Integration will

enable global consolidation and embed end-to-end capabilities. A strong ERP is what makes

Amazon eBusiness successful.

11.Additional ReadingFor payment Gateway

Govt of India Role

The Reserve Bank of India as the central bank of India has been playing developmental role of

National Payment systems and has taken several initiatives for Safe, Secure, Sound, Efficient,

Accessible and Authorised payment systems in the country.

The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-

committee of the Central Board of the Reserve Bank of India is the highest policy making body

on payment systems in the country and empowered for authorising, prescribing policies and

setting standards for regulating and supervising all the payment and settlement systems in the

country. The Department of Payment and Settlement Systems of the Reserve Bank of India

serves as the Secretariat to the Board and executes its directions.

In India, the payment and settlement systems are regulated by the Payment and Settlement

Systems Act, 2007 (PSS Act) which was legislated in December 2007 and came into effect from

August 12, 2008. Reserve Bank has since authorised payment system operators of pre-paid

payment instruments, card schemes, cross-border in-bound money transfers, Automated Teller

Machine (ATM) networks and centralised clearing arrangements. We shall now discuss how the

Electronic payment and payment gateways fit into these scheme of things.

Electronic Payments

The initiatives taken by RBI in the mid-eighties and early-nineties focused on technology-based

solutions for the improvement of the payment and settlement system infrastructure, coupled

with the introduction of new payment products by taking advantage of the technological

advancements in banks.

Electronic Clearing Service (ECS) Credit

The Bank introduced the ECS (Credit) scheme during the 1990s to handle bulk and repetitive

payment requirements (like salary, interest, dividend payments) of corporates and other

institutions. ECS (Credit) facilitates customer accounts to be credited on the specified value date

and is presently available at all major cities in the country.

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Electronic Clearing Service (ECS) Debit

The ECS (Debit) Scheme was introduced by RBI to provide a faster method of effecting periodic

and repetitive collections of utility companies. ECS (Debit) facilitates consumers / subscribers of

utility companies to make routine and repetitive payments by ‘mandating’ bank branches to

debit their accounts and pass on the money to the companies. This tremendously minimises use

of paper instruments apart from improving process efficiency and customer satisfaction. There

is no limit as to the minimum or maximum amount of payment. This is also available across

major cities in the country.

National Electronic Funds Transfer (NEFT) System

In November 2005, a more secure system was introduced for facilitating one-to-one funds

transfer requirements of individuals / corporates. Available across a longer time window, the

NEFT system provides for batch settlements at hourly intervals, thus enabling near real-time

transfer of funds. Certain other unique features viz. accepting cash for originating transactions,

initiating transfer requests without any minimum or maximum amount limitations, facilitating

one-way transfers to Nepal, receiving confirmation of the date / time of credit to the account of

the beneficiaries, etc., are available in the system.

Real Time Gross Settlement (RTGS) System

RTGS is a funds transfer systems where transfer of money takes place from one bank to another

on a "real time" and on "gross" basis. Settlement in "real time" means payment transaction is not

subjected to any waiting period. "Gross settlement" means the transaction is settled on one to

one basis without bunching or netting with any other transaction. Once processed, payments are

final and irrevocable. This was introduced in in 2004 and settles all inter-bank payments and

customer transactions above ` 2 lakh.

Pre-paid Payment Systems

Pre-paid instruments are payment instruments that facilitate purchase of goods and services

against the value stored on these instruments. The value stored on such instruments represents

the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-

paid payment instruments can be issued in the form of smart cards, magnetic stripe cards,

internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers, etc.

Subsequent to the notification of the PSS Act, policy guidelines for issuance and operation of

prepaid instruments in India were issued in the public interest to regulate the issue of prepaid

payment instruments in the country.

The use of pre-paid payment instruments for cross border transactions has not been permitted,

except for the payment instruments approved under Foreign Exchange Management Act,1999

(FEMA).

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Mobile Banking System

Only banks which are licensed and supervised in India and have a physical presence in India are

permitted to offer mobile banking after obtaining necessary permission from Reserve Bank. The

guidelines focus on systems for security and inter-bank transfer arrangements through Reserve

Bank's authorized systems. On the technology front the objective is to enable the development of

inter-operable standards so as to facilitate funds transfer from one account to any other account

in the same or any other bank on a real time basis irrespective of the mobile network a customer

has subscribed to.

ATMs / Point of Sale (POS) Terminals / Online Transactions

Presently, there are over 61,000 ATMs in India. Savings Bank customers can withdraw cash from

any bank terminal up to 5 times in a month without being charged for the same. To address the

customer service issues arising out of failed ATM transactions where the customer's account

gets debited without actual disbursal of cash, the Reserve Bank has mandated re-crediting of

such failed transactions within 12 working day and mandated compensation for delays beyond

the stipulated period. Furthermore, a standardised template has been prescribed for displaying

at all ATM locations to facilitate lodging of complaints by customers.

There are over five lakh POS terminals in the country, which enable customers to make

payments for purchases of goods and services by means of credit/debit cards. To facilitate

customer convenience the Bank has also permitted cash withdrawal using debit cards issued by

the banks at PoS terminals.

The PoS for accepting card payments also include online payment gateways. This facility is used

for enabling online payments for goods and services. The online payment are enabled through

own payment gateways or third party service providers called intermediaries. In payment

transactions involving intermediaries, these intermediaries act as the initial recipient of

payments and distribute the payment to merchants. In such transactions, the customers are

exposed to the uncertainty of payment as most merchants treat the payments as final on receipt

from the intermediaries. In this regard safeguard the interests of customers and to ensure that

the payments made by them using Electronic/Online Payment modes are duly accounted for by

intermediaries receiving such payments, directions were issued in November 2009. Directions

require that the funds received from customers for such transactions need to be maintained in

an internal account of a bank and the intermediary should not have access to the same.

Further, to reduce the risks arising out of the use of credit/debit cards over internet/IVR

(technically referred to as card not present (CNP) transactions), Reserve Bank mandated that all

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CNP transactions should be additionally authenticated based on information not available on the

card and an online alert should be sent to the cardholders for such transactions.

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12. Pointers (Keywords)eBusiness: Exchange of Goods AND/OR Service over electronic medium.

Irrational behavior drives market (purchase of house, high-end smart phones)

Business Model consists of 1) Type of Business, 2) Legal Status, 3) Operating Model, 4) Strategic Business Model, 5) # of Persons, 6) Capital, 7) Location, 8) Clients, 9) Target Audience, 10) Resources (Skills/Technology), 11) Alliances, 12) Seasonal (Frequency), 13) Competitors and 14) Outsourcing

Organization: A structure of defined process manned by people with defined responsibilities to achieve goal

Business Architecture

Good Governance

Entry Task Validation eXit (ETVX)

Vision desires and Mission fulfills

Structure delivers mission and vision

Processes capture business logic. Non-coupled to systems, coupled to structures.

Profit is never a goal, it’s a by product of a Business model.Profit is the output of the aspirations one has at work.

MIM 2011 – 2014 | Prof. Anuj 24

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