Transaction Issues

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TRANSACTION ISSUES

As companies embraced electronic commerce and worked to devise winning online business strategyies they faced a number of key challenges. Among these, perhaps none were more pressing or problematic in the late 1990s and early 2000s than the issues related to online transactions. With problems ranging from implementing effective online ordering systems to securing electronic payments and customer information, from devising quick and efficient delivery and return operations to integrating transaction applications into the technological infrastructure, transaction issues were at the heart of the movement to electronic commerce.

Before the Electronic Age, paper-based documents validated and sealed with a written signature were the overwhelmingly dominant means of conducting commercial transactions for nearly a thousand years. The onset of electronic transactions disrupted established models for nearly every area of commerce, and businesses, facing tough competitive pressures, scrambled to find new models to adjust to a changed commercial environment. How does one validate an electronic document? At what point in an electronic transaction is it considered legally sent and received? What kind of infrastructure is required to record and store electronic transactions? What measures are required to protect sensitive information, such as credit-card numbers or company secrets?

ACCOMMODATING CUSTOMERS

Some of the major transaction issues that e-commerce firms needed to address at the start of the 21st century were revealed and prioritized in a report released by PricewaterhouseCoopers in 2000. Titled Barriers to Online Purchasing 2000, the report found that, of all the major barriers to online shopping, 79 percent of survey respondents listed credit card security as their greatest concern, while 77 percent most feared disclosure of their personal details, 48 percent reported that their lack of trust in online merchants most prevented them from shopping online, 40 percent were bewildered by Web storefronts, 21 percent were befuddled by the convoluted order processes, and 20 percent were simply fed up with the time it took to complete a transaction.

Clearly, security was among the preeminent transaction concerns, for obvious reasons. On the consumer side, the novel electronic shopping environment provides unique opportunities for convenience, comparison shopping, and speed, but through the 1990s and early 2000s, many consumers were wary of trusting companies—and even the Internet itself—with their personal and financial information out of fear that it could potentially fall into the wrong hands. In many cases, these fears were justified; electronic credit card theft was not unheard of in the early years of widespread e-commerce. Thus businesses had a clear incentive to fortify their transaction systems to ward off hackers and other cybercriminals. If customers weren't at ease making online purchases, then companies wouldn't be able to reap the full advantages inherent in e-commerce. Moreover, if firms earned a reputation for lax security measures, they could simply lose their customers to competitors. At the macro level, analysts placed great hope in the promise of e-commerce, and recognized that security concerns were holding back the potential national and international benefits that online business holds.

It was for these reasons that U.S. legislators finally relaxed restrictions on the proliferation of strong encryption schemes in the late 1990s. For years, governments were concerned about the widespread use of powerful encryption technologies, as it could render criminal investigations harder to conduct. At the close of the 20th century, however, the United States opted to allow wider international proliferation of encryption schemes as a way of fostering the development of e-commerce. Encryption was among the key methods of securing electronic transactions, scrambling and coding sensitive information in a manner that only authorized persons could decode and read. However, encryption schemes continually grow stronger in response to more sophisticated hacking technologies and methods, representing a sort of arms race between hackers and security designers.

There was a more immediate and pragmatic reason for companies to be on guard against potential criminals and untrustworthy customers. Credit card companies, highly aware themselves of the risks involved in e-commerce, charge online merchants much higher percentages than their brick-and-mortar counterparts for services such as credit authorization, verification, and payment. Moreover, charge-backs, or those occurrences where a credit card number comes up empty, are the sole responsibility of the online company, and constituted a conspicuously high expense for e-businesses in the 1990s and early 2000s.

TECHNICAL ASPECTS

For completing online transactions, some form of seal is required akin to the traditional signature. For that reason, digital signatures came to prominence in the late 1990s and early 2000s. Digital signatures are encrypted packets of information that validate the identity of an individual in cyberspace. The U.S. Electronic Signatures in Global and National Commerce Act (E-SIGN), signed into law by President Clinton with a digital signature in 2000, renders digital signatures as legally binding as traditional written signatures. Legally, electronic signatures not only verify the identity of the sender but also ensure the validity and authenticity of the document to which the signature is attached. Digital signatures utilize public key infrastructure (PKI), a mode of encryption whereby the signature owner maintains an exclusive private key that only he or she can use to view or alter the signature, and a public key that anyone can use to verify that the signature did indeed come from the private key's owner. Importantly, digital signatures cannot be taken out of their context; that is, they are bound to the document or order form to which they are attached and can't be copied and illicitly affixed to other documents.

Another major concern for e-businesses, both those devoted to consumers and those geared toward other businesses, was the development of Web-enabled transaction services and applications. Since the World Wide Web has emerged as the dominant Internet medium and the primary means by which customers shop online, there were growing pressures to implement transaction systems that could complete orders and payments right on the Web, thereby saving time and making online shopping a less cumbersome process. In this way, companies ease their transaction costs and processing time, while customers' shopping experience is rendered more pleasant and convenient.

A central element of smoothing online transaction issues was the development and implementation of eXtensible Markup Language (XML), a metalanguage that allows programmers to closely define the meaning and format of data presented in electronic documents. Poised to emerge as the lingua franca of e-commerce, XML was the basis for most existing electronic procurement systems in the early 2000s. In the business-to-business realm, transaction networks have grown more convoluted and multifaceted, with businesses connected in ever more intricate Webs of relationships operating on different systems and platforms. As a result, companies were scrambling to devise increasingly flexible ordering, procurement, and other transaction systems that can readily respond to all systems employed in their business relationships. The development of XML, and the continued use of electronic data interchange (EDI), were key characteristics of this trend, but these were complemented by still-existing proprietary systems and industry-specific arrangements.

To fully take advantage of the Internet's capabilities, analysts point out that the future of online commerce will be characterized by instantaneous, real-time transactions. In such a system, electronic banking, the organizing and display of shipping information, confirmations, and other details pertinent to the transaction all take place at high speed so as to present all information to the customer in real time. Obviously, real-time transactions were a long way off in the early 2000s, as banks required days to clear online credit-card information and logistics required great coordination after the order was placed. Moreover, in a business setting, many important transactions require time for various levels of the organization to regroup and coordinate for that particular transaction; a transaction may require approval from certain segments of the organization, it may demand consultation, and so on. In the early 2000s, transaction-processing applications were generally very rigid, in that they required all details to be firmly in place before they processed the information in the transaction. According to InformationWeek, the potential of online commerce for real-time transactions could be achieved if those transaction-processing applications could be retooled for great flexibility and thus harness their capabilities for use earlier in the transaction process.