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MODULE III – ELECTRONIC DATA INTERCHANGE

EDI (Electronic Data Interchange)

EDI, which stands for electronic data interchange, is the intercompany communication of
business documents in a standard format. The simple definition of EDI is that it is a standard
electronic format that replaces paper-based documents such as purchase orders or invoices.

Benefits of EDI

EDI transactions are essential to B2B processes and continue to be the preferred means to
exchange documents and transactions between businesses both small and large. EDI
technology delivers five key business benefits through automation and B2B integration:

• EDI technology saves time and money through the automation of a process that was
previously manually run with paper documents.
• EDI solutions improve efficiency and productivity because more business documents
are shared and processed in less time with greater accuracy.
• EDI data transfer reduces errors through rigid standardization, which helps to ensure
that information and data are correctly formatted before they enter business processes
or applications.
• Integration of EDI improves traceability and reporting by allowing electronic
documents to be incorporated with various IT systems, facilitating data collection,
visibility and analysis.
• Efficient EDI automation enables reliable product and service delivery for a positive
customer experience.
The future of EDI

• IoT sensors that are incorporated into a shipment’s packaging and tied to periodic
EDI 214 messages to improve package condition visibility in near real time.
• Blockchain technology underpinning EDI information flows for shipments to offer a
shared version of the truth that can quickly resolve and even avoid chargeback disputes.
• An AI agent that monitors all relevant events and information that are connected to a
shipment and can identify a noncompliant event. AI agents can also determine whether

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a reshipment is necessary, analyze the most efficient source of replacement, initiate a

new shipment and accept an authorized return.
Key components of EDI technology include:

1. Standards: Various standards govern the format and structure of EDI documents, ensuring
compatibility and interoperability between different systems. Common standards include ANSI
X12, EDIFACT, and XML-based standards like UN/CEFACT's XML.

2. Translation Software: EDI documents are typically transmitted in a structured format, such
as ASCII or XML, which needs to be translated into the appropriate format according to the
chosen standard. Translation software facilitates this conversion process.

3. Communication Protocols: EDI relies on secure communication protocols to transmit

documents between trading partners. Common protocols include AS2 (Applicability Statement
2), FTP (File Transfer Protocol), VANs (Value-Added Networks), and AS4.

4. Integration with Business Systems: EDI systems need to integrate seamlessly with existing
enterprise resource planning (ERP), supply chain management (SCM), and other business
systems to automate processes and streamline operations.

5. Data Mapping: Mapping involves defining the relationships between data elements in EDI
documents and the corresponding fields in internal business systems. This ensures accurate
interpretation and processing of the transmitted data.

6. Security Measures: EDI systems employ various security measures to protect the
confidentiality, integrity, and authenticity of transmitted data. This includes encryption, digital
signatures, user authentication, and secure communication protocols.

7. EDI VANs (Value-Added Networks): VANs are third-party service providers that facilitate
the exchange of EDI documents between trading partners. They offer value-added services
such as message routing, translation, and monitoring.

8. EDI Standards Maintenance Organizations: Organizations like ASC X12, UN/CEFACT,

and GS1 are responsible for maintaining and updating EDI standards to accommodate evolving
business requirements and technological advancements.

Overall, EDI technology plays a crucial role in improving efficiency, accuracy, and speed in
business-to-business transactions by replacing paper-based processes with electronic
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equivalents. It helps organizations reduce costs, eliminate manual errors, and enhance
collaboration with trading partners across various industries.

EDI standards

EDI standards are formats for EDI documents that specify what information goes where within
an EDI document. Your industry or trading partners determine which EDI standard you must
use. When information is missing or in the wrong place, the EDI document might not be
processed correctly.

There are two types of EDI standards:

• Proprietary standard - EDI standard developed for a specific company or industry.

This is also called a non-public or private standard.
• Public standard - EDI standard developed for use across one or more industries.

EDI communication protocols

One of the keys to exchanging EDI documents or messages lies in communication. The
procedure, or the techniques used to get the information from a sending EDI solution to a
receiving EDI solution, makes up the EDI messaging protocols. In the case of Electronic Data
Interchange, these have specific features and characteristics.

VAN – Value-Added Network

These are private networks for the specific exchange of EDI documents. Value-added networks
form a closed environment to which partners connect their EDI solutions for document
exchange.

This type of network offers high levels of security and evidence of delivery and processing of
EDI messages at destination. As these are private environments, in order to avoid leaving out
a certain number of strategic partners who are not connected to a specific network, the most
important networks in the world establish interconnection agreements. This makes it possible
to exchange EDI documents between partners from different VANs.

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EDICOMNet, the VAN developed by EDICOM, is a specific private communications service

that guarantees connectivity between connected users, as well as with partners outside the
network thanks to its interconnection agreements and multiprotocol capabilities.

AS2 – AS3 – AS4

AS stands for Applicability Statement. The number accompanying these letters is the version
of the communications protocol developed by the IETF (Internet Engineering Task Force).

This protocol was born in 2002 and is designed for the secure exchange of messages over the
Internet through https, with encryption and digital signature, to guarantee the privacy and
authenticity of the data sent and received.

AS2, AS3 or AS4 communications require messages to be transmitted through one AS

server and received by another AS server. The destination server must accept receipt of the
documents from that particular source. Both servers operate on the basis of specific rules that
include the issuance of send request and acceptance messages as a step prior to the transmission
of a document. They also require confirmation of final receipt when the EDI document arrives
at the destination server.

OFTP – Odette File Transfer Protocol

This communications protocol was developed in the 80s by the association linked to
the ODETTE automotive sector. It is now one of the most widely used in the industry for the
exchange of EDI documents, as well as other sensitive and large files such as engineering
specifications in CAD/CAM format.

The OFTP2 protocol went into production in 2010, providing more versatility and fortitude to
the communication system, with notable advantages such as:

• Increased data compression capacity.

• Communication security management through SSL/TLS, identification, signature,
encryption, etc.
• Management of large files (more than 500 Gb).

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OFTP communications require documents to be sent and received by servers using the same
protocol. It is necessary to configure, maintain and constantly manage these servers to properly
manage the multiple parameters involved in the transfer of these types of documents and
messages.

Implementing EDI
Step 1: Develop the organisational structure
Your first action is to ensure that you have access to the correct skills. Develop EDI
coordinators and teams that will drive the programme through your organisation.
Step 2: Undertake a strategic review
The business areas that benefit most from EDI deployment vary by organisation. A strategic
review identifies where EDI has greatest potential in your business.
Step 3: Conduct in-depth analysis
An accurate analysis of costs and projected payback when implementing EDI is essential.
Step 4: Develop a business-focused EDI solution
Selecting the correct EDI solution for your business requires an in-depth understanding of both
the technical and business issues – for you and your trading partners.
Step 5: Select the correct EDI network provider (VAN)
Most organisations find using an EDI provider makes the best business and financial sense.
Selecting the correct provider for your business is imperative.
Step 6: Integrate EDI with the business
How an EDI system is designed and developed depends on the amount of custom work required
and the amount of internal systems with which it needs to share data.
Step 7: Integrate data across the business
Most applications impose their own data structures. The data from internal and external
systems need to be analysed in order to ensure they translate into your EDI system.
Step 8: Undertake data mapping
To ensure the smooth flow of information between internal applications and trading partners,
documents need to be mapped to allow effective data transmission.
Step 9: Establish a pilot project
Before your EDI system goes live within your entire trading community, it is important to
select a small number of partners to test the system in ‘near live’ conditions.

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Step 10: Roll out EDI to trading partners

The last action is to implement EDI across your trading partners. This should be achieved in a
staged manner that reflects your current business priorities

EDI Agreement:

It is a legal agreement formed between your firm and its trading partner. It regulates the
exchange of key business documents and will be formed as per ANSI X12 standards. All the
terms conditions for business documents’ exchange among trading partners have been
mentioned in it.
EDI Security

An important aspect of EDI is the security of messages during exchange. It should be ensured
that the interchange of messages is reliable. Further aspects of security are:

Controls in the EDI Standards:-EDI standards include controls designed to protect against
errors in message and the corruption of message during the interchange.

Controls in the Transmission Protocol:- Transmission protocols include protection such as

longitudinal control totals in order to detect any corruption that occurs during transmission.
When the corruption of message is detected, the network system starts a retransmission without
the need for outside intervention.

Protection Against Tampering:- When there is a concern that the transmission might be
intercepted and modified, it can be protected by a digital signature. The digital signature is
designed to ensure that the message received is exactly the same as the message sent. It also
ensure that the source of message is an authorized trading partner and the message was not
altered during the transmission.

Privacy of Message:- In case, when the contents of the message are considered sensitive, the
privacy of the message can be protected during transmission by encrypting the
data. Encryption is the process of encoding messages or information in such a way that only
authorized party i.e. the trading partner can read it.

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Non-Repudiation:- One potential problem is that the recipient of the message might deny
having received it. Non-repudiation means to ensure that a transferred message has been sent
and received by the parties claiming to have sent and received the message 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. Non-repudiation can be obtained through the use of
digital signatures, confirmation services and timestamps.

Electronic Payment System

An electronic payment system is a technologically-driven platform that enables the transfer of

funds electronically, allowing individuals and businesses to make online transactions securely
and conveniently. It leverages various digital channels, such as credit/debit cards, mobile
wallets, internet banking, electronic funds transfers (EFTs), and cryptocurrency, to facilitate
seamless money exchanges.

Benefits of Using Electronic Payment Methods

▪ Convenience: Electronic payment methods offer users the ease of conducting
transactions anytime and anywhere, reducing the reliance on physical cash or checks.
▪ Speed: Payments made through electronic systems are processed instantly, enabling
swift and immediate fund transfers, enhancing business operations and customer
satisfaction.
▪ Security: Robust encryption and authentication mechanisms in electronic payment
systems protect financial data, reducing the risk of fraud and unauthorized access.
▪ Cost-Effectiveness: Electronic payments often entail lower processing fees than
traditional payment methods, leading to cost savings for businesses and consumers.
▪ Enhanced Record-Keeping: Digital payment systems maintain detailed transaction
records, facilitating better financial tracking and reporting for businesses and
individuals.
▪ Global Accessibility: With electronic payment systems, cross-border transactions
become seamless, promoting international trade and enabling businesses to reach a
global customer base.

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▪ Eco-Friendly: By reducing the need for paper-based transactions, electronic payment

methods contribute to environmental sustainability and reduce paper waste.
▪ Contactless Options: The rise of contactless payment technologies offers hygienic
and secure payment alternatives, especially in the context of public health concerns.

Types of Electronic Payments

1. Credit and Debit Cards:
▪ Widely accepted for online and in-store purchases.

▪ Offers convenience, security, and easy tracking of expenses.

2. Mobile Payment Apps:

▪ Allows quick payments using smartphones or other mobile devices.

▪ Enables contactless payments and loyalty rewards integration.

3. Digital Wallets:
▪ Stores payment information securely for easy and fast transactions.

▪ Supports multiple payment methods in a single app.

4. Bank Transfers and Automated Clearing House (ACH):

▪ Directly transfers funds between bank accounts.

▪ Suitable for recurring payments and large transactions.

5. Online Payment Gateways:

▪ Facilitates secure online transactions for e-commerce businesses.

▪ Supports various payment options and provides fraud protection.

6. Cryptocurrencies:
▪ Offers decentralized, borderless, and secure transactions.

▪ Reduces reliance on traditional financial institutions.

7. Peer-to-Peer (P2P) Payment Apps:

▪ Allows individuals to send money directly to friends or family.

▪ Simplifies splitting bills and making small payments.

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8. Contactless Payment Cards:

▪ Enables quick and secure payments by tapping the card on a reader.

▪ Reduces physical contact during transactions.

9. Electronic Funds Transfer (EFT):

▪ Transfers funds electronically between different accounts.

▪ Used for various purposes, such as payroll and vendor payments.

10. Electronic Checks:
▪ Digitizes the process of writing and processing paper checks.

▪ Provides a secure and convenient alternative to traditional checks.

How Electronic Payments Works?

Authorization and Authentication Process

When a customer initiates an electronic payment, the process begins with the authorization and
authentication step. The customer provides their payment information, such as credit/debit card
details, through a secure online platform or a payment app.

Transaction Settlement and Clearing

After the payment is authorized, the transaction enters the settlement and clearing phase.
During this stage, the payment details are sent to the acquiring bank (merchant’s bank) and the
issuing bank (customer’s bank).

Encryption and Secure Transmission

Throughout the entire electronic payment process, data security is paramount. All sensitive
information, including card numbers and personal details, is encrypted to protect it from
unauthorized access during transmission.

Payment Gateways and Processors

The payment gateway is an intermediary between the merchant’s website/app and the payment
networks. It securely transmits the customer’s payment data to the payment processor for
further processing.

Transaction Completion and Notification

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Once the payment processor confirms the successful completion of the transaction, a
confirmation message is sent to the payment gateway.

Ensuring security in electronic payment

1. Encryption and Tokenization
▪ Encryption involves converting sensitive data into an unreadable format during
transmission, ensuring that only authorized parties can decipher it. This prevents
unauthorized access to critical information during payment processing.

▪ Tokenization replaces sensitive data with unique tokens, which are used for
transactions. The actual data is securely stored in a separate, protected database,
reducing the risk of data breaches.

2. Two-Factor Authentication
▪ Two-factor authentication (2FA) adds an extra layer of security by requiring users to
provide two forms of identification before completing a transaction.

▪ This typically involves a combination of something the user knows (e.g., a password)
and something the user possesses (e.g., a unique code sent to their mobile device).

3. Fraud Detection and Prevention Measures

▪ Advanced fraud detection systems continuously monitor transactions for suspicious
activities. These systems use artificial intelligence and machine learning algorithms to
identify patterns indicative of fraudulent behavior.

▪ Additionally, businesses can implement rules-based systems that flag or block

suspicious transactions based on predefined criteria, reducing the risk of fraudulent
transactions.

4. Compliance with Payment Card Industry Data Security Standards (PCI DSS)
▪ PCI DSS is a set of security standards designed to protect cardholder data during
electronic payment processes. Compliance with PCI DSS is mandatory for all
businesses that handle credit card information.

▪ Adhering to these standards ensures that businesses have robust security measures in
place to protect customer payment data and maintain a secure environment for
electronic transactions.

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Regulatory and legal considerations

1. Consumer Protection and Data Privacy:
Consumer protection laws govern electronic payment transactions to ensure fair treatment and
safeguard consumer rights. Businesses must adhere to regulations that protect consumers from
fraudulent activities, unauthorized transactions, and data breaches.

Data privacy laws, such as the General Data Protection Regulation (GDPR), dictate how
businesses handle and protect customer data, ensuring that personal and financial information
remains confidential and secure.

2. Compliance with Payment Industry Standards:

Adherence to industry-specific standards, like the Payment Card Industry Data Security
Standard (PCI DSS), is crucial for businesses handling payment card information. Compliance
ensures the implementation of robust security measures to protect sensitive data and prevent
potential breaches.

3. International Regulations and Cross-Border Payments:

When conducting cross-border electronic payments, businesses must navigate various
international regulations and comply with the laws of the countries involved. Different
countries may have distinct rules for payment processing, currency conversion, and data
transfer.

4. Government Initiatives and Regulatory Updates:

Governments continuously review and update regulations related to electronic payments to
address emerging challenges and align with technological advancements. To remain compliant,
businesses must stay informed about regulatory changes and adapt their payment processes
accordingly.

Advantages and Disadvantages of Electronic Payment

Advantages of Electronic Payment
▪ Convenience: Electronic payment methods offer unparalleled convenience, allowing
users to make transactions anytime and anywhere with just a few clicks on their devices.

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Seshadripuram First Grade College, Bengaluru
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▪ Speed: Electronic payments are processed in real time or within seconds, ensuring
swift and immediate fund transfers, unlike traditional payment methods that may take
days to clear.
▪ Security: Robust encryption and advanced security protocols protect sensitive
financial information, reducing the risk of fraud and unauthorized access.
▪ Cost-Effectiveness: Electronic payments often involve lower transaction fees than
handling and processing physical cash or checks, leading to cost savings for businesses
and consumers.
▪ Record-Keeping: Digital payment systems maintain detailed transaction records,
simplifying financial tracking and providing accurate and easily accessible payment
histories.
▪ Global Accessibility: Electronic payment methods facilitate cross-border
transactions, enabling businesses to reach a global customer base and participate in
international trade.
▪ Contactless Options: Contactless payment technologies offer hygienic and
convenient payment alternatives, especially when physical contact should be
minimized.
Disadvantages and Risks of Electronic Payment
▪ Security Risks: Despite strong security measures, electronic payment systems are
vulnerable to hacking, data breaches, and identity theft, potentially exposing customers’
sensitive information.
▪ Technical Glitches: System failures or technical glitches in electronic payment
platforms can disrupt transactions and cause inconvenience to both businesses and
customers.
▪ Dependency on Technology: Electronic payment systems heavily rely on technology
and the internet. Any disruption in network connectivity or power outage can disrupt
payment services.
▪ Fraud and Scams: Cybercriminals continuously develop new methods to exploit
vulnerabilities in electronic payment systems, leading to fraudulent activities that can
harm businesses and individuals.
▪ Lack of Anonymity: Electronic transactions leave digital footprints, compromising
user privacy and anonymity compared to cash transactions.

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▪ Potential Fees: While electronic payments are generally cost-effective, some

transactions may incur additional fees, especially for cross-border transactions or
currency conversions.
▪ Limited Acceptance: In some regions or certain demographics, electronic payment
methods may have limited acceptance, which can inconvenience users who prefer or
rely on traditional payment methods.
Popular electronic payment systems
1. PayPal

2. Apple Pay

3. Google Pay (formerly Android Pay)

4. Samsung Pay

5. Amazon Pay

6. Phone Pay

7. Paytm pay

Need of Electronic Payment System

Electronic payment systems have become increasingly essential in today's digital economy for
several reasons:

1. Convenience: Electronic payment systems offer unparalleled convenience. Users can make
transactions from the comfort of their homes or on the go, without the need to carry physical
cash or visit a bank.

2. Globalization: With businesses and individuals operating on a global scale, electronic

payment systems facilitate transactions across borders seamlessly, eliminating the need for
currency conversions and reducing transaction costs.

3. Speed: Electronic payments are processed much faster compared to traditional payment
methods such as checks. This speed is crucial for businesses that require quick access to funds
or for individuals making time-sensitive payments.

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4. Security: While security concerns exist, electronic payment systems often employ
encryption and other security measures to protect users' financial information. Additionally,
electronic transactions leave a digital trail, which can help track and prevent fraudulent
activities.

5. Cost-Effectiveness: Electronic payment systems can be more cost-effective for both

businesses and consumers. For businesses, they can reduce the costs associated with handling
cash, such as counting and transporting it. For consumers, electronic payments can eliminate
fees associated with traditional banking services, such as ATM withdrawals.

6. Accessibility: Electronic payment systems provide access to financial services for

individuals who may not have easy access to traditional banking services. This accessibility is
particularly important in underserved or remote areas.

7. Facilitation of Online Commerce: With the rise of e-commerce, electronic payment

systems are indispensable for facilitating online transactions. They allow consumers to
purchase goods and services from anywhere in the world with ease.

8. Integration with Mobile Technology: The proliferation of smartphones has led to the
integration of electronic payment systems with mobile technology. Mobile payment solutions
such as digital wallets and mobile banking apps enable users to make payments using their
smartphones, further enhancing convenience.

9. Streamlined Accounting and Reporting: Electronic payment systems often come with
features that streamline accounting processes for businesses, such as automated transaction
tracking and reporting. This can save time and reduce the likelihood of errors.

Overall, electronic payment systems play a crucial role in modern economies by providing
efficient, secure, and convenient means of conducting financial transactions.

The study of electronic payment systems encompasses a broad range of topics related to the
mechanisms, technologies, security, usability, and implications of digital transactions. Here's
an overview of some key areas within this field:

Study of E-Payment System

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1. Payment Technologies: Understanding the different technologies that underpin electronic

payment systems is fundamental. This includes protocols such as HTTPS, SSL/TLS,
encryption methods, tokenization, Near Field Communication (NFC), QR codes, and various
types of electronic wallets.

2. Payment Models: Electronic payment systems can operate under different models, such as
online payments, mobile payments, contactless payments, peer-to-peer (P2P) transfers, and
more. Each model has its own set of protocols, security considerations, and user experiences.

3. Security: Security is a critical aspect of electronic payment systems due to the sensitivity of
financial data. Studies in this area focus on encryption techniques, authentication methods (like
biometrics or two-factor authentication), fraud detection and prevention, compliance with
regulatory standards (e.g., PCI DSS), and secure communication protocols.

4. User Experience (UX): UX plays a crucial role in the adoption and success of electronic
payment systems. Research in this area explores user interfaces, ease of use, accessibility, trust
factors, and the overall flow of transactions to ensure a smooth and intuitive experience for
consumers.

5. Regulatory and Legal Frameworks: Electronic payment systems are subject to various
regulations and legal frameworks, which may vary by region or country. Researchers examine
topics such as data protection laws, consumer rights, liability issues, and compliance
requirements to ensure that payment systems operate within legal boundaries.

6. Economic Implications: The adoption of electronic payment systems can have significant
economic implications at both micro and macro levels. Studies in this area may investigate
factors such as transaction costs, efficiency gains, financial inclusion, the impact on traditional
banking systems, and the emergence of new business models.

7. Cross-border Payments and International Standards: With the globalization of

commerce, there's a growing need for electronic payment systems that support cross-border
transactions. Research in this area focuses on interoperability, currency exchange mechanisms,

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compliance with international standards (e.g., ISO 20022), and addressing challenges related
to currency conversion and regulatory differences between jurisdictions.

8. Emerging Technologies: As technology evolves, so do electronic payment systems.

Researchers explore emerging technologies such as blockchain, distributed ledger technology
(DLT), cryptocurrencies, and Central Bank Digital Currencies (CBDCs) to assess their
potential impact on the future of payments.

9. Social and Ethical Considerations: Electronic payment systems also raise social and
ethical considerations, including issues related to privacy, surveillance, financial exclusion,
digital divide, and the societal impact of cashless economies. Research in this area aims to
address these concerns and ensure that electronic payment systems promote equity and
inclusivity.

10. Case Studies and Adoption Patterns: Analyzing real-world case studies and adoption
patterns provides valuable insights into the success factors and challenges associated with
electronic payment systems. Researchers may examine specific industries, geographic regions,
or demographic groups to understand how different factors influence adoption rates and usage
behaviors.

Overall, the study of electronic payment systems is interdisciplinary, drawing on insights from
fields such as computer science, economics, law, psychology, sociology, and beyond. It's a
dynamic and evolving field driven by technological innovation, regulatory changes, and
shifting consumer preferences.

Secure Electronic Transaction (SET) Protocol

Secure Electronic Transaction or SET is a system that ensures the security and integrity of
electronic transactions done using credit cards in a scenario. SET is not some system that
enables payment but it is a security protocol applied to those payments. It uses different
encryption and hashing techniques to secure payments over the internet done through credit
cards. The SET protocol was supported in development by major organizations like Visa,
Mastercard, and Microsoft which provided its Secure Transaction Technology (STT), and
Netscape which provided the technology of Secure Socket Layer (SSL).

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SET protocol restricts the revealing of credit card details to merchants thus keeping hackers
and thieves at bay. The SET protocol includes Certification Authorities for making use of
standard Digital Certificates like X.509 Certificate.

Before discussing SET further, let’s see a general scenario of electronic transactions, which
includes client, payment gateway, client financial institution, merchant, and merchant
financial institution.

Requirements in SET: The SET protocol has some requirements to meet, some of the
important requirements are:
• It has to provide mutual authentication i.e., customer (or cardholder)
authentication by confirming if the customer is an intended user or not, and
merchant authentication.
• It has to keep the PI (Payment Information) and OI (Order Information)
confidential by appropriate encryptions.
• It has to be resistive against message modifications i.e., no changes should be
allowed in the content being transmitted.
• SET also needs to provide interoperability and make use of the best security
mechanisms.
Participants in SET: In the general scenario of online transactions, SET includes similar
participants:
1. Cardholder – customer
2. Issuer – customer financial institution
3. Merchant
4. Acquirer – Merchant financial
5. Certificate authority – Authority that follows certain standards and issues
certificates(like X.509V3) to all other participants.
SET functionalities:
Provide Authentication
Merchant Authentication – To prevent theft, SET allows customers to check previous
relationships between merchants and financial institutions. Standard X.509V3 certificates are
used for this verification.
Customer / Cardholder Authentication – SET checks if the use of a credit card is done by
an authorized user or not using X.509V3 certificates.
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Provide Message Confidentiality: Confidentiality refers to preventing unintended people

from reading the message being transferred. SET implements confidentiality by using
encryption techniques. Traditionally DES is used for encryption purposes.
Provide Message Integrity: SET doesn’t allow message modification with the help of
signatures. Messages are protected against unauthorized modification using RSA digital
signatures with SHA-1 and some using HMAC with SHA-1,
Dual Signature: The dual signature is a concept introduced with SET, which aims at
connecting two information pieces meant for two different receivers
Order Information (OI) for merchant
Payment Information (PI) for bank

Electronic Fund Transfer (EFT)

An electronic funds transfer (EFT), or direct deposit, is a digital money movement from one bank
account to another. These transfers take place independently from bank employees. As a digital
transaction, there is no need for paper documents. EFT has become a predominant method of money
transfer since it is a simple, accessible, and direct payment or transfer of funds.

Types of EFT payments

As mentioned, there are many different types of payments that fall under the category of
electronic fund transfers. Some of these EFT payment types include:
• Direct deposit – A type of electronic transfer that allows you to pay employees
electronically. Put simply, you let your direct deposit service provider know how much
to deposit in each employee’s account, and then on payday, the money will be
deposited.
• ATMs (Automated Teller Machines) – Allows you to make withdrawals and deposits,
check your account balance, and transfer funds without entering the bank and talking
to a teller.
• Credit/debit cards – You can also make EFT payments with a credit or debit card.
You can use your card to move money from a business bank account, make purchases,
or pay bills.

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• Wire transfers – Electronic money transfers that are typically used to send large
sums of money, for example, placing a large down payment on a new piece of
equipment for your business.
• Pay-by-phone systems – An electronic transfer method that allows you to pay your
bills or send money between different accounts over the phone.
• Electronic checks – Similar to traditional, paper-based checks, but entirely electronic.
You simply need to enter your routing number and bank account number to make a
payment.
Digital Economy

The digital economy refers to the economic activities that emerge from connecting individuals,
businesses, devices, data and operations through digital technology. It encompasses the online
connections and transactions that take place across multiple sectors and technologies, such as
the internet, mobile technology, big data and information and communications technology.

Major examples of the digital economy's evolution

The digital economy has evolved significantly since its inception. There are numerous
examples of traditional companies transforming to succeed in the digital economy.

The following are some notable examples of the digital economy's evolution:

• Inception of digital trade and e-commerce. The surge of e-commerce -- where

platforms such as Amazon, Alibaba and eBay have transformed online buying and
selling -- has reshaped retail and created new technologies and business models.

• Social media. The emergence of social networking platforms such as Facebook,

Twitter, Instagram and LinkedIn has changed how people communicate, connect
and promote their products.

• Increased remote work adoption. The pandemic caused a change in workplace

culture as more people accepted remote work and began using apps such as
Zoom, Slack and Microsoft Teams to promote online collaboration. The digital
economy has evolved as a result of this trend, which has reshaped how businesses
function and manage their workforce.

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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• AI and automation. Automation and AI have significantly shaped the digital

economy. Virtual assistants, chatbots and recommendation algorithms powered by AI
improve consumer experiences and provide more personalized services.

• Digital payments and cryptocurrencies. Digital payment systems such as

PayPal, Venmo and mobile wallets have changed how people conduct financial
transactions.

• Digital entertainment. The entertainment industry has undergone significant changes

due to the rise of streaming services such as Netflix, Spotify and YouTube. These
platforms have revolutionized media consumption by providing instant access to an
array of content.

• Telemedicine. The COVID-19 pandemic accelerated the spread of telemedicine and

made remote medical care possible through digital platforms. Today, telehealth is a
crucial component in providing healthcare.

• Sharing economy. The sharing economy has transformed how people share resources
such as cars, lodging and services, as exemplified by the Uber, Airbnb and TaskRabbit
platforms. Peer-to-peer sharing has reshaped traditional industries and made possible
new business opportunities.

Why is the digital economy important for businesses?

Businesses that make digital transformation a priority can streamline processes, reduce costs
and create new revenue streams. But the digital economy is more than just using a computer to
perform tasks traditionally done manually or on analog devices. It's about finding ways for
organizations to make their systems and people work more effectively together.

What technologies are accelerating the digital economy?

The digital economy is expanding rapidly with the use of new technologies that improve
connectivity, enable automation, advance data analysis and create new business prospects.

Common technologies that are accelerating the digital economy include the following:

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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• AI. AI technologies, including generative AI, machine learning and natural

language processing, facilitate automation, data analysis and decision-making for
organizations across various industries. Businesses can analyze large amounts of
data, improve customer experiences, automate activities and increase operational
efficiency with the help of AI-powered systems.

• 5G. 5G technology enables rapid downloads, low latency and a wide range of
device connections. 5G offers many advantages, including facilitating smooth data
transfers, enhancing mobile experiences and fostering the development of
innovative applications and services.

• Wi-Fi 6. In comparison to earlier Wi-Fi standards, Wi-Fi 6, also known as

802.11ax, provides faster data transfer rates, decreased latency and increased
network efficiency. It also accommodates the increasing number of connected
devices and the demand for high-bandwidth applications, making connections
faster and more dependable, especially in congested areas.

• Augmented reality and virtual reality. Augmented reality and virtual reality
technologies are revolutionizing gaming, education, healthcare and training through
the development of immersive experiences and simulations.

• Blockchain. Blockchain technology enables decentralized and secure recording

and verification of transactions. It eliminates the need for intermediaries and
secures the transparency, immutability and trustworthiness of digital transactions.
This technology is transforming Industries, including finance, supply chain
management and healthcare.

• IoT. IoT is a system of networked sensors and devices used for data collection and
exchange. By enabling the fusion of physical items with the digital world, this
technology creates new possibilities for automation, real-time monitoring and data-
driven insights. Smart homes, smart cities, agriculture and industrial automation are
just a few of the areas where IoT applications are improving efficiency, productivity
and convenience.

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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• Quantum computing. While still in its early stages, quantum computing can
tackle difficult problems at previously unheard-of speeds. It has applications
in cryptography, materials science and optimization.

Advantages of the digital economy

The digital economy provides numerous benefits, which have contributed to its rapid expansion
and positive effect on a variety of industries:

• Increased productivity. Businesses can improve their productivity and efficiency

by using digital technology to automate their operations and processes.

• Reduced costs. Cloud computing and digital frameworks eliminate the need for
substantial physical infrastructure and capital expenditures, enabling organizations
to scale up and down as needed.

• Extended reach. Businesses can foster a global economy and presence through
online platforms and technologies, thus expanding their customer bases and market
opportunities.

• Access to more data. The digital economy produces large amounts of data that can
be analyzed for insights, trends and data-driven decision-making. Businesses can
use this data access to better understand customer behavior, customize experiences
and increase operational effectiveness.

• Greater convenience. Consumers can purchase digital goods and services from the
convenience of their homes. E-commerce and mobile commerce let customers
purchase products whenever and wherever they want.

• Improved customer experience. Businesses can deliver faster and more

responsive customer service through digital channels and chatbots.

• Personalization. By using data analytics and AI, businesses can customize

products, services and marketing campaigns, ultimately improving customer
satisfaction.

Disadvantages of the digital economy

While the digital economy provides many advantages, it also presents the following challenges:
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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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• Privacy and security concerns. The digital economy is significantly dependent on the
acquisition and storage of personal data, which can create data privacy and security issues.
Events such as data breaches, cyber attacks and unauthorized access to private records can
lead to financial losses, identity theft and various adverse outcomes.
• Waves of disruption. The digital economy has created new companies and new ways of
interacting. However, many companies and industries that didn't or couldn't capitalize on
the technologies to change their operations have faced declining sales, falling market share
and even complete collapse.

• Job displacement. Automation and digitalization can displace jobs, rendering some roles
obsolete. Individuals might need to acquire new skills for ongoing employability, which
can cause temporary unemployment and economic disruption.

• Monopoly. The digitalization of the economy has resulted in a small number of large
providers such as Apple, Amazon and Google gaining substantial power, resulting in
monopolistic conditions in certain sectors.

• Digital divide. The existence of a digital divide, which refers to the disparity between those
who have access to technology and those who don't, is a prominent disadvantage of the
digital economy. This division can result in inequalities concerning access to information,
education, employment prospects and economic advancement.

• Environmental footprint. The digital economy's energy use in data centers and electronic
device production has environmental consequences, with rising demand for digital services
leading to greater carbon emissions, e-waste and a bigger environmental footprint.

The future of the digital economy

The World Economic Forum predicts that over the next 10 years, business models built on
digitally enabled platforms will account for 70% of all new value created. This proves that the
digital economy is rapidly evolving and shaping how people live, work and interact.

The following key trends and technologies are expected to shape the future of the digital
economy:

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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• AI and machine learning. AI, including machine learning, deep learning

and neural networks, is advancing and will have a growing role in the digital
economy. AI is essential for extracting insights from big data, automating complex
tasks, making predictions and managing autonomous systems and robots.

• Transformation of traditional sectors. The digital economy is also changing

traditional industrial industries such as agriculture. For instance, farmers can get
real-time updates on crop quality, soil conditions and irrigation with the help of
smartphone apps.

• Digital connectivity. Strong broadband connectivity and infrastructure are crucial

to the success of the digital economy. Technologies such as 5G are predicted to
play a key role in enhancing digital connectivity, resulting in quicker and more
reliable communication while supporting the growth of the digital economy.

• The metaverse. Immersive technologies such as the metaverse can create entirely
new experiences for consumers and open up innovative business applications.
These digital environments have the power to revolutionize entire sectors, and in
the future, a parallel universe with a distinct financial and economic system might
also come into existence.

• Healthcare transformation. The integration of telemedicine and digital health

tools and applications is expected to improve healthcare delivery and accessibility.

• Cybersecurity advancements. The rapid adoption of a digital economy is

evolving cybersecurity measures to address increasingly sophisticated cyber
threats, including AI-powered attacks. By applying machine learning
algorithms, AI-powered cybersecurity systems can detect anomalous behavior,
identify potential vulnerabilities and proactively lower the risk factors.

Payment Methods
Payment methods are number of ways in which individuals transfer money to merchants or
businesses when they pay for goods and services. These methods include cash, credit / debit
cards, bank transfers, mobile payments and digital wallets. They serve as the bridge between
consumers and businesses, facilitating the exchange of money. They offer various features and
security measures to suit individual preferences and situations.

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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1. Debit Card Payments

Debit cards allow you to make transactions by deducting funds from your bank account. They
allow the convenience of not carrying cash and the ability to track your expenses. But, they
also come with potential risks like card theft.

2. Credit Card Payments

Credit cards provide a revolving line of credit, allowing you to make purchases and pay for
them at a later date. They provide benefits such as credit building. However, they can lead to
interest charges and potential debt accumulation if not managed efficiently.

3. Prepaid Cards
Prepaid cards are cards with a predetermined amount of money loaded onto them. They are a
secure way to make payments, as they are not linked to your bank account and enable controlled
spending. But, you need to reload them with funds, which can be inconvenient.

4. Autopay
Autopay is a convenient payment mode where payments are automatically deducted from your
bank account or credit card. This ensures timely bill payments, but you need to ensure sufficient
funds are available. There is a risk of forgetting or overdrafting.

5. Cash
Cash remains a widely used mode of payment, particularly in small, local transactions. It is
easy to use and accepted everywhere. However, it can be lost or stolen, and it is not practical
for online purchases.

6. Cheques
Cheques are a traditional payment instrument that offers a clear payment history and the benefit
of delayed payment processing. However, they come with the risk of bounced cheques and the
need to write, mail and deposit them.

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MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru
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7. Buy Now, Pay Later (BNPL)

Buy Now, Pay Later (BNPL) services allow you to make purchases and delay payment to a
later date. This offers flexibility, but it can lead to overspending and debt accumulation.
Additionally, you may be subject to interest charges if payments are delayed.

8. NetBanking
Online banking allows you to transfer money between bank accounts or make payments
electronically. It is a convenient and secure payment method, but it may require internet access
and some knowledge of NetBanking platforms.

9. Mobile Payments
Mobile payments involve using a smartphone or mobile app to conduct transactions. They are
convenient and secure, but they depend on having a compatible device and a reliable internet
connection.

10. UPI and QR Codes

Unified Payments Interface (UPI) and QR code payments have gained immense popularity in
India. They allow instant transfers and payments using UPI-enabled mobile apps. They are
highly convenient, cost-effective and secure.

11. Point of Sale (POS) Terminals

POS terminals are common in retail stores. They allow you to make payments by swiping your
credit or debit cards. POS payments are quick and efficient, but they require hardware and a
reliable network connection.

12. Digital Wallets

Digital wallets store your payment information securely, allowing you to make quick online
payments. They offer convenience and security but require compatible apps and internet
access.

SHYLAJA M, Assistant Professor

MUKUND G, Assistant Professor
Department of Commerce and Management
Seshadripuram First Grade College, Bengaluru