Electronic Commerce - the sale of concrete things and information - is a
surprisingly controversial subject. Steven Levy 
claims in his article that electronic money and commerce are going to be
the real "killer application" of the Internet. He sees the lack
of secure and widely available payment schemes as the largest problem
facing the Internet at the moment.
Roy Davies , on the other hand feels that exactly the lack of such systems is the main driving force behind the vast success of the Net. He compares the available voluntary information to the unpaid blood donation services and the old Greek market-places, where all talk was free and often of high quality.
Models of Electronic Commerce is a very broad subject encompassing a large amount of practically unrelated issues. This paper is concerned with the complicated issues behind sales on untrusted networks between customers and merchants with no previous arrangements for payments.
The reasoning behind
the interest in electronic commerce will be discussed. Then the paper
describes the requirements and methods required for such systems. The
paper will also compare some of the available systems.
2. Reasons for Electronic Commerce
2.1 Why buy and sell electronically?
Electronic commerce has recently been a very active field of study. This is not
only due to the interesting technical, legal and social problems it raises.
A large number of people and organizations are betting that the electronic
marketplace of the future will be immense and want to gain as a large a share
of it as possible.
Electronic commerce has a number of potential benefits to both the buyers and the sellers. The categories and benefits described here are mostly from .
Electronic newspapers are a good example of the information page. The information is not tailored to the reader and the incremental costs of readers to the publisher is very small.
This kind of commerce relies almost totally on modern payment schemes. It would be practically impossible to handle the high number of very small international payments via the regular banking system.
The value of valuable information enables a lot of different methods of payment between the buyer and the seller. In addition to the regular pay-per-view and monthly billing systems, the payment can be made progressively cheaper, or be based on some other means. An online magazine could for example be free for its advertisers and a small subset of their customers. An interesting option in some methods of payment is the ability to get your money back, if you are not satisfied.
A lot of information providers are anxious to create expensive information services.
Normal mail order catalogs are easier to browse, but ordering is much more difficult. One has to call or mail a coupon. Online catalogs make it very easy to purchase the products seen on the catalog. This ease of buying might compensate for the complexities in browsing even for the very simple items.
The advantages of Networks in the sale of real things lies mainly in the efficient advertising of products, because the sale of tangible goods requires an additional delivery mechanism just as in the mail order business.
It is hard to foresee what the catalogs of the future will look like, but it seems likely that they will be even more entertaining than today even though the technology would also make it easy to create very informative displays of the products.
There are tens of different projects on different electronic payment mechanisms
on the Internet and most likely thousands of pilot sites trying these new
methods. Despite the differences in implementation, they are all based on a
few important technologies. This chapter will focus on the important
technologies and issues behind the choices between them.
3.1 Security Requirements
According to  money has to have so
called ACID properties. The ACID set of properties stemks from
database development. We'll study the ACID properties in a case of buying
an ice cream cone. In this transaction money must be:
Transactions should be easy. The monetary system should be
scalable to accommodate the necessary amount of users. Different forms
of money should be exchangeable, or compatible in a way.
Money should be persistent, the cration of money should be
controllable. Real money should be distinguishable from forged money.
Money should be unforgeable. Money should be saveable.
You should be able to put money in a bank or under the pillow and use
it after a period of time.
3.2 Online and Offline sales
There are two different modes of operation for electronic commerce, online and
offline. Online sales systems check the authenticity of the transaction at the
time of sale. Offline transactions on the other hand do not require a contact
to the bank in order to make sure that the seller receives the amount of money
Most systems are constructed with online methods that require all merchants to be connected to the network.
Offline systems rely on either tamperproof intelligent cards, that the users
carry with them, or account numbers that are given at the time of sale. Account
number based methods accomplish catching illicit use by tracking sales after
In conventional purchases we have different amounts of anonymity based on the
purchase and method of payment. Most of our money is spent in ways, where there
is no anonymity whatsoever. Our rent, taxes and electricity bill clearly state
the payer to the recipient. A lot of the modern day to day purchases are done
with charge cards or credit cards despite the fact that they are not
It is still possible to pay for most thing with real cash, if one really wants to do so. Cash is very hard to trace and is practically anonymous, when spent in small amounts. The future of networked payment systems determines whether all of our purchases and preferences can be traced or if we can still keep some of our purchases private.
 presents several good arguments both for and against anonymity of the buyer in electronic commerce. If we get an easily traceable electronic currency, there is practically no need to file a tax return. The authorities know our sources of income and our spending habits and can tax us accordingly. A totalitarian regime, on the other hand can react to making a condom purchase, if it wants to. Anonymity is in a way a question of how much we really trust the banks and the government.
Totally untraceable currency would make money laundering instant and
irreversible and make it very hard to fight serious crime. It is possible that
we get a compromise that makes it possible to trace some transactions in some
way, while still keeping most of them away from the prying eyes.
All of the current methods of payment require a third party, the so called bank
in the transaction. They also require, that both of the active parties have
accounts in the banking systems. This is perhaps surprising in the case of
 classifies the different roles of
the bank as follows:
Sale of information is a different issue altogether, and has some things in common with the publishing industry. It would seem that the customer deserves to be better protected against low quality WWW-publishers then he is now. It is harder or impossible to browse through a commercial WWW-site before paying, then it is to do the same to a conventional newspaper or magazine in a bookstore. A more liberal return-policy would be fair to the information provider, since his incremental costs per reader are near to zero.
3.6 Related terminology
Cards and cheques are very different from the buyers point of view, however. A cheque requires that the buyer has the required amount of money on his account at the time of purchase. Credit cards on the other hand, as their name implies, have a certain amount of credit associated with them.
Most credit cards also have an insurance of sorts for transactions. The buyer is typically covered against unreliable merchants. This feature makes the credit card type schemes very convenient in international purchases from previously unknown sellers in networks as well as from conventional mail order outlets.
Secure Sockets Layer
The Secure Sockets Layer by Netscape is a
very low level method of encrypting data streams. The exportable version
is based on 40 bit keys and the RSA
-algorithm. The encrypted datastreams can be used for a variety of
different purposes, including, but not limited to sending credit card
The system is very similar to giving ones credit card numbers on the telephone in relation to its data security issues. Neither you nor the merchant can really prove the real identity of the buyer.
The 40 bit key used is not long enough to keep the determined hacker away,
especially since the data has features that can be easily guessed.
The Green Commerce model of purchasing from
First Virtual is based on a combination of
conventional credit cards and a separate account for both merchants and
buyers on First Virtual's computer.
Transactions have an interesting twist to them. The buyer first gives his or her account number to the seller unencrypted. The seller gives this number and the amount to be charged to the bank. The bank then checks the transaction from the buyer.
The buyer has three choices when asked to confirm the purchase. He can accept
it, deny the value of the purchase and get his money back or claim foul,
have his account frozen and the transaction properly investigated. Too
many cries of foul or asking your money back will get either the buyers
or sellers account revoked.
4.2 Pre-paid Ticket
A Pre-paid ticket is based on the buyer transferring money to the sellers
account, getting a ticket for the transaction and demanding service he's
already paid for.
The ticket can be signed with the banks private signature in a way that the seller can verify that the right amount of money has actually been transferred to the right account. The pre-paid ticket is ideal for sellers, since the monetary transaction is finished before the customer even asks for service. Thus the Consistency of the transaction is guaranteed.
Solo-maksu by Merita Pankki is an
example of a pre-payed ticket. The customer first pays from his normal
account to the normal account of the seller. Then he presents an
unencrypted "Viitenumero " to the merchant, who can check the
transaction using his account and the "Viitenumero".
The user-interface seems complicated and unsuitable for very low payments. The charges associated with such transactions are not sure either. Solo-maksu is well integrated with the normal Finnish banking system, and it will most likely be a huge local success.
4.3 Use of Intermediatory
Use of an intermediatery is based on the customer sending his requests to the
merchant through the bank. The merchant can be sure that he gets paid, since he
only receives requests from the bank and the client can be sure that he gets
what he ordered, as long as the bank also ships the goods.
Telecom Finland International has recently
announced its new payment schemes. The client can be charged one to twenty
markkas per WWW-page. Clients who call through Telecom Finland's open access
lines will be billed on their phone bill. Customers who have signed up for
the Pro- service will be billed later. The payment information for the Pro
-users is sent via a SSL -encrypted data stream.
Michael Linton has created an innovative
payment mechanism that deserves a mention here. The LETSystems are in no way
reliant on the networks, but have recently taken their first steps to really
The LETSystems are based on a community currency model. Each willing community
member can join a local LETSystem and start trading services in mutually agreed
prices. This way a carpenter can sell his services to a private teacher, who
sells her services to a tailor, who sells his services bask to the carpenter.
The system makes trading services more flexible then basic barter-type trading.
4.4 Electronic Cash
Digicash is an interesting electronic
currency created by David Chaum and recently being offered by Mark Twain Bankshares. Ecash is based on
blind signatures and guarantees total anonymity to honest users, but almost
certain catching of forgeries.
You can't have the cake and eat it too.
Electronic commerce has a lot of potential, but it is not going to be the digital Nirvana some have imagined. Some of the original advantages of the Internet will be lost with the new commercialization.
Many unique features of the Internet were not really based on the technology, but on the original community of people participating in the experiment. When the Internet was mainly an academic network, the users were for the most part in their twenties, technologically savvy and tried to make a good impression on their peers. This has changed now that the Internet has gone mainstream.
The Internet has become less of a community and more of a framework upon which different cultures and communities build and evolve their totally unrelated forums of discussion.
It is possible that most Internet users are not going to pay for the
information they browse on a day to day basis. At the same time it seems likely
that there will be plenty of business users for different professional
WWW-services. Perhaps the future of Electronic Commerce is in the slightly
boring financial sector instead of the glorious multimedia-video-industry.
These advantages are for the most part from
Actually most commercial activities on the World Wide Web are based on publishing. Internet levels the playing field in a lot of ways. A small company can make as good as a set of pages as a larger one. The larger one can not rely on having more stores, as previously, instead it must find new methods of differentiating from the crowd.  argues that there will be large changes in what people are going to pay for. An advertiser might sponsor a whole electronic magazine, pay a percentage of sales created from the advertisements in the magazine or perhaps pay for the regular viewing of a single user as long as he is willing to go through the advertisers sales material.
5.3 Problems in Electronic Commerce
New services will be based on the values of the new users that always make
up the majority of the exponentially growing population. A lot of the
new services are more passive than the ones we've seen previously.
 quotes different studies on what normal
households really want and what they are willing to pay for it. According
to the studies, people for the most part want a service surprisingly close to
conventional cable TV. They didn't think that over fifty channels would
really be an advantage, they didn't really want to interact with their
entertainment and they didn't want to pay substantially more for the new
services. Of course the studies would have to be examined more carefully,
in order to make real conclusions.
In a way it would seem that the people designing these new services are more or less out of touch with their consumers. Perhaps they are the same people that predicted a few years back that graphic artists, accountants and programmers would open up email based kiosk-oriented shops for passers by.
It is possible that these services would really cater to the interests of young urban programmers, who would like to order pay-TV movies and pizzas on the Internet.
The marketplace is so cluttered with different cards, cheques and cash, that it would be very hard to choose a real winner at this point. This makes the growth of the industry slower, too. It seems that a lot of people are just waiting for a real winner in electronic commerce.