Understanding E-Business

E-Business Origins

Long before the Internet became popular, there were still forms of electronic business transactions taking place.  One of the first technologies implemented was Electronic Funds Transfer (EFT) which has been practiced by the banking industry since the 1970's. 

Electronic Funds Transfer and Electronic Data Interchange

Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is Direct Deposit, in which payroll is deposited straight into an employee's bank account.   EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, and point-of-sale (POS) transactions. It is used for both credit card transactions,  payroll payments, debit card transactions and other automated transactions such as mortgage payments and other bill payment transactions.

Transactions are processed by the bank through the Automated Clearing House (ACH) network, which is a secure transfer system that connects all U.S. financial institutions. For payments, funds are transferred electronically from one bank account to the receiving institution in usually less than a day after the scheduled payment date.

I actually worked for a subsidiary of Empire of America called Metroteller and we were one of the first EFT networks in the country to offer shared ATM and Point-of-Sale services to banking customers and financial institutions.  At that time, all ATMs and Point-of-Sale devices were connected to our mainframe with telephone lines.  For us to implement and new product or service enhancement, it required extensive programming and the ordering and installation of telephone lines at any new locations where a device would be located.  Remarkably, credit and debit cards were not electronically authorized until the late 1970's.  Retailers used manual

procedures and the telephone to call for a credit card authorization.   EFT really changed the way retailers and banks worked together and this provided tremendous benefits to consumers in the speed and accuracy of transaction processing.   This was particularly true for the front-end retail systems of large retail entities.   Customers were able to make their purchases using a debit card issued by their bank for their checking account and the retailer would receive an online authorization ensuring that they would be paid.  This brought huge efficiencies to retailers and ultimately significantly reduced their front-end operations costs.   Customers moved through the check-out process more quickly and retailers were handling less cash and checks which were very expensive to handle.  I actually was responsible for product development and strategic planning and sales and marketing of these products to retailers and financial institutions.  This was incredibly exciting for me as I traveled extensively around the country meeting with pioneers in this industry.  For consumers to have access to their cash through an ATM 24 hours a day was a huge customer service improvement as they were no longer limited to obtaining cash only when the bank was open.  As banks shifted people from their branches for these routine transactions   to ATMs, they too derived a financial benefit.  Bank branches were able to reduce the number of transactions being processed and could focus on specialized services.  

The growing popularity of EFT for online bill payment is paving the way for a paperless universe where checks, stamps, envelopes, and paper bills are obsolete. The benefits of EFT include reduced administrative costs, increased efficiency, simplified bookkeeping, and greater security. However, the number of companies who send and receive bills through the Internet is still relatively small.

Electronic Data Interchange is another form of E Business that has been taking place for years.   EDI is a standardized method for transferring data between different computer systems or

computer networks for business transactions. It is commonly used for e-commerce purposes, such as sending orders to warehouses, tracking shipments, and creating invoices. Because many online retailers sell products that they do not physically stock, it is important to have an easy way to transfer order information to the locations where the goods are stored. EDI makes this possible.  

E-Business and E-Commerce

E-business is the term used to describe using the internet to operate a business. E-business represents only a fraction of worldwide business, but is one of the fastest growing sectors and provides entrepreneurs with huge opportunities to enter the market. In a historical sense, the internet is a relatively new way to do business, with the growth of e-business taking off in the 1990's. The internet provides consumers with an increasing amount of ways to interact with businesses and has made buying and selling more competitive worldwide. 

E-commerce refers to ordering, buying, selling and paying for products and services using the internet. E-commerce is a subset of e-business and can make up the entirety of the business or be used alongside existing, traditional business models. E-commerce uses the internet to market, sell and conduct transactions with customers without face to face contact between the buyer and seller. Many e-businesses now conduct all of their operations online and have no physical store that customers can visit.  As the internet continues to grow in popularity,  more and more entrepreneurs are expected to take advantage of this delivery channel to operate their businesses.  The internet and the emergence of e-business has provided entrepreneurs with many new advantages and opportunities. The internet has created a business environment in which time and distance are less important, people have access to more information to help them make decisions and consumers have better access to a broader range of products and services. I have participated in e-commerce myself and have recently sold a domain name to a company located in Germany using Pay-pal.  It was very exciting. 

E-Business Models 

There are five distinct E-Business models.   They are:   

• Business-to-Consumer (B2C)
• Consumer-to-Consumer (C2C)
• Consumer-to-Business (C2B)
• Business-to-Businesss (B2B) 
• Business-to-Government (B2G)

There are many components to effectively implementing an E-Business and they vary by the type of business segment you are participating in.  An E-Business requires storefront software, payment authorization and processing, and fulfillment.    Although practiced only since 1990, E-Business activity nationally and internationally is growing steadily.  Shown below is the online business-to-consumer activity from 2009 with projections to 2014.   This is US online retail sales only.  You can imagine the explosive growth of E-Business across all of the E-Business segments.