Finance

Unit 1 Business skills for e-commerce

HND in Computing and Systems

Development

Timeline

Week Activity Week Activity

1 Introduction &

Businesses

10 Assignment 2 LO2

2 LO1 Stakeholders 11 LO3 Key processes

3 LO1 Functions 12 LO3 e-commerce

4 LO1 Stakeholders 13 LO3 Security - 1

5 LO2 Impacts 14 LO3 Security - 2

6 Assignment 1 LO1 15 LO3 Legislation

7 LO3Target markets 16 Assignment 3 LO3 issued

8 LO3 Objectives 17 Assignment work

9 LO3 Market

research

18 Assignment work

LO3: Be able to design e-

Commerce solutions

• Objectives: business idea eg unique selling proposition, business-to-business

opportunities, business to consumer markets; domain name

• Market research: purpose of research eg identifying information sources, online and

offline competition; types of research eg primary, secondary

• Target markets: market analysis eg size, characteristics, dynamics, competitors,

historical background, emerging trends, market share, market segmentation

• Key processes: technology requirements eg hardware, software, security,

maintenance, back end systems; supply sources; distribution channels

• e-Commerce: payment systems eg electronic cheque, PayPal, NoChex, credit or

debit cards; start-up capital; working capital; funding sources

• Security: key areas eg prevention of hacking, viruses, identity theft, firewall, impact

on site performance, Secure Sockets Layer (SSL), Secure HTTP (HTTPS), digital

certificates, strong passwords, alternative authentication methods

• Legislation: relevant legislation eg Data Protection Act 1998, Computer Misuse Act

1990, Consumer Credit Act 1974, Trading Standards, Freedom of Information Act

2000, copyright legislation

LO3 Criteria

• 3.1 investigate market potential for an e-Commerce

opportunity

• 3.2 evaluate current e-Commerce systems in use by

organisations

• 3.3 discuss the financial implications of an e-Commerce

solution

• 3.4 design an e-Commerce solution

• 3.5 evaluate the suitability of an e-Commerce solution.

Payment systems

• Electronic cheques

• PayPal

• NoChex

• Credit or debit cards

Electronic cheques

• In June 2014 a Daily Telegraph article1 said:

• New legislation was expected to allow banks to accept

images of cheques

• These could be shared electronically

• Accepted at branches or by smartphone app

• Reduces 6 day clearing cycle

• Avoids sending real cheques around banks

• What is the current situation?

• Research http://www.chequeandcredit.co.uk/

1http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10914403/Cheque-

payments-to-finally-go-digital.html

PayPal

• 3-click checkout to customers paying online, on mobiles

or in apps

• Integration is easy, start accepting more payments in

minutes

• No set-up charges, monthly fees, or cancellation fees

• PayPal charges UK sellers a fee of between 1.4% and

3.4% of the total sale plus 20p per transaction. The more

you sell, the less you pay

• Buyer protection (reassure buyers, attract more), seller

protection

Increased business claim

• 31% of UK buyers surveyed said that they

would not have made the purchase if PayPal

had not been offered as a payment method.

• The results of individual retailers ranged from 22% to 41%. Survey

conducted by Northstar Research Partners, Q4 2012. Based on

retailer-level data for 5 large online retailers representing 443 buyers

• “Businesses reported an average of 31% increase in sales after

adding Express Checkout. 173 million PayPal customers

worldwide.” Research conducted by ComScore in July 2014. Based

on 8 UK retailers

Issues with PayPal

• PayPal is not a bank – owned by eBay

• PayPal doesn't need to follow any US Federal or

State, or International, banking regulations.

• Accounts can be frozen (unable to add or

withdraw funds) for 180 days during

investigations – actively attack certain

accounts for ethical reasons eg piracy• http://www.independent.co.uk/life-style/gadgets-and-tech/news/paypal-account-of-torrent-software-developer-frozen-as-part-of-piracy-

crackdown-10257462.html

• Some users claim that PayPal has simply

seized their funds and never returned them

Nochex

• Nochex online payment services

• online payment solution for micro, small and

medium size businesses

• receives online payments made from all major

credit and debit cards

• UK Trader Account for micro businesses

• a low-cost account

• outstanding fraud-protection

• No monthly or annual fees

• 2.9% plus 20p per transaction

Nochex issues

• do not offer face-to-face payments

• subsidise their low cost services by including advertising

on their payment pages

• can keep a small holding amount, usually less than £100

to cover chargebacks

• customers complain of:

• almost non-existent service and that Nochex are difficult to

contact.

• accounts being closed for no reason, money being held for

several months at a time, and also problems with their system

software and website

Merchant accounts

• Merchant Accounts are special bank accounts used to collect

debit/credit card payments

• Cardholder Present,

• Cardholder Not Present

• Internet or Online Sales

• There are eleven Merchant Account Providers in the UK

(http://www.paymentbrain.co.uk/merchant-accounts)

• Information required to open an account:

• Current or projected turnover

• Average transaction value

• Frequency of transactions

• The type of product or service you are selling

• The percentage of transactions taken by card

• Set up fee and transaction charges apply

Chargebacks

• Dissatisfied customers can claim their money

back from the card company if in dispute with

the supplier

• Money deducted from merchant account if

customer is in the right

• Also the case if fraud is involved

Fraud

• Characteristics of fraudulent transactions

• Inconsistent Delivery Address.

• only deliver the goods to the address where the payment card is

registered.

• Inconsistent Card Verification Code.

• Fraudsters give credit card numbers but can’t access the CVC

code

• A lack of concern when spending money

• Quick delivery required

• High risk countries.

• Indonesia, Malaysia, Nigeria, Pakistan, Israel and Egypt.

Fraud – counter measures

• Perform credit checks on new suppliers and partners, and check

their contact details for authenticity.

• Validate new customers using verification such as Address

Verification Service, or Verified by Visa / MasterCard SecureCode.

There are a number of commercial providers of verification solutions

and details can be found via the CardWatch website.

• File your company secretarial records using the Companies House

WebFilingsystem to reduce the threat of identity theft of your

company name or directors.

• For unknown customers with no transaction history, insist on cleared

payment being received before goods or services are supplied.

• Respond to payment card chargeback requests promptly.

• Set strict credit limits.

• https://www.getsafeonline.org/businesses/business-fraud/

PCI

• The Payment Card Industry Data Security

Standard (PCI DSS) is a set of requirements

designed to ensure that ALL companies

that process, store or transmit credit card

information maintain a secure environment

• 4 levels depending on volume of transaction

• Rigorous annual compliance process

• Self assessment and qualified assessors• http://www.theukcardsassociation.org.uk/security/PCIDSS_checklist.asp

Start-up capital

• The money required to start a new business

• Premises

• Permits and licenses

• Inventory

• Development

• Manufacturing

• Marketing

• Also known as seed money

Source of start up capital

• a business loan from a bank

• the business will be expected to make monthly payments to pay

down the debt plus any interest and/or fees

• an investor, group of investors, or venture capitalist(s).

• start up capital provided in exchange for a certain stake in the

company

• the company founders' personal assets or from friends

and family

• often obtained in exchange for an equity stake in the business

Examples

• Apple

• Wozniack and Jobs, both penniless at the time, went to a local computer parts

supplier and ordered the parts on credit for the first 50 Apple computers

• Dell

• Michael Dell founded the company with $1,000 and ran it from his dormitory

room at university investment.

• Starbucks

• In 1971, three academics each invested $1350 of their own money into the first

Starbucks located in downtown Seattle

• eBay

• Pierre Omidyar finished the code for the website in the living room of his Silicon

Valley home

• Virgin

• “£300 from my mum” – Sir Richard Branson

Working capital

• Working Capital = Current assets – current liabilities

• Needs to be positive to maintain the business

• Assets are resources, equipment, inventory, cash

• Liabilities are payments, debt, salaries, interest

• Cash management: to meet day to day expenses

• Inventory management: allows for uninterrupted

production but reduces the investment in raw materials

• Debtors management: payment terms to reduce impact

on cash flows

• Short term financing: bank loans or overdrafts

Funding sources - equity

• Equity finance involves selling part of the business

(‘shares’) to an investor who will take a share of any

profits or losses

• Advantages

• investors can bring new skills and opportunities no interest, or

loans

• shared risks

• Disadvantages

• demanding, expensive and time-consuming

• own a smaller share of your business

• you may have to consult investors

• only limited companies can sell shares• https://www.gov.uk/business-legal-structures/limited-company

Funding sources -

crowdfunding

• A number of people each investing, lending or

contributing smaller amounts of money to reach a target

• Advantages

• alternative to funding from conventional means

• raise finance relatively quickly

• can raise awareness of a new business

• Disadvantages

• ideas could be copied if not protected

• Money must be returned if target not met

• Crowdfunding is mostly unregulated

• Potential to have a negative impact on reputation of venture fails

• http://www.advice4consumers.net/business/crowdfunding/

Funding sources - loans

• A loan is credit, usually in the form of cash, that

you borrow and repay over an agreed length of

time

• Advantages

• guaranteed the money for the whole term

• lender does not get a percentage of profits or shares

• Disadvantages

• inflexible – early repayment charges

• must meet monthly payments

• could lose property or assets (eg your home)

Funding sources - overdrafts

• Not a long-term source of finance

• Advantages:

• flexible

• quick to arrange

• no early repayment fees

• Disadvantages

• a charge to extend an overdraft

• charged if exceeding an overdraft limit

• can be asked for the money back at any time

• only available from the bank with the business current account

Activity

• Propose a financial system for MWS and justify

your decisions

• Discuss the advantages and disadvantages of

payment systems

• Costs

• Simplicity

• Customer satisfaction

• Fraud protection

• Seed capital is being provided by MSW and MJ, but

what continuing sources of funding do you propose?

• Your work must be fully referenced