What is ECOM Transaction? Benefits & Process

E-commerce transactions, abbreviated as ECOM transactions, represent the transaction mechanism of online commerce for an e commerce company. The rise of online commerce that integrates online and offline payment through different payment systems brings with it several advantages such as convenience and a wide range of options to choose from. These transactions are facilitated by online payment gateways resulting in an exchange of goods and services between the buyer and the seller over the internet. These transactions have fundamentally reshaped business models by offering a seamless transaction experience driven by multiple payment systems and secure checkout. For a business to flourish in this age of global connectivity, it is important to understand ECOM transactions with respect to their working, types, key components, benefits, security challenges, and best practices.

Understanding ECOM Transactions

An ECOM transaction is an exchange of currency that occurs on an ecommerce portal when you buy goods and services offered by a seller. The e commerce company could be an e commerce aggregator or be the seller of goods and services having its digital storefront. Funds are transferred electronically through an application on a mobile or a website using a PC. The products or services get delivered to the buyer within the date and the time promised by the buyer.

Transactions happen through a payment gateway, which is a technical term for an online system capable of handling online payment. Some businesses prefer to go completely online whereas others integrate both the online and offline formats in their business strategy. Even individuals could become sellers offering services through their personal websites or through marketplaces such as eBay and Fiverr. ECOM transactions enable a business to sell products across the globe without any geographical limitations, while simultaneously increasing its customer base. It is a win-win for customers because they get to browse through a variety of products before finalizing their preferred option. 

How ECOM Transactions Work

The ECOM transaction process comprises a series of stages as mentioned below – 

1. Discovery

The discovery stage refers to browsing several products on an ecommerce app or a website. Think of the time when you bought your last headphone. You may have opened the webpage or an app of an e commerce platform and checked several products along with technical specs and price on multiple pages. You must also have read customer reviews about their product experiences. This product discovery process enables you to create a set of products you would be willing to consider for your usage.

2.  FInalization

After you have decided on a set of products, you must have done a further deepdive on the product capabilities. This stage not only involves price and specs but also considers other aspects such as fastest shipment date, availability of warranty and guarantee, and after sales service. You might be willing to try out something new and this may eliminate options that you would have used previously. Once you trim down your options and decide on a single model of headphones, you proceed to the next step.

3. Cart addition

You add the desired headphones in the shopping cart. After this, you may directly move to the payment and checkout process or continue browsing other items. For example, if the e commerce platform charges reduced delivery fees beyond a certain amount, you may want to add a few more products instead of ordering only a single product. 

4. Payment and checkout

Once you have finalized the items in your shopping cart, you move to the secure checkout stage where you need to enter your payment information. Generally, you will see the final price of items including taxes and delivery fees. You can opt for different payment modes such as debit card, credit cars, UPI, internet banking, or cash on delivery. If you have a discount coupon, you can enter the coupon code and receive a discount on your purchase.

5. Order confirmation

After you click on “pay,” your order gets confirmed and you receive an email containing the order details and expected delivery dates. You may want to review the order confirmation email to confirm that there is no discrepancy between the items you ordered as well as the price and quantity.

6. Delivery

Get the headphones delivered at your doorstep and check out how it sounds!

Types of ECOM Transactions

A typical ECOM transaction is thought of to be a simple financial exchange between a seller and receiver. However it is more than that with several layers of complexities embedded such as described below – 

• B2C (Business-to-Consumer)

This is a type of electronic commerce in which a seller sells his products and services to a final consumer who is the end user. The final consumer does not intend to resell the products and services but uses those for his own consumption. The electronic business of the traditional retail industry works in the same way. A B2C ECOM transaction can be a one-time purchase and very volatile without any guarantees of repeat purchase. Driven by price comparison across e commerce platforms, this type of transaction usually rewards sellers who keep their prices low. A B2C ECOM business can cater to several products and services such as books, electronics, clothing & accessories, consumer packaged goods, consumer durables, food, and financial products among others. When compared to the brick-and-mortar format of retailing, this type of ECOM business provides consumers more choices along with a detailed description of products that aids in the shopping process. 

• B2B (Business-to-Business)

B2B ECOM business models usually connect wholesalers to retailers who intend to resell products for a margin. Even manufacturers use this type of electronic commerce to increase revenues, brand visibility, and customer base. B2B ECOM business models have the possibility of long-term customer relationships resulting in repeat purchases.

• C2C (Consumer-to-Consumer)

A C2C ECOM transaction generally happens between two consumers aided by a third party e commerce platform. The involvement of the third party ensures verified consumer profiles who are looking to sell products and services to interested buyers. This may also involve the selling of used products.

• C2B (Consumer-to-Business)

This is the complete opposite of a B2C ECOM business model because the roles of buyer and seller get reversed. This is usually seen in crowdsourcing projects wherein businesses seek customized feedback, ideas, products, and services from individual consumers for a fee. A website designer or a photographer makes the portfolio available for sale and a related business can use such creative work in exchange for a payment. 

• D2C (Direct-to-Consumer)

A D2C ECOM model usually involves a manufacturer who manufactures as well as sells products and services directly to end consumers through its own e commerce platform. This model bypasses wholesalers and other intermediaries such as third-party aggregator websites and saves transaction costs. A D2C model allows a business to build personalized relationships with consumers that lead to greater customer satisfaction and brand loyalty. This also allows the manufacturer to have more control on its pricing, quality of products, quality of packaging, and brand image though it may not offer the significant reach offered by third-party ECOM websites.A D2C model also allows businesses to receive quick feedback from their consumers that helps in product design and customizations as per market demands.

Key Components of an ECOM Transaction

Whenever you make an ECOM transaction for your online shopping, you will typically encounter the following aspects of an ECOM business – 

• E-commerce Platform

The E-commerce platform is where the entire ECOM business happens. Sellers list their products and services along with testimonials and a customized page in order to entice buyers. Buyers browse through numerous products before finalizing one and adding it to their cart.

• Payment Gateway

A payment gateway represents an entry point through which a consumer enters the payment processing mechanism, processes the payment, and returns to the e commerce platform. This is a software application that connects the ecommerce portal to the processor of payments. 

• Secure Payment Processing

After consumers enter their payment information such as card details, the payment gateway encrypts the information and transmits the information through secure protocols to a payments processor. The processor validates the transaction, authorizes the amount, and settles the online payments. The payments processor talks to the consumer’s card issuer through various APIs and completes the authentication. 

• Logistics & Delivery

After the payment is completed, the final aspect of the entire ECOM transaction cycle is logistics and delivery. ECOM businesses such as Amazon maintain their own warehouses or they may pick up the order directly from the seller’s warehouse. The customer receives information about the estimated delivery date. The order reaches the nearest hub of the customer’s address and then the order is out for delivery. ECOM businesses also need to account for reverse logistics that happens if the customer receives a product that is defective and requests a refund. 

Benefits of ECOM Transactions

E-commerce offers several advantages to customers as well as businesses as mentioned below – 

1. Convenience

One of the major benefits of online ecommerce to consumers is flexibility of shopping and delivery 24 x 7. Consumers can buy products and services at a single click without leaving their homes. 

2. Increased variety

In a traditional shopping format, customers have a limited choice of products to purchase. With an ecommerce portal, customers can browse virtually over an unlimited range of products before making a shopping decision. The portal allows listing of several products at once because of no physical and space limitations. 

3. Access to different markets

An online commerce route-to-market opens up several markets for a seller because he is not limited by geographical constraints. A seller can also sell his products in the global market that fetches more premium compared to domestic sales. In a way, if a domestic manufacturer wants to go international, an ECOM business model represents a viable strategy.

4. Access to consumer data

Consumers make decisions, shop online, and enter their personal details all of which are important data points for the e-commerce platform for understanding consumer behavior. Access to consumer data helps in customizing advertisements and targeted marketing of products.

5. Resource savings

E-commerce eliminates several aspects of business such as sales agents, payment collection staff, and the need for physical outlets that result in savings of cost and resources. These savings can be passed on to e-commerce consumers. 

Security Challenges & Solutions in ECOM Transactions

Whenever you are shopping online, you must be aware of the risks and best practices for making e-commerce transactions. 

• Common Security Risks:

1. Fraud

An interconnected world brings with itself digital fraudsters who can collect your hard-earned money through different scams. You need to enter your card details for a digital payment on an ECOM website and a cybercriminal can record that information to buy products and services. 

2. Phishing

Cybercriminals can send emails to customers pretending to be legitimate sellers and their emails will contain links urging customers to take an option. An example of a phishing email would be something like this – “An important vulnerability has been identified in your profile on XYZ e-commerce website and you need to go through a security verification. Click on this link to start the process.” In this case, once a customer clicks the link, the cybercriminal can gain access to personal and financial information and steal money from his bank account.

3. Chargebacks

Fake chargebacks are a new type of security risk that involves a cybercriminal filing a fake chargeback request and taking the refund into his own account. The hacker may also send a malicious link stating that the chargeback has been processed and the customer needs to verify himself for getting the amount credited to his account.

• Best Practices for Secure Transactions:

1. SSL encryption

Opt for only those ecommerce platforms that integrate payment gateways following the updated security protocols such as TLS and SSL. In India, RBI issues a license for payment gateway operators. An SSL encryption protocol ensures data security of a website. 

2. Two-factor authentication

You need to activate 2FA (Two-factor) authentication using dynamic time-sensitive one-time passwords that significantly reduce security risks.

3. PCI DSS Compliance

The Payment Card Industry has issued a framework for card issuers while handling cardholder information. The requirements to be PCI-DSS compliant include installing updated firewalls, encryption and decryption protocols, identity and access management system, and updated antivirus softwares. 

4. AI-driven fraud detection

AI-driven fraud detection uses machine learning algorithms in order to identify anomalies and fraudulent activities in a large dataset. These AI models continuously get trained on previous datasets and for every new dataset that they tackle, they are able to detect fraud better than the earlier iteration.

Future Trends in ECOM Transactions

• Rise of Cryptocurrency & Blockchain Payments

Blockchain payments system is a significant leap that is expected to revolutionize ECOM transactions. Customers will only need to enter their wallet ID that will get authenticated by the e commerce portal’s authentication system.  

• AI-powered Fraud Prevention

This refers to usage of artificial intelligence models to detect fraudulent transactions in a database. These AI models incorporate different aspects such as transaction size, purchase history, and purchase history among others to identify anomalies and outliers. 

• Growth of BNPL (Buy Now, Pay Later) Models

Instead of paying for purchases upfront, BNPL models allow customers to pay later in installments. Interest could either be charged or not charged but a small processing fee is usually charged. It represents a version of credit extended to the consumer so that he feels comfortable making the purchase with smaller amounts on regular intervals rather than a large amount at one go.

• Voice Commerce & One-Click Payments

Voice commerce allows a customer to shop online and make other purchases using voice commands. These voice commands are processed by voice assistants, which in turn, interact with the ecommerce websites and complete the purchase. One-click payments refer to minimal authentication when the amount does not exceed a threshold. Customers usually set those limits.

Conclusion

An ECOM-based business represents a leap from the traditional format of physical stores. It brings in several benefits such as convenience, multiple payment modes, and doorstep delivery. However, along with convenience, you may encounter cybersecurity risks while processing digital payments that can be avoided with some best practices. The ecommerce business seems to be well-poised for other frontiers with artificial intelligence, blockchain, voice commerce, one-click payments, and BNPL and these frontiers will also shape how consumers interact with platforms in this digital age.