Electronic Commerce – often shortened to E-commerce – is the name given to selling and buying things using the Internet.
E-commerce is important because: –
* Many people now have Internet connections.
Information about goods and services for sale can be put on the World Wide Web.
Setting up a company website and doing business through it can be a lot more cost effective than using purely traditional shops.
* Companies can have a national or even international customer “reach” with a website.
* People do not leave their homes to shop using E-Commerce.
* The costs of delivery of goods are low and many carriers are available.
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* People can find exactly what they need without hunting round shops or phoning around.
Traditional Business Practices
Many people have an aspiration and have the resources to go out and do traditional shopping
Traditional business practises are easy to exploit and cheap to do for example marketing is a lot more easy to exploit as you generally have a idea who you target audience is
You can look at your product try it out and even negotiate lowering the price
Advantages for e-commerce disadvantages concerning traditional business practices
* Larger market and more options for consumers. This creates more market competition, thus driving down prices and forcing better retail practices.
* Don’t have to leave home and fight traffic…delivered to door
* In many cases, a larger selection is available.
* Consumers are able to research a product and its competitors more thoroughly before purchase and compare many prices from different retailers.
* No sales tax.
* Open 24 hours a day / seven days a week, which is very beneficial to those who can not find time to go to a store and for those who just want to shop whenever they feel like it.
* Do not have to deal with the sales atmosphere.
* Friendlier: no rude salespeople who ignore customers
* Can find what you are looking for a the touch of a button – sizes, colours, etc
Disadvantages for e-commerce advantages concerning traditional business practices
* Waiting for a shipment to arrive in the mail
* Shipping Charges
* Lack of confidence in personal information transfer on-line
* Ease of fraudulent retailers and sites. The fluctuation and instability of Internet retailers makes it difficult for new retailers to establish a reputation because many do not survive. Therefore, there is a lack of confidence that exists in trusting Internet retailers.
* Lose the traditional shopping experience and the instant gratification that many really enjoy.
* Lack of taxes reduces the tax revenues that states and cities might otherwise collect from traditional retailers.
* Traditional retail stores are at a disadvantage to Internet retailers due to the lack of Internet sales tax.
* Many are still to computer-illiterate to take advantage of this avenue of commerce
* KNOWLEDGE OF D.P.A
The law is catching up with the online world. The progressive migration of business to the web is forcing reappraisal of intellectual property rights and their protection, and clarifying the meaning of intellectual property in a connected world.
Any customer purchasing or using goods or services has certain rights through legislation and regulation of which impact upon their relationship with the organisation selling the products and service. The implication of the customer rights will be different for manufacturers compared for example with a retailer under the trade description 1968 and 1972 any description of goods and services given by a person acting in the trade or business should be accurate and not misleading failure to do so is a criminal offence. The sale of goods act 1979 places obligation on the buyer and seller on products and services. The seller of goods must ensure the goods are they own legal ownership. Products are of merchantable quality. Fit for the person for normal use meets the description and are delivered on time. The customer once agreed to buy a product has entered a contart with the seller and obliged to pay for the price agreed at the timeof contract. If the goods are faulty, the customer has a right for a full refund. If the fault is identified to the customer at the time of contract the customer cannot cause a case
Customers have no rights if they change their minds about goods or damage goods themselves
Manufacturer guarantee may add to customer right under the supplier and seller act 1982 any goods supplied under contract must confirm to terms and conditions under the consumer protect 1987 people injured by faulty or defected goods have the right to sue
The Data Protection Act 1998 and the Internet
The new Data Protection Act 1998 came into force on 1 March 2000. The Act has received considerable publicity, both because its ambit is wider than its predecessor, the 1984 Data Protection Act is, and because of the greater and more flexible powers given to the Data Protection Commissioner and to individuals to enforce the Act.
The Act has significant implications for the Internet and for e-commerce in particular. As the European Commission Working Party on data protection commented: ‘The Internet is not a legal vacuum. Processing of personal data on the Internet has to respect data protection principles just as in the off-line world’.
Under the new Act, it is often necessary or advisable for ‘data controllers’ (organisations which obtain, store, or use personal data about an individual) to obtain the individual’s consent to these activities. What amounts to consent in cyberspace is a difficult, largely unresolved issue. The more serious the consequences of data processing for the individual, the more careful the organisation must be to ensure that the individual is in possession of any information which he or she requires to give not just consent, but ‘informed’ consent. This information should be provided in a way, which is clear, prominent, and easily accessible. If the information is scattered over various disparate website pages, informed consent may not have been given. E-commerce traders must think carefully about whether, in each case, failure to click on an ‘opt-out’ box will be sufficient, or whether a specific ‘opt-in’ box should be provided.
Obtaining consent from minors is a difficult area for e-commerce traders, particularly those retailing goods or services, which are attractive to children and teenagers, such as computer games. The Data Protection Registrar has indicated that, as under-18s cannot generally be bound to a contract under English law, they can also not be deemed to have consented to the processing of their personal data. However, can a third party, even a parent or guardian, consent to processing on behalf of a minor? In addition, how does an organisation know when it is dealing with a minor in cyberspace – no tell-tale handwriting here!
The US government has adopted a Children’s On-line Privacy Protection Act, which deals with the point expressly, but there is no indication that the UK government intends to address the issues in a similar way.
Invisible data capture
Concerns have been raised about the data protection implications of invisible data processing during web browsing. For example, many companies use techniques which gather information about a website visitor, such as their IP address, the type of browser and operating system they use, and previous sites they have visited. This information has been described as a ‘clicktrail’ about an individual, recording the pattern of their Internet use.
There is some debate as to whether this information, which is largely anonymised, qualifies as personal data. The European Commission Working Group adopted a bullish view in its 1999 Recommendations, regarding IP addresses, for example, as personal data. Website owners wishing to make use of invisible data capture metyhods are advised to bring them within their data protection procedures.
Often an external host or web manager will oversee the running of the server on which a website is hosted. For the purposes of the Data Protection Act 1998, the commercial entity which ‘owns’ the website will normally be the ‘data controller’ in relation to personal data obtained via the website, whereas the host will be a ‘data processor’ processing data on its behalf. Under the new Act, data controllers are liable for processing undertaken on their behalf by such data processors. The data controller must actively police the data protection procedures of any person processing data on its behalf, and must enter into a written contract with its data processors, requiring them to maintain certainty security measures and to process personal data only in accordance with instructions.
Website proprietors must pay particular attention to the eighth data protection principle, concerning the transfer of personal data outside the European Economic Area. Initially, there was concern that merely sending e-mails, which, for example, may travel from one side of London to the other via the United States, would frequently infringe this principle. However, the Data Protection Commissioner distinguishes in recent guidance between the ‘transfer’ and ‘transit’ of data, and states that, provided an electronic transfer of data starts and ends in an EEA country, the principle will not be infringed.
As with many provisions of the new Act, the distinction between ‘transfer’ and ‘transit’ of information is ambiguous and uncertain. The Data Protection Registrar has said that she appreciates the difficulties in understanding and applying the new Act. To begin with, therefore, she is unlikely to enforce the new provisions to the letter, if data controllers try to comply with the spirit of the Act. However, given that it will ultimately fall to the courts to decide what amounts to compliance, and that individuals may now police processing themselves, those dealing with personal data on the Internet must take the new rules very seriously.
Under UK law, consumers have the same rights as in any other forms of trade. The government are also striving to change existing laws to help to clear up any ambiguity in current law to help e-commerce and ultimately consumer protection across the Internet. So, if you are unfamiliar with any of the following laws and regulations, now is the time to find out.
* The Data Protection Act 1998
* The Consumer Protection Act 1998
* British Codes of Advertising and Sales Promotion
* The Distance Selling Regulations 2000
* The Unfair Contract Act 1977 and 1999 regulations
* The sales of Goods Act 1979
* The Consumer Credit Act 1974
* The Trade Descriptions Act 1968
Qualify your intentions
In 1999, the government set up a self-regulatory scheme to develop and enhance confidence in UK e-commerce. Its aim was to act as a symbol of good web trading via an agreed “minimum standard” for online trading. For the small business, this can mean that you are accredited as “good” online e-service. This organisation is known as TRUSTUK.
For any company who has been accredited by TrustUK can display the TrustUK hallmark on their website. For the small business, this gives credibility and can boost consumer confidence greatly.
TrustUK have also linked up with other organisations who also offer accreditation for websites adhering to set TrustUK standards, these are known as “code owners”.
If your small business takes many issues similar to the ones discussed, then you should have no problem gaining accreditation. To find out more visit the TrustUK web site
The impact of technological innovations on e-commerce
The Internets potential for e-commerce
The evidence supporting e-commerce growth and potential can be staggering when one considers the accomplishments in this field just over the last few years.
The potential impact, and issues surrounding, e-commerce and the practising accountant.
E-commerce is seen as a major area of growth over the next few years and virtually every well-known retailer is developing some form of web presence, for example WHSmith has recently launched an online book selling service. In addition, there are a number of high profile web-only retailers such as Amazon.co.uk. The commercial viability of these ventures is yet to be established, although stock market values would have us believe they will be highly profitable.
One of the main factors seen by many as holding back the further and faster development of e-commerce, certainly outside the high profile names, is the lack of trust by consumers in the on-line retailer. This covers issues such as the existence of the company, the delivery of goods ordered, the ability to return unsatisfactory goods and perhaps, most importantly, the security of personal information and credit card details.
A number of specialist organisations now attempt to provide assurance to consumers, on some or all of the trust issues outlined above. When a business meets the qualifying criteria established by such an organisation, it may display a seal of approval on its website. The consumer is able to click on the seal to obtain further information regarding the meaning of the seal.
One such seal is CPA Web Trust (www.cpawebtrust.org). The American Institute of Certified Public Accountants and the Canadian Institute of Chartered Accountants developed this product. The Institutes of Chartered Accountants in the UK and Ireland have obtained a licence to cover these territories.
To obtain a Web Trust seal, a business will be subjected to an audit, by an accredited firm, of its business processes and security issues. Where the Web Trust criteria are satisfied a seal (which must be renewed on a quarterly basis) will be issued.
ACCA investigated fully the benefits of obtaining a Web Trust licence to enable its firms to offer this service, but the decision was taken that this was not appropriate for a number of reasons:
The cost to the professional body of obtaining a licence from AICPA/CICA
Research carried out by the European Consortium for Web Assurance and Trust (ECWAT) group (in which ACCA participates) indicates that in business-to-consumer e-commerce, the well-known traditional retailer or web retailer has a large advantage over the unknown retailer, even where the unknown retailer carries a seal. This would indicate that outside much specialised markets the client might need to have a significant profile built through marketing to make e-commerce viable. These clients are unlikely to be common to small practices
ECWAT research indicates that consumers would place significantly more reliance on a seal provided/backed by a Consumer Union/Association than by an accountant
Carrying out a Web Trust audit requires the firm to obtain a licence, undertake training and have a level of technical expertise that may not exist, now
The US experience suggests that Web Trust has not yet taken off as a service despite it having been available for around 18 months. Recently there were 18 organisations on the list of current Web Trust sites – of these, four are professional accounting bodies
There are competitors to Web Trust, which potentially will be in a very strong position. For example, Entrust Inc is focusing on the issue of digital certificates to vouch for the authenticity of sites. This is being done in conjunction with the browser technology of Microsoft, AOL and Netscape. These browsers will automatically recognise Entrust.net website certificates when visitors connect to a site
The Consumers Association has launched a which? Web Trader seal which is designed to offer assurance to consumers and unlike the Web Trust seal is issued free of charge. Further details can be found at http://www.which.net/webtrader/index.html.
Given that ACCA is not able to offer members the Web Trust licence, how should members become involved in e-commerce?
It is clear that e-commerce is a growing market, but it is expected that the principal area of growth will not be a consumer buying over the internet (although this market will be substantial) but in the area of business-to-business transactions. The business to business market may not have the same issues relating to trust, as businesses are likely to look to form on-going relationships, and there are already established means of making electronic payments. It is unlikely that businesses will move to payment with order, as is the case with much business to consumer e-commerce.
A likely scenario is that important customers will want to be able to order online, check stock availability, prices and delivery times and be confident that the order will be delivered as expected.
The accountant could play an important role in advising his/her client on this transformation, by assisting in areas such as integration with existing accounting records and processes, ensuring security and back-up procedures are maintained properly, and generally that efficient and best use is made of information technology.
A 1 Cycles is Committed to developing e-commerce and enabling practitioners to participate in this exciting market. Look out for further developments in future issues of In Practice.