Chapter [4] Business Information Systems IT: A Business Enabler Information is a significant resource to an organization as important as 5M’s. Information Systems are integrated process of.
Download ReportTranscript Chapter [4] Business Information Systems IT: A Business Enabler Information is a significant resource to an organization as important as 5M’s. Information Systems are integrated process of.
Chapter [4] Business Information Systems IT: A Business Enabler Information is a significant resource to an organization as important as 5M’s. Information Systems are integrated process of components for collecting, storing, processing, and communicating information. Information operations, making. Systems support management and business decision Information System refers to the interface of PPT. People need Technology to Process the information in fast and accurate manner. IT systems ~ • automates day-to-day business operations, • expanded the scope of service offerings, • empowered enterprises to reach out to customer across the world, • All these without the limitations of time and space. Information Systems Terminology Information • Information is data that has been processed into the form which is meaningful to the recipient and of some value in decision making process. • This requires a process that is used to collect, store, and transform data into information. System • It is an inter-related, elements working together to accomplish common goals. • Often a system contains several subsystems with sub-goals. • There are five components of a system : Input, Process, Output, Feedback and Control. Information System • IS is a combination of people, hardware, software, communication devices, network and data resources that processes data and information. • Information System aims to support operations, management and decision-making. Business Information System • BIS may be defined as systems integrating Information, Technology, People and Business. • It brings business function and information together for making timely and accurate decisions. Concepts of Information System • IS work on four basic concepts. These are ~ People, hardware, software, and data are four basic resources of IS; People consist of end users and IT specialists; Hardware involves machines and media; Software consist of programs and procedures; and Data includes database, model base, and knowledge base; A process is used to convert data into information; Information processes consist of input, processing, output, storage, and control processes. Business Processes and IS A business process is an organized set of activities that will transform a given set of inputs into specific outputs, A business process: Has a Goal Has specific inputs and outputs Uses resources Has a number of activities that are performed in some order May affect more than one organizational unit. Creates value of some kind for the customer; internal or external. Information Technology/System is a key enabler of organization’s business processes. In order to deliver high quality information to the decision makers it is essential to bring into play IT especially BIS to its full potential. IS must be able to: • have large capacity for storage and provide faster access; • provide support for decision making; • grant a competitive edge; • ensure fast and accurate processing of data when required; • offer faster communication and exchange of information; • reduce information redundancy; Stages of IS Evolution Task centric • IS was used merely on routine job Information • Integration of subsystems centric User centric • Includes office automation and DSS Customer centric Service centric • Working as CRM. • Services to internal and external customer. Role of IS in Businesses Information system helps business ~ in better management of business processes. to be more successful and competitive. provide goods and services to their customers, more promptly and cheaper than their competitors. to process data and facilitate reporting. in formulating effective strategy. improve quality and pervasiveness of decision making. in managerial learning. expand business and industry into global markets by using WWW, Internet, EDI, ERP, SCM, CRM, and E-Com. ESS MIS, DSS KWS, OAS TPS Strategic level systems Senior Managers Management level system Middle Managers Knowledge level system Operational level system Knowledge workers Operational Managers S. No. 1 2 3 4 Level Strategic Management Knowledge Operational User Use System CEO, CFO, Chief Deals with strategic Operational issues, and longOfficers, BoD, range planning President G.M. and R.M. Monitoring, controlling, decision-making, and admin. Knowledge and Discovery, Data workers Processing Storage knowledge Operational Managers or Supervisors ESS MIS and DSS and of tracking elementary activities viz. Orders, Invoice, Payments etc. KWS and OAS TPS Transaction Processing System • TPS is an information system that collects, stores, modifies and retrieves the day-to-day data transactions of an enterprise. Access Control Equivalence • Unauthorised people are not allowed to access. • Processing consistency is maintained every time to ensure effectiveness. High Volume, • High momentum and full Automation Rapid Processing Trustworthiness • TPS is designed to be Robust and Trustworthy. Atomicity • A transaction is either completed in full or not at all Consistency • TPS exist within a set of operating rules(integrity constraints). Isolation • Transactions are processed as independent from each other. Durability • Once transactions are completed they cannot be undone. OAS is a combination of hardware, software, and other resources used to following activities~ Exchange of information; Management of administrative documents; Handling of numerical data; and Meeting planning Management of work schedules. Information and Knowledge are the most important source of influence in today’s society. Knowledge Management Systems (KMS) refer to any kind of IT system that stores and retrieves knowledge, locates knowledge sources, mines repositories for hidden knowledge, captures and uses knowledge. There are two broad types of knowledge— Explicit and Tacit Explicit knowledge It is the knowledge which is formalized and easily available across the organization. Explicit knowledge is represented as spoken words, written material and compiled data. E.g. ~ Online tutorials, Policy and procedural manuals. Tacit knowledge This resides in just one person and hasn’t been made available to others. It is represented as intuition, beliefs and values that individuals form based on their experiences. It is personal, experimental and context specific. E.g. ~ Hand-on skills, Special know-how, Experiences. Tacit knowledge differentiates between organizations and provides the strategic edge. A knowledge base is a special kind of database for knowledge management. It is a repository that provides a means for knowledge to be collected, organized, shared, searched and utilized. A Knowledge Discovery in Databases system facilitates search, identify captured knowledge, or identify experts who have the knowledge. Information v/s Knowledge Information is an important resource used to improve and efficiency. ensure effectiveness and Knowledge is power. Knowledge is derived from information. 1 2 • Information is piecemeal, fragmented, particular, whereas knowledge is structured, coherent, and often universal. • Information is timely, transitory, perhaps short-lived, whereas knowledge is of enduring significance. 3 • Information is a flow of messages, whereas knowledge is a stock, 4 • Information is acquired by being told, whereas knowledge can be acquired by thinking. 5 • New knowledge can be acquired without new information being received. 6 • Information is “know what” whereas knowledge is “know-how”. 7 • Information is “what is” at the same time as knowledge is “what works.” 8 • Information that helps achieve an action well again is knowledge. Knowledge is a gathering of values, wisdom, education, experience, morals, and beliefs. Knowledge Discovery and Data Mining (KDD) fundamentally deals with ways and means of making obtainable knowledge of the experts to others, in electronic form. Knowledge worker (intellectual worker) is a key person who is employed due to his or her acquaintance of a subject matter. Growing Connections Altering Business surroundings Globalization Why Knowledge is important Change in Organizational composition Altering Business surroundings: Previously the business environment used to be stable one, so the people of any organization naturally became knowledgeable over time. But now rapid change means speedy knowledge obsolescence, so there is need to manage it before it disappears without leaving a trace. Growing Connections: Extremely dispersed operations, global expansion, continual change – none of these would have been possible if it was not possible to deploy knowledge officially and deliberately. Cheap computing has made it probable. Globalization: It’s putting pressure on firms for innovation as markets are open for new players and competition is stiff. The scenery of goods and services has changed. Now companies have started selling knowledge in addition. Modification in Organizational composition: In today’s state of affairs, the organizational structures are changing. The new arrangement is that of “Virtual Organization”. Altering Business surroundings • From Static to Dynamic Environment. Growing Connections • Dispersed operations, Global expansion, Continual change are now possible…. Globalization • Product Innovation. • Knowledge as product. Modification in Organizational composition • Become Virtual Organization MIS is an organization's functional area that provides this information to managers. MIS is a tool for better management and scientific decision making. MIS consists of 3 elements : Management Information System Management Information System Definition ~ MIS is an : Integrated man-machine system, for providing timely information to managers, to support managerial function and decision making. It utilizes : Computer hardware and software, Manual procedures, and Data Bases. Step 1 : Groundwork examination The problem definition Magnitude and scope Alternatives Viability and cost effectiveness Step 2 : Requirements psychoanalysis Knowing the primary and secondary users Ascertaining user needs Primary and secondary sources of information Design, development and implementation needs Step 3 : Systems blueprint Inputs Output Procedure Processing Storage Human resources Step 4 : Acquirement /procurement Compatibility Cost effectiveness Performance standards After sales service Configuration Portability S No. Particular 1 Layman 2 Bridging 3 4 5 6 7 Do’s Don’t Have simpler and Be ambitious manageable system Develop understanding Be unrealistic in developing between consultant and action plan. the organization Contribution Involve programmer in in Totality needs assessment Customize off-the-shelf Tailor-made software Delay decisions on hiring application developer/s Have simple software for users to handle Extensively involve users in MIS development Invest heavily in in-house application development Let vendors determine hardware needs for LAN Interpretatio n Synchronizati on Application Depend heavily on the Consultant Adopt modular approach Go for large applications for s/w development Decision Support Systems DSS is a computer-based information system that supports business or organizational decisionmaking activities. It can be either fully computerized, human or a combination of both. It is an interactive software It has user friendly interface. It does not automate decision making. Components of DSS • User ~ Managers with un-structured problem. Computer background is not required. Knowledge of problem and factors to be considered in solving the problem is essential. • Data Base ~ One or more database with routine and non- routine data from internal and external sources. Database must be implemented at 3 levels : Physical level, Logical level and External level. • Model base ~ It is the “Brain” of DSS. Decision model is a program used to test the decision from consequences. Models are custom developed. • Planning Language ~ It is user interface of DSS. Types : • General purpose planning language • Special purpose planning language Framework of DSS The framework of Decision Support System consists of four phases: Intelligence - Searching for conditions that call for decision. Design- Inventing, developing and analyzing possible alternative actions of the solution. Choice- Selecting a course of action among alternatives. Implementation- Adopting the selected course of action in decision situations. Benefits of DSS Produce data models and “What if” scenarios Manipulate data directly Plan in advance to make non-routine decisions Extract data from external sources Executive Information System An EIS is a tool that provides direct on-line access to relevant information in a useful & navigable format. EIS is designed to renovate all significant data into aggregated information that makes sense and brings value to the business strategy. Also known as Enterprise Information System or Executive Support Systems (ESS). These systems are designed for top executive; Easy to use; present Information in summerised form. Components of EIS Component Description Hardware Includes data-entry devices, CPU, Data Storage files and Output Devices. Software Includes Text base software, Database and Graphic software such as charts, diagrams, maps, motion graphics, models etc. User Interface Includes hardware (physical) and software (logical) components by which users interact with a machine. Several types of interfaces available to the EIS structure, such as scheduled reports, questions/answers, menu driven, command language, natural language. Telecommuni Involves transmitting data from one place to another in a reliable networked system. cation ERP HRMS CRM AIS SCM CBS Enterprise Resource Planning The ERP is a system that brings all the resources of an organization together and integrate business operations & information flow in the company to synergise the resource of the organization. An ERP system is a fully integrated business managements system covering all functional areas of an enterprise. In simple words ERP promises one database, one application and one user interface for the entire enterprises. ERP has evolved from the system known as Manufacturing Requirement Planning. ERP Software facilitates competent and efficient administration and automated business activities. Some of the "popular" ERP packages are SAP, JD Edwards, Baan, Oracle 9i. Stages of Evolution Stage -1 : Inventory Control It is the supervision of supply, storage and accessibility of raw material, WIP and finished goods in order to make certain a sufficient supply without oversupply. Stage – 2 : ABC Analysis It divides material into three categories and investment is done according to the value and nature of that category’s materials. A-items : high consumption less investment items. C-items : less consumption high investment items. B-items : the interclass items, 15-25% of annual consumption and typically accounts for 30% of total inventory items. Stage – 3 : Economic order Quantity (EoQ) EoQ is a regular review of inventory to compare with reorder point and a fixed magnitude is ordered each time the inventory level reaches a particular reorder point. The EOQ provides a model for calculating the reorder point and the optimal reorder quantity to make sure that there is no shortages. Stage – 4 : Just-In-Time (JIT) – JIT is a management practice in which non-value-adding activities are identified and removed for the purposes of: • Reducing Cost • Improving Performance • Adding Flexibility • Improving Quality • Improving Delivery • Increase innovativeness – When the JIT principles are implemented successfully, significant competitive advantages are realized. Stage – 5 : Material Requirement Planning (MRP – I) MRP is a production planning and inventory control system intend to meet three objectives: • Ensure materials are available for production and products are available for delivery to customers. • Maintain the lowest possible material and product levels in store. • Plan manufacturing activities, delivery schedules and purchasing activities. Stage-6 : Manufacturing Resource Planning It is a system for operational planning, financial planning, and has a ability to respond "what-if" questions and extension of MRP-I. Stage – 7 : Distribution Resource Planning DRP is a system used in business administration for planning orders within a supply chain. The objectives of DRP System are: To improve customer service levels by anticipating customer demand at distribution centers and providing finished products at the correct location. To provide an accurate requirements plan for manufacturing. To optimize the distribution of stock. Stage – 8 Enterprise Resource Planning (ERP-I) – This has a broader role and is not confined to one department. ERP takes a customer order and provides a road map for automating the dissimilar stages along the path to fulfilling it. Stage – 9 : Money Resource Planning (ERP-II) – This has more emphasis on planning of capital or managing surplus money. Stage - 10 : Web Enabled EIS (ERP-III) – This is the third stage of ERP in which it is made available to its user through web client software. Customer Relationship Management • The main objective of retaining as much loyal customers as one can, has led to the emergence of Customer Relationship Management. • CRM is a set of methodology and technology that helps organization to maintain healthy relationship with its customer. • Increased competition is driving organizations to implement CRM and handle business challenges liike, declining revenue, cut-off in the profit margin, costs occurred due to lost customers etc. Definitions Analytical CRM definition • CRM = Customer Understanding + Relationship Mgmt. • Customer understanding means analysis of customer data and relationship management means interaction with the customer through various channels. Greenberg’s definition • CRM is a business strategy, which drives transformation in the business, and influences work processes. These processes are enabled by information technology. There are three elements of CRM : Customer Customer is a ‘Human Being’ Relationship Relationship is the ‘Feeling’ Management Management is ’ Tactics’ Customer : – Since the buying decision is a collaborative activity, CRM provides the abilities to distinguish and manage the real customers. Relationship : – The relationship involves continuous bidirectional communication for the attainment of mutual benefits. Management : – A set of activities in which customer is at the centre. It involves collecting and analyzing customer data to transform it into corporate knowledge. Create customer loyalty. Raising market intelligence. Preserving existing customers. Providing enhanced services. Developing connection and affiliation with customer. Smoothens the progress by capture, analysis, and dissemination of data from customers. These benefits can be achieved in three ways ~ – Take Action: Customer supporting Policies & Procedures – Analyze: Customer’s need, expectation, preferences etc. – Discover: Create new trends in market. The chain that starts with Manufacturer and ends with customers. SCM is a process of planning, implementing and controlling the operations of the supply chain with the purpose of satisfying the customer's requirement as efficiently as possible. SCM covers all movement and storage of raw materials, work-in-process, and finished goods from the point of origin to the point of consumption. Procurement/Purchasing • SCM ensure that the right items are delivered in the right quantity at the right location on the right time at right cost. Operations/Production • SCM ensures that transformation of raw material into finished goods is conducted in an efficient and effective manner. Distribution • Distribution involves activities such as transportation (logistics) and warehousing. SCM ensures that distribution is cost effective, time efficient and Error free. Integration • SCM integrate all supply chain partners together making supply chain a single process. • SCM ensure mutual success. • SCM ensures coordination and cooperation among supply chain partners. ERP v/s CRM v/s SCM • ERP improves • ERP provides a structured internal business environment for scientific processes. decision making. • CRM improves • CRM software focuses on the identification, targeting, relationship acquisition and retention of between business customers and customers. • SCM facilitates • SCM ensures flow of materials and information collaboration through the supply chain between supply with efficiency and chain partners. effectiveness. Human Resource Management Systems HRMS is a software application that combines many human resources functions together such as recruiting, administration, payroll, training, and performance analysis. HRMS = HRM + IT • HRMS integrate the following processes ~ Compensation Management Recruiting & Hiring Succession Planning Workforce Management Payroll & Benefits Compensation Management It is about deciding wages, salary or contract amount to be paid daily, monthly or at the end of contract period. Recruiting & Hiring HRMS maintains information of newly hired employee which can be automatically populated into the employee’s records. Succession Planning It is concerned with transfers, promotions and demotions. Workforce Management HRMS provides tools to effectively manage labour rules, ensure compliance, and control labour costs. Payroll & Benefits It keeps an account of the expenses made towards human resources and provides efficient, flexible and easy–to-use service well suited for complex environments. It bringing industry best practices to the HR functions. It lets us assess and utilize the HR potential completely. It increases the operational efficiency and productivity of the HR department; It reduces HR administrative costs. It increases employee satisfaction. It ensures seamless flow of information between employees, supervisors, managers and administrators; It improves leadership development and succession. It enhances data integrity within the enterprise. It enables to meet compliance and audit requirements. Core Banking System CORE stands for "Centralized Online Real-time Environment". CBS is a set of software components that manage the services provided by a bank to its customers through its branches. Platform where communication technology and information technology are integrated together to provide banking services. These systems run 24x7 basis to support Internet banking, global operations, and real time transactions via ATM, Internet, phone and debit/ credit cards. 1 2 3 4 5 • Making and servicing loans; • Opening new accounts; • Processing cash deposits and withdrawals; • Processing payments and cheques; • Calculating interest; 6 7 8 9 10 • Customer activities; relationship management (CRM) • Managing customer accounts; • Setting criteria for minimum balances, interest rates, no. of withdrawals allowed etc. • Establishing interest rates; • Maintaining records for all the bank’s transactions. Enterprise customer information • To create and maintain a customer information files, across multiple host systems. Consumer banking • This includes Savings accounts, Personal and Auto finance, Structured deposits, multi-currency accounts, term deposits, revolving loans etc. Corporate banking • This includes multi-currency receipts and payments, flexible interest rate setup, debt consolidation, maintain the corporate customer information files, corporate deposits, commercial lending etc. Trade finance • This module presents trade finance with the payment system and exchange rate setup. It also supports multicurrency processing, documentary credit, import and export financing, letter of guarantee etc. Customer analytics • This module supports data acquisition, analysis, quantitative modeling techniques and multi-dimensional reporting. Wealth management • This creates new revenue streams by offering high net worth products and services powered by the Finacle wealth management solution. Payments • The module processes payments regardless of payment instruments, originating channels, hosting modules and payment networks. Origination • This module simplifies complete credit lifecycle, across retail and commercial loans with Finacle’s enterprise loan origination solution. Dashboards • This enhances user experience by enabling availability of frequently used functions on a single console. AIS is defined as a system of collection, storage and processing of financial and accounting data that is used by decision makers. Six elements of AIS ~ People accountants, consultants, managers, and auditors. business analysts, Procedure manual and automated methods for collecting, storing, retrieving and processing data. Data Sales orders, Customer’s bills, purchase requisitions, Vendor invoices, inventory data, Payroll information, Tax information Sales analysis data etc. Software Computer programs used to stored, retrieved, processed, analyzed financial data. They provide quality, reliability and security in reporting. IT Infrastructure Hardware, network, media etc. Controls Security measures to protect sensitive data against unauthorized access. Characteristics of AIS 1 • AIS are a system to collect, store and process data to prepare information. 2 • AIS can use extremely developed technology or be a trouble-free manual system, or be something in amid. 3 • AIS implements sufficient controls to make certain that the information are obtainable, accurate and reliable. 4 • AIS transform that data into information with the intention to assist management in decision making. 5 • AIS has different sub components that includes Budgeting and Planning, Expenses Management, Revenue Management, Cash and Treasury Management, Accounting, Electronic Banking, Payroll etc. 6 • AIS also helps in enhancing the performance of a company by allowing it to conduct systematic operations across the market. Artificial Intelligence AI is the technology focusing on creating machines that emulates human behavior such as seeing, hearing, communicating reasoning etc. AI is a research field that tries to translate the intelligent human behaviors on a computer. Expert systems, Pattern Recognition, Natural language, Data Mining are some of the applications of AI. Expert System • ES is a decision making system that helps managers by providing them ready made decision. • Components :~ (i) User Interface (ii) Database of facts (iii) Inference Engine (iv) Knowledge Base (v) Explanation facility User interface Database of facts Inference Engine Explanation Facility Knowledge Base Knowledge Base This includes the data, knowledge, relationships, and decision trees used by experts to solve a particular problem. The knowledge base of expert systems encloses both realistic and heuristic knowledge. Realistic knowledge is that knowledge of the job domain that is found in textbooks or journals. Heuristic knowledge is empirical, supplementary judgmental knowledge of performance. It is principally individualistic. Inference Engine This program contains the logic and reasoning mechanisms that simulate the expert logic process and deliver advice. User Interface This program allows the user to communicate with the expert system. Explanation facility This facility provides the user with an explanation of the logic the ES used to arrive at its conclusion. Database of Facts This holds the user's input about the current problem which the inference engine will use to come to a decision. The quality and quantity of data gained from the user will influence the reliability of the decision. Expert systems are designed to deal with imprecise data or problems that have more than one solution. Expert Systems use fuzzy logic to guess users problem and compare with knowledge base. Expert systems also use neural network to simulate thought process of brain to learn from experience. Types Example based Rule based Frame based BI is the timely, accurate and actionable business information. BI is the delivery of accurate, useful information to support effective decision making. BI refers to the process of collecting analyzing and presenting information to the user who need it, when they need it. BI is the technology and methodology to assist business managers to make better decisions. Business Intelligence Tools Reporting and Querying Data Mining or Statistical Analysis Scorecards Business Analysis Dashboards [A] Simple Reporting and Querying This involves using the data warehouse to get response to the query. There are reporting tools used to arrange information into a readable format and distribute it to the people who need it. This requires all the necessary data is available in one place, in one common format and BI is connected to it. [B] Business Analysis Business analysis refers to presenting, visualizing data in a multidimensional manner. BA allows the user to plot data in row and column coordinates to further understand the intersecting points. ETL (Extract, Transform, Load) tools bring in data from outside sources, transform it to meet business needs, and then load the results into the company database. [C] Dashboards Dashboards are the tools that uses information gathered from the data warehouse and making it available to users as snapshots of many different things. It includes a collection of graphs, reports, and KPIs that can help monitor such business activities. [D] Scorecards Scorecards offer a rich, visual means to display the performance of specific activities, business units, or the enterprise as a whole. A list of attainable strategic milestones, combined with benchmarks and measures on how well the company has actually performed are linked in the scorecard with graphical display. [E] Data Mining or Statistical Analysis This involves using statistical, artificial intelligence, and related techniques to mine through large volumes of data and providing knowledge. The objective is to provide interesting and useful information to users even without their querying. Data Mining involves data analysis for discovering useful patterns that are “hidden” in large volume of data. OLAP (Online Analytical Processing) is a multidimensional analytical tool typically used in data mining. Business Reporting Report is a tool provided users to get immediate access to business information. Reports facilitate us to: Get conclusions about a trouble or issue. Communicate. Endow with recommendations for upcoming events. Exhibit our analytical, reasoning, and evaluation skills. Scrutinize obtainable and potential solutions to a problem, situation, or question. Business reporting is a step towards enhanced business intelligence and knowledge management. While reports can be distributed in print form or via email, they are characteristically accessed via a corporate intranet. With the help of IT hardware and software like MIS, reports are access by managers using terminals connected to company’s INTRANET server. Benefits of MIS reporting for micro-businesses Paperless lodgment Electronic record keeping Pre-filled forms Ease of sharing Secure Public key authentication Same-time validation Benefits of MIS reporting for large-businesses A single reporting language : XBRL Reduce costs Streamline the process of aggregating data Increased access information Secure Public key authentication Same-time validation Access and Privilege Controls Controls are the procedures used to safeguard software systems from unauthorized modification, disclosure or destruction and to ensure that information remains accurate, confidential, and is available when required. Types ~ – Access Controls : Allow or reject access to systems. – Privilege Controls : restrict the use of systems. Approaches to Access Control • Role-based Access Control (RBAC) – In RBAC administrators place user into roles. Users receive only the rights and permissions assigned to those roles. When employee’s job role change, all previous access is removed, and new rights and permissions are assigned. • Rules-based Access Control (RAC) – RAC is largely context-based system. RAC takes into account the data affected, the person attempting to perform a task, and other factors governed by business rules. – For example - A manager can approve his employees’ hours worked. However, he can not approve his own hours. A rule built into the application temporarily removes approval privilege. – This is dynamic and occurs at the time a transaction occurs. This also sometimes called dynamic RBAC. This is a fundamental principle of information security, which refers to give only those privileges to a user account, which are essential to that user's work. For example, a backup user does not need to install software; hence, the backup user has rights only to run backup. Also called Least-privileged User Account (LUA) this principle refers that all user accounts at all times should run with as few privileges as possible. Software bugs may be exposed when applications do not work correctly without elevated privileges. In addition to conventional mode of payments like cash and cheques, the past few years have seen the speedy creation of plastic payment mechanisms such as credit, debit, smart, and cash cards. With the increase in online shopping and ecommerce industry, it has now become a requirement that the web stores are integrated with a payment gateway. Payment gateway is fundamentally a service used to process credit card transactions when orders are accepted online from clients. Order Customer Request to PG Web Server Server Response PG Response Payment Gateway Bank Response Funds transferred Merchant To merchant A/c Bank Request for Confirmation Electronic Payment Credit Card Clearing Authorization Batching Funding Purchase request Card Holder Merchant Issuing Bank Authorization request Step 1 : Authorization Authorization Product Authorization request Acquirer Authorization code Step 2 : Batching The merchant transmits the batch of sales transactions of the day to acquirer to receive the payment. Step 3 : Clearing The acquirer sends each sales transaction to the appropriate issuing bank. The bank subtracts the interchange fee and transfer remaining amount to the acquirer. Step 4 : Funding The acquirer subtract its discount fee and transfer the remainder to the merchant’s account. SET • • • Secure Electronic Transaction is a payment standard developed jointly by Master card and VISA card. It is used to handle C.C. transactions securely. Objectives ~ • • • • • Provide confidentiality of payment information transmitted over network. Ensure Integrity of all transmitted data. Provide system to authenticate the card user. Provides protocol that is independent of other security mechanism. Facilitate interoperability between various servers. Electronic Cheque There 2 systems developed to use e-cheques – (i) FSTC Here buyer authenticate the cheque by digital signature and send it electronically to the issuing bank. The E-cheque is then handled by EPH software installed at the bank server. The user can designate e-cheque as Certified Cheque or Electronic Charge Card Slip(Standard e-cheque). The National Automated Clearing House Association clears echeque and transfer the fund. (ii) Cyber cash Here buyer, after authentication, send the e-cheque to the seller. The seller then put it to the bank and get transfer of fund into his account. Smart Card The plastic card that has an embedded microprocessor chip that stores and manipulates the data. Contact Card Contact less Card Combo Card Electronic Purse Pre-paid Card pass through the POS terminal, no credit check or signature required.