Payments Learning Resources

What is ecommerce

Understanding what is ecommerce and how it works is massively important for anyone seeking to open an online store. Tremendous profits, cheaper setup costs and greater customer reach are just a few of its many advantages. 

What is ecommerce?

What is ecommerce and how would you define it?

Put simply, ecommerce can best be described as the sale and purchasing of goods and/or services online through the internet. According to Statista, online shoppers in 2016 reached a whopping 1.66 billion globally and the number is expected to increase to 2.4 billion by 2021. That would be no surprise, as online shopping is the ideal solution for today’s consumers who have limited free time. Consumers can find almost anything online that they would like to purchase quickly and easily. However, the most popular industries of online shopping are fashion, books/music/stationery, travel services, events tickets, SaaS, financial products and education. 

What do you mean by e commerce? 

Ecommerce stands for "electronic commerce", where goods and services can be purchased by internet, from a business that does not need to have a physical presence (e.g. a store).

What are the benefits of e commerce?

Online shopping (ecommerce) is the ideal solution for today’s consumers who have limited free time. Consumers can find almost anything online that they would like to purchase quickly and easily. 

What is the e commerce business?

Ecommerce business is best described as the sale and purchasing of goods, products and/or services by customers through the internet.

The types of ecommerce are B2C (Business to Consumer), B2B (Business to Business) and C2C (Consumer to Consumer).

How does an ecommerce business work?

eCommerce is the process of buying and selling products or services, transferring data and money over an electronic medium, such as the Internet.

The various types of ecommerce stores

e-commerce illustration with multiple store types

Online stores that sell physical items

These include clothing stores, homeware stores, toy stores and grocery stores amongst others. Such stores provide visual displays of available products and allow shoppers to add products to a virtual shopping cart. When the customer hits the ‘pay’ button at the checkout page of the online store, their card details are captured by the payment gateway. This data is then forwarded to the payment processor and who will, in turn, forward it to the issuing bank, which will then verify whether the transaction is legitimate or not. If the transaction is approved the purchase is considered complete. However, if the transaction was declined then all the involved parties will be notified and the purchase will be deemed unsuccessful. Following successful payment, the merchant will pack and ship the ordered product to the customer.

Online businesses that sell services

This differs substantially from a physical store. Here, the business is selling a service whereby you can purchase and receive something immediately such as a marketplace with freelancer specialists. Freelance examples include photographers, designers, and translators. Other examples of online business service providers include online education course providers, consultants, and coaches. These types of ecommerce merchants also include those that typically require you to book a consultation beforehand to ascertain your needs (e.g. a digital marketing agency or medical treatment facility).

Online stores that sell digital products

The types of products that these merchants provide to their customers include software, music, e-books, and photographs. For instance, when a customer wants to buy online books then he or she will visit an online bookstore and add the preferred books in their cart. At the checkout page, the customer will have the option to choose the payment method. These payment methods might be a credit card, ewallet, bank transfer or other. Some platforms even have the option for a recurring payment, which means that the customer will be charged monthly and can enjoy numerous books per month without continually entering their payment details.

The main types of e-commerce business classifications

e-commerce illustration showing large stack of money, laptop and box of shipped goods

Business to consumer (B2C) – the most common type of eCommerce is where a business provides a service or product to consumers. The major reason behind the large amount of B2C is due to the lower cost to operate when compared to physical brick and mortar stores. However, complexity in getting the store up and running, and the technology required are the major drawbacks.

Business to business (B2B) – Here the participants are both business entities. In regards to digitization, most companies look online to purchase products (e.g. stationery, electronics)  and services (e.g payment solutions, software). This includes Powercash21, a B2B company offering payment solutions and products to businesses who want to accept online payments. Our services are ideal for merchants who want to provide their customers with a seamless payment experience while ensuring that the latest risk management tools are applied.

Consumer to business (C2B) – Here, the ease of accessing a multitude of platforms has allowed consumers to ‘auction’ to businesses. A good example is a consumer listing their requirements for an international holiday and various tour companies making offers to this consumer. Another example includes freelancing websites where companies can hire specialists like bloggers, web developers, salespeople, and many others.

Consumer to consumer (C2C) – This market refers to one consumer selling to other consumers. For instance, online marketplaces like Etsy and eBay enable consumers to sell new or used products to other consumers. The buyer will follow a very similar procedure to that where they purchase something from a merchant. This means that they will select and add the product they want to buy in their cart and proceed with purchasing the product using a credit card or any other available payment method.

Business to administration/government (B2A/B2G) – This market includes a business selling products, services or information to a government or government agency. For example, a public administration (e.g. government) requires a service or product (e.g. research paper) and therefore obtains this from a business that performs this function and stores this information in electronic databases.

Consumer to administration/government (C2A) – the consumer to administration model differs significantly to the above example. Here the consumer pays the government, and those payments usually include tax fees, university fees, national health payments, and so forth.

Understanding e-commerce platforms

an illustration of a laptop turned into a brick and mortar store

1. Online marketplaces

The proliferation of online marketplaces in recent years indicates that they have become a very attractive channel through which ecommerce retailers select to reach out to their perspective customers. An online marketplace is an online shopping platform where third-party companies can sell their products or services to online shoppers in a virtual market. Marketplaces can be specific to certain verticals, or certain geographies, or those sharing economy oriented goals. The main advantages of online marketplaces are the high exposure and sales increase that small or local businesses can gain. By selling goods online through an e-commerce platform, merchants can reach consumers all over the world and expand their business globally. This is achieved without the investment they would have to make to obtain such reach by using their own website. Another benefit for merchants that choose to sell through an online marketplace, is the fact that their payments and orders are handled by the platform. It’s important to note that the owner of an electronic marketplace does not own any inventory but their role is to present the products of third- party sellers and facilitate transactions.

Everyday examples - Some of the most popular online marketplaces include eBay and Amazon. For example, to sell something through Amazon as a business, you have to list the products you want to sell and when the customer makes a purchase you will receive a notification to ship the product. Once the order is shipped, Amazon deducts the fees and deposits the remaining funds into the merchant’s bank account. Online marketplaces are also used for selling services. For example, Upwork is an online platform where companies list a job opening position and can hire freelancers.

2. Storefronts

Merchants can set up an online storefront to present and sell their products or services online, by paying a hosting fee to the platform providing the service. Although an online store looks simple and is easy-to-use by the customer, it actually involves a series of functions in order to operate. Such functions are:

i. Shopping cart interface -  This is the web-based software that connect the online shop to the back end infrastructure of the company, a necessity for the online ordering processing.

ii. Payment gateway - Used for online payment processing. Merchants can choose the payment gateway for their online store through a list of available plugins that the e-commerce platform offers.

iii. Inventory management software – Used to manage the merchant’s inventory and inform visitors whether the desired product is available for purchase or is out of stock.

iv. Website analytics – This feature is usually available for custom-designed websites and may require technical support. Merchants can use website analytics on their online storefront to track shopping trends that will help them grow their business.

Everyday examples - Some of the available e-commerce platforms that merchants can choose from are Magento, WooCommerce, Shopify and many more.

3. Social Media

Through social media platforms, users can buy a wide range of goods like clothes, beauty products, and furniture, without the need of leaving the app. Many social media platforms introduced shopping features, changing the primary purpose by which such platforms were designed for, namely to connect and communicate with friends and family. However, this proves to be beneficial for both businesses and consumers as it gives retailers the opportunity to reach cross-border shoppers and enables consumers to instantly buy something they liked while browsing the application.

Everyday examples - The most popular social media platforms that incorporate e-commerce strategies include Instagram, Facebook, and Pinterest.

The major advantages of the e-commerce option

visual illustration of a ladder leading into a mobile phone displaying a graphic of a shopfront

There are certainly several reasons why ecommerce and omnichannel are growing exponentially. Primarily because of the advantages they offer both to the merchant and the shopper.

Customer Advantages

From the customer’s point of view, e-commerce offers the following advantages:

  • Open all day, every day – purchases can be performed by consumer all day and night, 7 days a week
  • Generally no global restrictions – most stores offer services irrespective of their geographical location
  • Variety of choice – there is such a wide range of items/products or services available that customers are, in effect, spoiled for choice
  • Convenience – shopping from the couch, the bedroom, backyard, you don’t need to leave the house  

Detailed product descriptions – ecommerce offers the ability to provide the consumer with an extremely detailed amount of info about the product. This avoids the experience many shoppers encounter in the brick and mortar world whereby store employees might fail to provide them with the information required to make a decision. Furthermore, consumers have access to online comparisons and ratings in order to make informed decisions over their purchases, something that is practically impossible in a physical store.

Merchant Advantages

Similarly, for the merchant, advantages are numerous in running an online channel. Besides the increased demand for their products and services due to the above consumer advantages, merchants can benefit from:

Faster set up time versus brick and mortar stores - With a marketplace or shopfront platform, a merchant can set up and be up and running in no time

Lower overall costs - Especially relating to the establishment of  premises and employee hiring

Greater reach to customers – with an internet presence, products can be promoted and offered to customers around the world, beyond the reach of any brick and mortar operation

Diverse service options – for ecommerce merchants, it is far easier to deploy localization strategies backed up by the necessary solution to achieve localization goals. One example is the use of local payment options for an international audience. Companies like Powercash21 offer diverse alternative payment methods that fit the local payment habits of consumers across the globe. Such solutions are only available online in most cases, which would be a limiting factor for a brick and mortar operation.

No doubt the world wide web has substantially and irreversibly changed the way business is performed today. With consumers tending to prefer the convenience of omnichannel options, any company, whether offering products or services to businesses or consumers, has to be familiar with what is e commerce and how it can impact their business’ bottom line.

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