What is meant by E-Commerce and how does it operate?




In the early days, the trade was carried out with the help of metal coins or even the barter system prevailed wherein the goods were bought for goods. The metal coins were used to buy and sell products. But in the modern world, trading of goods has become very easy and convenient. It has become as easy as clicking a mouse button. The coins have been replaced by the credit cards and debit cards.

Every now and then we come across the term E-Commerce, but do you know what is it exactly?

Well just like the commerce of the real world, it is the commerce of the internet world.

You book an airplane ticket or a railway ticket online that is E-Commerce. You pay your bills online that is E-Commerce. You buy a phone online which is also E-Commerce. So in today’s world, we are frequently involved in the world of E-Commerce.

What is E-Commerce?

Well, it stands for Electronic commerce, i.e., the businesses that run on the internet through online stores. By definition, it means the buying and selling of various kinds of products online through a website. E-Commerce is a model that has tremendously revolutionized the way businesses are run through the online media. It has given a boost to the online markets.

The majority of the E-Commerce websites are all retail stores. Just like any brick and motor store, an online retail store also known as the web store is a place where the consumers can buy/sell the products.

But Wait …

Now the question arises,

How does it work?

How do we buy things and how do we pay for them?

Who sells the products?

Here’s How its all done.

How E-Commerce does work?

The Main motto of the E-Commerce is to do business, i.e., one party will sell the product and the other party will buy it. Today almost everything that we buy from other physical stores can be bought on the online stores.

Every single thing is now available online.

E-Commerce can be conducted through various mediums such as email, fax, online catalogs, and shopping carts, Electronic Data Interchange (EDI), etc.

The basic working of E-Commerce:

The above diagram outlines the path, how the information travels to create an e-commerce transaction.

Here is an explanation of each piece.

There are various parties involved in buying and selling the products online.

Below is a list:


The merchant is a party that sells the product. The merchant is a registered user of the online portal who wants to run his/her business by selling the products online. A merchant account allows a business to accept credit/debit cards.

A Web Service provider or a business provider/Online Gateway:

It is the party that provides a merchant with all the facility to sell its products online. A merchant uses the resources of the online business provider. This online gateway is the “middle-man” that allows a website to send data to a merchant account.

Features like a shopping cart, order processing, payment through credit cards or other payment gateways like Paypal is provided by the business provider to the merchant.

A customer or the buyer:

This is the party who views the website, searches for the products and buys it by making the online payment using credit/debit cards through the online payment gateways which is strongly secured by the payment gateways provider.

SSL certificate/Secured Payment Gateways:

while most data can flow freely, we want to be sure the credit card data is transmitted safely. So it is encrypted as it is sent to keep prying eyes from seeing it.

An SSL Certificate is what accomplishes this task.

Delivery service provider:

It is the party responsible to deliver the product to the customer or the user at/before the estimated time mentioned. This party also provided the user with the facility for fast delivery for which the user may have to pay extra bucks.

Thus, an E-Commerce transaction is as simple as a single click. You have everything available just under a couple of clicks.

1) Visit any online shopping site for e.g. Flipkart.com, eBay.in, Amazon.in, snapdeal.com, etc.

2) Search for the product you want to buy.

3) Click on buy and then follow the process and proceed to payment.

CLICK! CLICK! And you are done with your shopping. So simple, isn’t it?

Requirements of E-Commerce

Mechanism to Accept Orders:

The E-Commerce needs a mechanism to process the orders without any issues and with ease to the customer. When the customers navigate through E-Commerce website and decide a product to buy, then there arises a need to process that order. There has to be a process that accepts their order. The software that runs this process is called a shopping cart.

In addition to making a note of what is being purchased and updating the order database, the shopping cart performs several other tasks:

  • Computation of taxes and other levies.
  • Processing of coupons and other discounts.
  • Capturing the billing and delivery address of the customer.
  • Upselling to the customer.
  • Ensuring user acceptance of terms of service and other conditions of sale.
  • creation of codes, such as invoice numbers, order number, tracking number and the like.
  • presenting customers with delivery options and adding the corresponding fee.
  • forwarding customers to the payment gateway; (in the case of downloadable digital goods) redirecting paid customers to the download page.

What an E-Commerce mainly consists of?

Definitely, a lot of transactions. These transactions are carried out using the credit/debit cards or the net-banking facility offered by the banks or various other payment gateway providers like for e.g. PayPal. In most cases, an e-commerce transaction involves transacting money. This process is conducted by a piece of software called the payment gateway.

The payment gateway:

The main objective of the payment gateway is to presents a customer with payment options.

Accepts identification details, such as credit card numbers authenticates customers using a password, CVV code, OTP’s or multiple factors of authentication.

Manages the failed transactions and rolls back the transaction, if the amount gets deducted from the customer’s account.

It time to deliver the product:

I agree with people who say that effective logistics is the key to a successful E-Commerce business.

One of the most disappointing features of the online purchase is the indeterminate and inordinate delay in receiving goods.

As a result, E-Commerce businesses need to ensure that the right product is delivered to the customer, in good condition, and within the period that the customer expected. Since logistics is a specialized function, several E-Commerce businesses outsource it to third party logistics providers.

Customer Service:

The success of every business depends on the service it provides to there customers whether it is online business or the business in the real physical world.

Customers need to be serviced pre-sales as well as post-sales. Customer satisfaction is the key to the success of every business.

Before the sale, customers may want to inquire about the product features that may not mention on the website. They might have questions about customization, accessories, discounts, etc.

After the sale, customers may inquire about information related to the usage of the product, repair or enhancement of the products or services that they have already purchased. They may also want to know about the warranty/guaranty of the products they purchased.

Reverse Logistics Need to Be Managed:

Sometimes it happens that we order something and then we realize that we don’t want to buy that thing.

Or it may happen that you find some better offer on some other website.

This is where reverse logistics comes into place. There is no such thing as an error-free product.

As a result, some products will be damaged or stop functioning right?

Sometimes the wrong product gets be delivered which is different from what you saw on the website.

In such cases, there has to be a mechanism to return the items and get your money back into your account. Such error or damage triggers the reverse logistics process.

In the usual mode, goods move from the e-commerce business to the customer. In reverse logistics, the flow is in the opposite direction. In the reverse logistics, the whole transaction has to be rolled back.

Advantages and Disadvantages of E-Commerce

There are various advantages of the E-Commerce below are few of them.

No standing in the queue:

You want to book a railway ticket, just go to the website and book it online. No standing in the long queues. Similarly, you can book an airplane ticket, movie ticket, etc.

Even in the case of online shopping, you don’t have faced the crowd of the shopping malls.

Access to stores from any place:

Any person situated in any corner of the world can access the online stores using the internet.

Even the people situated in remote areas who don’t have easy reach to the city malls can avail the facility of online stores and can buy anything from there.

You don’t need a physical store:

E-Commerce saves the space that is required by the physical stores. Thus, it removes the overhead costs of renting/buying a store that we need in the physical world stores.


You get a great deal on various products and many times the cost of products is much less than the physical market price which saves you money.

Disadvantages of E-Commerce

Access to the Internet:

You always need to have an internet access device if you want to use the facility of E-Commerce.

Similarly, you always need to have an internet connectivity for making a transaction through E-Commerce.

Its virtual till you have it delivered:

You don’t have the direct access to the product. Hence, you can not feel the product in hand.

There is a lack of personal touch that we have with the shopkeepers in the physical stores.

Now you know what is an E-Commerce website, How it works and not to forget the advantages and the disadvantages of having one too.

If you have any query regarding an E-Commerce Website please leave a comment below.