Andrey Ildemenov, specialist in management and financial planning, article “Business turnover in Internet environment”.

In October 1969, an event took place in the United States that almost no one noticed: an exchange of information occurred between two geographically distant computers. At the time, few could foresee its possible consequences — let alone imagine that over the next 30 years, this ordinary technical invention would change the world. Today, the result of that first computer communication session is a fully functioning global information network based on www technology, which allows for the rapid exchange and convenient presentation of massive amounts of data.

The primary achievement of the Internet environment is the ability to save the key resource of any business — time. Entrepreneurial organizations have gained the opportunity to use the Web to further develop their businesses by creating and maintaining their own corporate websites. Regular partners and potential clients can quickly send and receive necessary information, while entrepreneurs can respond promptly and maintain effective feedback.

According to experts, several main categories of businesses operate on the Internet.

The first category includes large retail enterprises that sell goods directly online through a direct sales model, using traditional transaction mechanisms and well-established payment and delivery channels.

The second category includes large universal Internet portals that provide clients with access to commercial services from various companies operating in different market segments. As a result, the client can purchase a wide range of goods and services in one place, while the portal earns commissions from transactions.

The third category includes specialized thematic portals that provide access to services of companies operating in a single market segment — for example, music products, books, or travel packages.

The fourth category includes Internet auctions that operate as “trading platforms,” offering sellers and buyers a convenient mechanism for making bilateral deals (this category of online commerce is currently developing faster than others).

The fifth category includes companies that sell products existing in digital form (music, video recordings, texts, online games, etc.). This category also includes companies engaged in Internet advertising.

The sixth category includes websites that create groups uniting consumers interested in products of the same class. Such sites allow consumers to benefit from bulk discounts. This category is only beginning to take shape.

The seventh category represents the sector focused on serving corporate clients (B2B — business-to-business). According to experts, this sector is expected to show the fastest growth. It is estimated that by 2002, turnover in this sector will reach $320 billion annually.

The eighth category includes various services for billing and payments (for utilities, medical services, insurance, etc.).

Today, around 3 million people in Russia use the Internet, and their number continues to grow rapidly. In the next 3–5 years, the number of users is expected to increase by about 20% annually. Users obtain necessary information from the Internet and conduct commercial transactions. The Russian Internet includes the following elements of electronic commerce:

  • online stores;
  • payment systems;
  • auctions;
  • banner (advertising) networks;
  • electronic trading platforms;
  • Internet banking;
  • Internet trading;
  • insurance companies.

Relations in the B2B segment are developing at an accelerated pace, as existing and new business processes for commercial transactions are transferred online to save time and financial resources.

Relationships in the B2C (business-to-consumer) sector between individual users and retail companies are also developing. There are over 600 online stores in the Russian Internet space. Major e-commerce companies report growing success and demonstrate impressive growth rates. For instance, in May 2000, the turnover of the online store Ozon reached $110,000, while the June turnover of the eHouse Internet holding totaled $1.15 million, with a cumulative six-month turnover of $5.7 million. The main product assortment of online stores includes:

  • computers;
  • books;
  • software;
  • food products;
  • gift sets;
  • compact discs;
  • various types of services;
  • video films;
  • office equipment.

Customers make their purchases using the following methods:

  • cash upon delivery;
  • cash on delivery;
  • money transfers through Sberbank;
  • using cards from various payment systems in real-time mode; payments directly from their bank accounts in real time using “Client-Bank” systems.

Global statistics show that more than 90% of e-commerce websites have been attacked by online fraudsters and hackers — either to steal funds involved in transactions or to disrupt the technological operation of systems.

In the first three payment methods, the parties involved in a transaction bear no risk of losing funds due to fraud. However, in the fourth and fifth methods, such risks exist. If the payment processing system used by the parties does not have an adequate level of protection, it becomes vulnerable. Those companies and banks that try to save money when developing security software may eventually lose far more.

Typically, fraudsters obtain information about secret access codes to bank accounts and account balances precisely during online sessions and payment transactions. Fraud is especially common in payments involving magnetic stripe cards. Often, criminals set up fake online stores to collect users’ PIN codes by creating bogus forms and surveys.

The largest online marketplace in Russia, XXL.RU, accepts many types of payment cards, including the microprocessor-based SBERCART card issued by the Savings Bank of the Russian Federation. Using this card for online transactions is significantly more secure, as no direct access to the bank account occurs during the payment process — the transaction is encrypted and transferred directly from the buyer’s SBERCART to the seller’s SBERCART.

The Savings Bank of the Russian Federation is actively developing this new business direction. The technology for conducting guaranteed secure Internet payments using its own SBERCART microprocessor cards continues to spread in the Russian Internet. The software developer is BGS Smartcard Systems AG. Currently, the SBERCART system covers 63 regions of the country. As of mid-2000, 673,000 cards were in circulation. In addition to online payments, cash can be withdrawn using SBERCART cards at 2,480 Sberbank branches and 372 ATMs in 328 cities and towns across Russia. Furthermore, the cards are accepted at more than 1,680 retail and service outlets. SBERCART is issued by nearly all regional banks of the Savings Bank of Russia. In Moscow alone, 35 banking institutions are engaged in issuing these cards. (Source: “Banking Business in Moscow,” No. 11, 2000)

Author: Andrey Ildemenov, a professional in management and financial planning.

Main areas of expertise:

  • Development of the company’s financial strategy;
  • Implementation of the company’s financial and economic policy;
  • Asset management to increase the company’s shareholder value;
  • Identification of value creation chains for specific business lines in vertically integrated structures;
  • Development of efficient systems for allocating company resources across business areas (considering strategic priorities and target cost management);
  • Design and implementation of systems for: – pricing; – financial planning; – financial and operational analysis; – management accounting; – automation of business processes.

Andrey Ildemenov regularly conducts seminars on these topics in both open and corporate formats.