E-commerce conundrum: an alternative solution

Recently, there has been a hue and cry in the e-commerce sector of Bangladesh with massive allegations of fraud. Customers paid the e-commerce merchants for different goods, but they did not receive the product.

In response, the relevant authorities implemented an escrow system where there is a third party (escrow), who retains the authority on the release of money until delivery of the product is established.

Different media agencies emphasised that in Bangladesh, the escrow agency follows a process that is largely manual. Such a model can't be sustainable or serve millions of transactions that can happen in the e-commerce domain each day. Moreover, the government of Bangladesh is, currently, in the process of implementing a policy requiring an e-commerce-based entrepreneur to keep enough deposit as security so that in the case of default, affected customers can be compensated.

Sounds good, but such a policy would restrict thousands of small and medium-sized entrepreneurs who do not have enough deposit money. This will create a few handful of giant e-commerce merchants with the power of monopoly—a state of affairs that nobody wants. An IT solution can resolve these issues. But before I explain, let me discuss the general process of an e-commerce transaction.

There are different models of e-commerce, but the most prevalent one is the one where the merchant owns the e-commerce site but has no stocks. Sellers and buyers use that site for their business dealings.

The transaction starts when a customer places an order through that site. The e-commerce site forwards the order to the seller and the transaction information along with credit card details to the payment gateway. The payment gateway sends the transaction details to the card association (Visa, Mastercard etc.).

The card association forwards that to the card-issuing bank. The bank checks the available balance and verifies other details before authorising the transaction. This authorisation goes back to the payment gateway via the same channel but in reverse order. The gateway then releases the payment.

The whole process is automatic and happens in seconds. When the supplier or the merchant receives the payment, they initiate the product delivery process. In the end, the purchaser receives the ordered item.

Anybody can take notice that here, the customer is the weakest link who has already paid but has no control over product delivery. But the process is still being followed worldwide in the e-commerce business because of the mutual trust between merchants and clients. That confidence had been established after long years of doing business together. If trust is lacking, as in the case of Bangladesh, this process simply can't work.

In order to safeguard customer's interests, authorities in Bangladesh introduced an escrow model in the Standard Operating Procedure (SOP) of e-commerce transactions. The model has severe limitations. Hence, I am proposing an IT solution that can be implemented as a viable alternative.

A Product Delivery and Payment Tracking Application (PDPTA) can be designed, developed and implemented to coordinate the activities of the merchant, supplier, escrow agency and payment gateway and for the tracking of the delivery process.

This is a database-driven web application that captures all the information about an item and records all the events from the order to delivery. This application would be under the control of the payment gateway or the escrow agency and preferably mounted on their server. Merchant, supplier and delivery services (e.g. courier services) would interact with the PDPTA website through an Application Programming Interface (API).

In this model, once a buyer places an order using an e-commerce site, an item tracking number (a unique Order ID known only to the client) would be auto-generated.

The PDPTA website would register the Order ID along with all other information related to that transaction.

An automated notice would be generated and sent to the supplier for product delivery. The payment gateway would also get a notice of payment through the credit card transaction channel but hold the payment until it gets delivery confirmation notice from the PDPTA website. 

On receipt of the order, the supplier prepares the item with appropriate packaging, attaches a barcode with relevant information, and hands that over to the courier service for delivery. The courier service would scan the barcode, which would update the PDPTA database with information such as packaging date, dispatched date, and expected delivery date. This will happen in all the subsequent stations of the delivery service along the way.

The PDPTA website may also keep the customers informed about all the events by sending automated SMS in response to each event. Moreover, if customers so desire, they can visit the e-commerce site any time of the day and see the most up-to-date information about the whereabouts of the purchased product.

The delivery person at the destination station would be equipped with a smart device. During the physical delivery event, the client would enter the Order ID into the smart device held by the delivery person. If the PDPTA system confirms the validity of the Order ID, the delivery person would receive a confirmation message and deliver the items to the client.  This event will update the PDTPA database with "delivery completed" information, and the payment gateway will be notified accordingly.

The payment gateway would then release the fund. The whole process is fast automated and error-free. If the item is bulky such as a motorcycle or fridge, the customer, on receiving the notification, would go to the delivery centre to complete the "delivery completed" event.

This is a generic solution that can be tailored as per the needs of different e-commerce scenarios of Bangladesh. The solution that I propose here is not rocket science. I believe Bangladesh has many software development firms that are capable of designing and developing such an application in a matter of months.

The authorities might instruct the payment gateways or escrow agencies, whatever the case may be, to install and integrate product tracking software with their systems. Other stakeholders such as merchants, suppliers and delivery organisations would also be required to integrate their systems with the PDTPA website via APIs. Most importantly, the delivery personnel need to be equipped with smart devices (with APIs installed on them) for recording the last event of the delivery process over the internet.

When properly implemented, this solution would remove the manual process from the escrow system or eliminate the need for an escrow system altogether. This will also end the need of arranging a huge amount of deposit as security money before starting an e-commerce-based business and help thousands of budding entrepreneurs who find it extremely challenging to get initial capital for their ventures. 

The author is senior IT specialist of the Australian Public Service and a certified professional of the Australian Computer Society.