1

Ecommerce Unmasked

Hidden secrets to fight online battles

by

Rekha Chandulal

BOOK SAMPLE (FREE)

Contains excerpts of the book from chapters and 2 cases.

Copyright © 2015 Rekha Chandulal

The sample pdf can be distributed.

First Edition: Jan 2015

First print

Paperback

2

Egovernance

Ecommerce has grown rapidly and unchecked, funded by foreign investors, largely ungoverned from 2011. They are run by young professionals without following Indian laws.

Ecommerce provides services even to remote corners of India, and the public is not aware and informed of inherent risks which they are not protected from.

Ecommerce is beset by loopholes, many types of security risks, insecure banking technologies, laws not in India’s favor.

Ecommerce transactions are managed by foreign agencies like for payments, and many supporting services are owned by foreign companies or investors who dictate unilateral contract terms not in favor of Indian ecommerce firms.

It is time for egovernance of ecommerce, to introduce accountability, responsibility, controls, management, and security to build a strong and safer future for India.

Egovernance requires that they follow Indian laws such as taxation, consumer service, judiciary, legal, customs, foreign exchange, ISI standards, goods and services definition, Indian Contract Act, Privacy and Data Protection Regulations, Copyright & Trademarks law.

Regulation is required by RBI, taxation departments, finance ministry, (cyber) police, home ministry, competition commission, industry bodies, industry ministries, information technology & communication ministry, judiciary, customs & excise departments, national and state governments.

Egovernance requires setting up new eadministration mechanisms to regulate globally (like ecourts, epolice, esecretariat), grievance redressal, locating data servers in India, FDI regulation, payment security over electronic medium, policy formulation, and defining Indian and international laws.

3

Table of Contents

4

5

6

7

Letter from the author

I was hurt by fraud, and you might have been too.

Herein are the reasons which triggered the book.

I recognize the risks and want to make ecommerce safe for everyone.

I entered ecommerce as a newbie, but learnt a lot on the job in a few years. Facing fraud was a crash course, harshly sensitizing to the unsafe environment we all operate in.

The book was written when no other book was found covering ecommerce in recent times, frankly

detailing fraud, risks and the troublesome situation in India.

The book is a primer and reference handbook for ecommerce practitioners and budding entrepreneurs to run a consumer goods ecommerce business in India. Know the essentials before entering ecommerce. As a practitioner, it is still not too late to know what you do not know yet. Train the troops in the ecommerce ecosystem. As a student, the book equips you to get the dream ecommerce job.

The book has 40 cases to demonstrate risky situations as they happen.

The book also has humor with cartoons for easier grasping of a serious subject.

Chapters 1 and 2 are written for management buffs and are easy to read. Subsequent, chapters require courage to read till the last case. Certainly, the book is not bed-time reading.

Mis-management, inadequate egovernance and fraud are bad for business.

Bad news is bad for valuations; hence PR creates a rosy picture which belies the thorns present.

There is cover up and silence, creating a false sense of security, so as not to alarm customers.

Speak up and demand action from those responsible to make ecommerce safe and secure for everyone - customers, ecommerce companies, sellers, banks, payment gateways, logistics providers, etc.

Did you think your online shopping is secure? No, it is not safe for anyone.

Those who are wary about using credit and debit cards online are right to be wary. Most shoppers are misled that 3D secure protects them totally from any fraud.

India has to define its security requirements and implement safer solutions to create a secure foundation to reach the whole of India.

Customers are driving the ecommerce engine and having a roller coaster ride with its thrills, ups and downs. They readily take to the social media to complain.

Customer loyalty is being bought with discounts; inherently ecommerce customers are not loyal.

Hundreds of ecommerce websites are defunct, dormant, no longer visible enough, de-motivated and unable to function. What happened to them?

Starting ecommerce is easy and not expensive, but running it is resource intensive. Also, the game has suddenly become very big, and foreign „risk capital‟ is flowing in continuously to capture the Indian market.

8

Google paid search shows up just a few websites, why do 1,000 websites not come up?

A few bid high prices per click for auctioned key words. Most do not fund such advertising which gives poor results and ROI.

Competition from foreign funded ecommerce companies, and fraud, has instilled a sense of fear in many who have run for the exit. The foreign funders are playing the „last man standing game‟, in a big long drawn fight, willing to fund loss making models for many years before hankering for profitability.

Did you know that ecommerce companies have ventured into a space laden with many systemic risks, into which many fear to tread?

Many are watching on the sidelines, waiting for better times before entering, for online is irresistible.

Many ecommerce websites are sold, up for sale, shut down or dormant, hoping for better times.

The writing on the wall is clear „customers are moving online, and ecommerce companies are being funded by foreigners to capture the Indian market unethically and unhindered‟.

Offline has read the writing on the wall and envisages eventual shutdown. Offline retail is in loss due to high real estate costs and other overheads.

Many offline traders have joined online where margins are often thin or negative.

Offline is rebelling against online, organizing bundhs, purchase bundhs, asking brands to address their concerns, and are collecting evidence against online to ask the government for ecommerce regulation.

The funded party is not built on strong and secure foundations. What will happen when the party is over?

Come, let us make a safe ecommerce world and let hundreds of ecommerce companies flourish.

Best regards,

Rekha Chandulal

9

Introduction

The book covers eCommerce companies in the consumer goods space operating in India around the year 2014. eCommerce participants in India are operating in an insecure and risky environment vulnerable to fraud, inadequate regulation and egovernance, and mis-management.

The need to write this book was felt because few have shared their real experiences about fraud in the public domain. Fraudsters have a free run defrauding new unsuspecting victims, who, being uninformed, inexperienced and unprotected can go out of business due to heavy losses.

Part I presents a view of the industry with analysis, insights and conflicts.

Part II is a self-help manual of what to do, and how to do it, covering areas like getting started, legal, contracts, technology, website content, logistics, payments and fraud management.

Part III has 40 cases with details, review and best practices.

PART I

Ecommerce IN INDIA

Chapter 3: Offline - Online Conflict

Lower prices are good for the consumer, no?

A premium brand was facing continuous complaints from its protesting retailers. The brand manager held a meeting with retailers.

Retail manager: “Retailers are not stocking our goods. They are always complaining about online discounts. Please take care of them.”

Retailer 1: “Customers are accosting us in the store and abusing us. They question why we are selling at MRP, when online is giving a 20% discount.”

10

Retailer 2: “Marketplaces are selling goods at below our cost. Customer walk-ins have reduced. How can we compete?”

Brand manager: “Our retail sales have reduced by 90% this season. How can I pacify my retailers? On the other hand, why should I bother, because online sales have jumped up and overall, the brand is doing better.”

3.1 Why has the online channel attracted the wrath of the offline channel?

Online channels have eaten into offline sales and profits, hurting their very livelihoods.

Customer footfalls in stores have dropped off drastically and stores are often empty. Customers have

joined the online craze for juicy discounts and a great shopping experience, and turned against offline.

The peak shopping time around Dussehra and Diwali has seen store sales drop off steeply, whereas online

has seen record sales, rising year by year.

An offline activist says: “Foreign funded unethical ecommerce companies are using money power to render

trader prices uncompetitive and are monopolistic.”

In a bad economy, their margins have also been cut by vendors.

3.2 How has the online channel attacked the offline channel?

Customers have been lured away with offers they haven‟t refused.

Predatory pricing and undercutting. Online prices are below offline cost of purchases.

Promotional funding of seller discounts seemingly against FDI laws in retail.

Pampering customers with return polices whereas offline “goods once sold, cannot be returned”.

Convenience. Access. Reach. Home or office delivery of goods saving time and cost of store shopping.

CONTINUES…..

Chapter 5: Consumers in charge

5.1 Why are customers flocking to funded websites?

They offer freebies from foreign investor funds like discounts, free shipping, easy return policies, and

coupons. They advertise and have created brand visibility and acceptability.

5.4 Why are customers angry with offline stores charging MRP?

Discontent has been created in the mind of the customer who questions why he should pay MRP. He feels

it is possible to lower prices and does not want intermediaries to make much profit. Customers are angry

with small retailers, LFRs (large format stores) and malls which sell expensively priced goods. Quality of

11

many goods has reduced and their prices have gone up.

5.6 Are customers king and queen in ecommerce?

eCommerce is consumer centric. Consumers are driving the industry, want price and service, and do not

mind complaining in social media when things go wrong.

Instead of buyer beware, now Vendor/ seller beware prevails. Even good sellers have to be wary of

customers.

5.10 Are customers realizing their mistakes?

Yes, they have learnt that low prices do not guarantee quality or warranty. They are becoming aware of

bad websites and good ones. But, they are still compromising and taking the risk for low prices. They are

learning along the way, but are yet to mature.

5.14 In what kind of situations do things go wrong?

Refer cases in Part 3 - DataTheft.com, Fake.com, China.com, IntlOrder.com, CustFault.com, ColourBlind.com and Alloy.com

Part II

Ecommerce management

Chapter 7: Jumping into Ecommerce

Do you want to start or have already started an ecommerce business?

The chapter introduces you to the key decision points in ecommerce. It provides a checkpoint for those

who have been in ecommerce for a while. Refer Part III for cases on how to setup a safe ecommerce

business.

7.1 To be or not to be, that is the question

An eCom hopeful (techie): “I am sitting on the fence. I have researched for one year and developed the

software. I am terrified of competition. Funded foreign eComs will destroy me. I have realized eCommerce

requires huge resources.”

Advice by an eCom: “Take the plunge. Swimming is better learnt in the water.”

Hopeful: “I am not jumping in a peaceful swimming pool. Ecommerce is a place with dangerous sharks and

12

big fish. I do not want to „fight the crocodile in the same pond‟, as they say in India. They will not let me get

a foothold, or stay in ecommerce.”

Smaller eComs (fish) do not want a direct fight with the big eComs (fish). Hence, they maintain a low profile

and live in a niche, trying not to attract attention.

7.3 Frequently asked questions

1. How should I get started, with my own website or by selling on marketplaces and other websites?

2. Shall I take an open-source website or a custom built website?

3. Which payment gateway should I sign up with? I want to know about payment gateway transaction

failures and credit card fraud.

4. Which vertical should I be in?

5. What are the laws applicable to ecommerce?

6. What are the government registrations I must get?

CONTINUED….

7.5 VIABILITY AND FINANCING

The ecommerce company has to think and plan how it will make money; organically or via funding with a

long term plan to make organic profits.

A few sources of organic profits are margin on product sale, sales commission, advertising, brand and

product launches.

eCommerce companies have been in India for a decade or more, and have not been making profits.

All companies are putting in hard work developing customers which they hope will pay off after a few years.

However, new competitors are emerging when they spot profit, and are preventing everyone from making

profits.

13

7.9 MARKETPLACE OR OWN WEBSITE?

One very important decision is which web presence to occupy and when - one‟s own website and/ or

Sellers on marketplaces.

Table 1: Marketplace / own website advantages and disadvantages

Own website Seller on Marketplaces

Advantages 1) Own policies, terms and conditions

2) Can market and advertise on the

internet

3) Catalog and Pricing control

4) Reputation management

5) CONTINUED….

1) Quick start

2) Can gain experience when new to online

3) Can concentrate on being a seller

4) CONTINUED….

Disadvantages 1) Slower start with open-source

website or website seller

2) Very slow start when developing

own website

3) CONTINUED….

1) Extreme competition

2) Crowded - seller density, category

density

3) Minimal seller advertising and visibility or

paid search

4) Squeezed margins, even negative

5) High marketplace transaction fees

6) CONTINUED….

Chapter 8: Legal Requirements

Most ecommerce start-ups and managers do not read all laws and acts thoroughly before

starting. Even if they do, they do not realize the relevance of all sections.

Ecommerce offers a quick start and not a prepared start. Learn on the way is the motto.

Foreign ecommerce companies do not want to follow Indian laws.

The most important Indian applicable laws to be followed are:

Consumer Protection Act, 1986

Competition Commission law

Registrations and Licenses (VAT, CST, TAN, Service tax, Shops & Establishment, Weights &

Measures)

Indian Information Technology (IT) Act 2000, and Notifications

CONTINUED….

14

Chapter 9: Security Tips, RBI and Bank Guidelines

Do you know how to secure your money and account data?

This chapter collates security tips and guidelines to assist you in securing your data and money.

9.2 Are you fully secured if you follow tips and guidelines, or are there risks and fraud

vulnerabilities?

The internet and banking system is risky. The best of computer networks have been hacked internationally.

Data stealing malware is able to function undetected by anti-virus software on most computers. Everyone

in India is not aware of all risks, what to do and what not to do. Providing for security is not cheap.

Table 2: Security tips and guidelines issued for your safety

1. Register your mobile number / email id with the bank to get security alerts of transactions made on

your credit/ debit cards.

2. After first usage of your debit card, do not forget to change the PIN provided by the bank.

3. Access bank portals only by typing the correct url and with https. Do not click on any shortcuts / links.

4. For online transactions in ecommerce/ shopping websites, ensure that the site is secured with https.

5. Check the card when it is returned to you by the cashier to ensure it is yours, and not tampered with in

any way.

6. Notify the bank of any change of address so that new cards/ statements are not sent to the old mailing

address.

CONTINUED…….

Chapter 10: Technology Essentials

Are you technologically savvy or challenged?

10.4 FALSE TRAFFIC - EYEBALLS ON MY WEBSITE

Is all traffic real? Am I really getting that many visitors?

Protect from bots and spiders by blocking their names in robot.txt file. Robots and spiders crawl website

web pages, even daily or twice daily, to collect data which shows up as high, false traffic.

A website with 1,00,000 products scanned twice a day with a spider shows up as 200,000 visitors for the

day, and 6,000,000 visitors per month.

15

“I had 1 million visitors today! Wow!

My website is getting popular.

Am I really getting so many visitors?

What are they doing on my website?

And where are the sales?”

11.2 COD, CASH ON DELIVERY - BANE OR BOON?

Table 3: COD positives and negatives

Positives Negatives

1. Online payment risk eliminated

2. Customer payment not blocked in case of non-

delivery

3. Good for try and buy goods (shoes, apparel)

CONTNUED…..

1. eCom‟s cash remits after 15-30 days

2. Cash collection risks

3. COD fees are prohibitive for low value orders

4. Cancellations by customers - inventory blocks

and two-way shipping fee loss

5. Administrative - reconciliation effort

CONTNUED…..

Chapter 13: Website Content

Do you read fine print? With or without a magnifying lens?

Website content is essential communication between an ecommerce company and customers.

Are your customer well informed about key policies before placing orders?

What content should you provide to gain customer trust?

eCom: Goods have returned to me like a boomerang!

16

Loyal customer: “You said that I can use the product

for 30 days, and return it on any whim and fancy”.

“So, I always shop on your website!

I am your loyal customer.”

When eCommerce companies do not accept returns without valid reasons, customers are known to

damage goods and claim they received goods in „damaged condition‟.

Complaints posted on social media are

attended to promptly by eCommerce

companies.

Social media has become a way to

communicate with the eCommerce

company. Facebook page, twitter and blog

links are often provided on the home page.

Customer: “I did not receive my goods by the specified time. I posted on the website‟s Facebook page and

received a phone call same day.”

Chapter 14: Do you know what they do?

Do you know ‘who is responsible for what’ in the ecommerce ecosystem?

Who will you hold liable is anything goes wrong?

Are they fulfilling their duties diligently?

What are the issues they are facing?

Are customers aware of and educated about their responsibilities for safe transacting?

It is essential that you know the roles and responsibilities, duties and scope of operations of key service

providers in the ecosystem.

The chapter details their roles and identifies current issues which when resolved would enable a safer

ecommerce environment for growth.

Technology solutions can solve a few issues and require to be developed.

17

Refer Part III Case categories on page 101 to read cases to gauge responsibility in various situations.

\14.10 ECOMMERCE COMPANY

Sale and Delivery of goods

eCommerce companies sell and ship goods to customers after receiving authorization of transaction from

the payment gateway (aggregator).

Loophole - There is no proof of goods shipped and delivered. After shipping, goods may have been

misappropriated by couriers or customers. While at times, there are errors on packing, this is a big

loophole which has to be addressed. A few large ecommerce companies do have cameras in warehouses,

yet instances of bricks in the box are still occurring.

Bricks seem to be the favorite

choice to replace mobiles, being

rectangular in shape and resize-

able to the right weight.

The seller says he shipped a Smart

Phone.

The customer says he received a

brick.

The box was not opened in front of

the courier, so there is no witness,

and no proof either way.

Customers and sellers are functioning on pure faith and trust. In store purchases, customers open the box

in front store keeper and verify the goods.

14.10.1 A day in the life ‘DIL’ of an eCommerce company

Who said eCommerce is easy?

Retailers have it so easy - just make a

sale across the table, get cash, and

the transaction is over.

eCommerce is very complex with

many systems and processes.

eComs have to be on their feet, active,

attentive and alert all the time, just like

in a war. Are you up to it?

Table 4: Day in the life of an ecommerce company

Daily activities Weekly/ Monthly activities

18

1. Check the website panel for orders received and process

them for fulfillment

2. Verify the order and customer

3. Check the payment gateway panel for payment status

4. Source stocks or block from inventory

5. After payment approval, prepare and print invoices and

packing labels

6. Update records for orders shipped

7. CONTINUED….

1. Reconciliations

2. Search for new vendors.

3. Update records and account books

4. Order supplies

5. Review and plan sales and marketing

6. Marketing and sales - add new offers

to the website, social media, plan and

run campaigns

7. CONTINUED….

Chapter 15: Are you Bound by Contracts

Have you read your contracts?

Read the contract from the start to end, every page and every line and every clause. Certainly read the fine

print, but also what is right under the nose and do not miss the wood for the trees.

How protected and comfortable do you feel after signing your contracts?

Have you asked the right questions to your service providers and obtained clarification in

writing? Were you allowed to include protective clauses?

Contracts are full of indemnities, no stated responsibilities, no accountabilities, and no liabilities of service providers.

“We have protected our selves very well” says an employee, revealing the state of eCommerce payment contracts.

But, dear eCommerce company, who is protecting you?

eCom 1 to a bank payment gateway: “Your agreement is giving me the heebie jeebies. Has anyone signed

the contract yet?”

eCommerce companies should obtain

information on their rights and laws which

protect them.

Refer Chapter 11: Payments, Chapter 8: Legal Requirements and cases Refer cases DataTheft.com,

Payer.com, IntlOrder.com, and CustFault.co, QuickShip.com, StopShipment.com, ShipChargeback.com,

Shipfast.com, ManyPay.com, QuikPay.com, Payer.com, Intl.com, Side-Effect.com, PayGt.com,

Confirm.com, FalseId.com, Verify.com, ePOD.com, and Targets.com.

19

Chapter 16: How to Tackle Fraud

Why are ecommerce industry participants and victims keeping quiet about fraud?

Why are they not sharing crucial information with everyone to prevent fraud?

Why are they not making the industry safe?

Do you know what to do when fraud happens? What is the fraud psychology?

How can you prepare to overcome fear, deal with fraud, and be in business?

16.1 ATTITUDE TO FRAUD

1. Nobody talks about fraud.

Many are burying their head in the sand like

an ostrich, in denial, trying not to

acknowledge the problem.

16.3 FRAUDSTERS AND HANDLING FRAUD

16.3.1 Who are the fraudsters? What is their profile? Why do they do fraud?

16.3.2 How do they get away with crime?

They get away because

Victims keep quiet

Victims do not know what to do

They are not pursued

There is not enough proof against them

They are far away (even in other nations)

16.3.3 Fraud psychology and Process

16.3.5 How can we tackle fraud?

Customers in a north India region near Delhi, in the NCR National Capital Region are ordering online „just

for fun‟ on COD with fake addresses, and not taking delivery. eCommerce companies have put a limit on

order value in that region‟s pin codes. Refer Case 29: Genie.com – oh master, where are you?

20

Refer cases QuickShip.com, StopShipment.com, ShipChargeback.com, ShipFast.com,

Mobile.com, Payer.com, Side-Effect.com, Confirm.com, FalseId.com, Verify.com,

Change.com, PinCode.com, Bottles&Flasks.com, GluKit.com, Genuine.com, Genie.com,

TwiceShip.com, and ReturnFraud.com.

Part III

Cases

Case studies are fresh, real, live and risky and fraud situations encountered by eCommerce companies

selling consumer goods in India around the year 2014.

Each case is designed to highlight one feature for a simpler examination of the fraud and risk. In real

scenarios, combinations of features are present dynamically and will have to be evaluated together to take

protective action in real time.

Think on your feet, and think out of the box.

Each action packed case is presented in formats which give a real picture of activities as they unfolded.

Risks and fraud relate to customers, fraudsters, eCommerce companies, sellers, vendors, logistics, and

payment gateways.

21

Case 25: Genuine.com - counterfeit claim

Imported watches have become a favorite luxury purchase online. They are often exorbitantly priced and

online websites offer variety.

A seller sold and shipped a genuine, expensive imported watch for Rs. 20,000, on an eCommerce

marketplace Genuine.com.

The buyer called Genuine.com and claimed he received a cheap imitation worth Rs. 200. He had replaced

the genuine watch with a counterfeit.

The eCommerce website refunded the buyer Rs. 20,000 from the seller‟s account.

The eCommerce website could not verify what had happened because the order was packed by the seller

and shipped via his courier.

The seller was forced to bear a loss of Rs. 20,000.

Review

1. eCommerce companies and customer are working on trust.

2. Shipping the right product and accepting delivery of the same is totally on trust.

3. How do we know, verify, and confirm what was shipped, and what was delivered?

4. Employees who pack products do make mistakes at times. But, in this case, the seller had packed the

product himself.

5. Did the courier replace the genuine watch with a counterfeit?

6. Did the customer replace the watch with a counterfeit?

7. Was the eCommerce company right to refund the buyer due to inability to verify what happened?

8. Buyer protection protects buyers but at times buyers falsely exploit this loophole.

9. Seller protection is also required in such cases.

Solutions

1. Technology to RFID tag the product on packing.

2. Courier to confirm product delivery by asking customer to open the shipment and verify. However, it is

doubtful whether all delivery boys are capable of verifying all types of products. When delivery boys

collude with customers, verifications can be false.

22

Case 29: Genie.com - oh master, where are you?

A new, large and well funded foreign eCommerce company wanted to enter the Indian market with a big

bang. In the year 2013, India was already very crowded with eCommerce companies fiercely fighting with

each other, and nobody was willing to part with a piece of the market pie.

Genie.com hired a top notch management consulting firm to devise an entry strategy.

Consultant: “Competition has a strong presence in metros and Tier-1 cities and has cornered those

markets. It is easier to target less serviced Tier 2, Tier 3 cities and rural areas. However, they are more

likely to order via COD than online payment.”

However, customers in those areas were new to eCommerce and proved to be wily.

Customer: “I have placed orders for heavy white goods online „Just-for-fun‟. Genie, bring my goodies.”

Genie: “Yes master, your wish is my command.”

All the goods were efficiently packed into a truck from genie‟s warehouse and shipped to customer

addresses.

Genie (with a truck): “Dear customers! I have brought your HD TV, refrigerator, and microwave. Where are

you?”

Genie called their registered mobile numbers and attempted deliveries a few times. Neighbors did not

know about their existence or whereabouts either.

Genie camped under a peepal tree with the

heavily laden truck hoping to spot his absconding

customers.

Genie: “Two weeks are past, and I am still

searching for them. They do not have bank

accounts, credit cards, landline or proper

addresses, and may be away on travel. How can I

find them?”

Review

1. eCommerce companies and sellers have been spending time and resources, and losing money,

delivering such orders to mischievous customers fooling around with their genie.

2. They have put limits on order value to Rs. 7,000 for those areas (pin codes), also exiting refrigerators

and TV categories.

3. The eCommerce company may be unable to verify addresses, their occupants, and mobile number

ownership.

4. How can a sense of responsibility be instilled in customers?

5. Will the government‟s UID (Unique ID) project be helpful in eCommerce? UIDs are often a part of bank

KYC data but KYC is not necessary as per the government.