Tag: University of Mumbai BMS Notes

These terms typically relate to banking activities. The revenue that banks get out of their lending activities is fund based income, i.e. they borrow from depositors through fixed deposits/ savings accounts and lend to borrowers at a higher interest rate, the difference is their interest margins, i.e. fund based income.

In a fund based income it is more dynamic and relates to the fund’s performance.

As per your question I assume it is something to do with mutual fund. SO taking this assumption into consideration, in a fee based system it’s fixed fee for the investment you make. Whereas on the fund based, the income would be based on the fund’s performance.

On the other hand, banks make money out of services, such as selling mutual funds and insurance products to their customers, this income is called fee based income. Even banking services which do not involve lending, such as issue of demand drafts or guarantees, transfer of funds, etc. give the bank fee based income.

In a fee based income it’s a more straight forward like for this much this is the fee/charge kind of thing.

Fund Based Financial Services

Involve provision of funds against assets, bank deposits, etc.

Fund based income comes mainly from interest spread (the difference between the interest earned and interest paid), lease rentals, income from investments in capital market and real estate

Major part of the income is earned through fund-based activities. At the same time, it involves a large share of expenditure also in the form of interest and brokerage.

Examples of Fund Based Financial Services

• Underwriting shares, debentures, bonds, etc. of new issue
• Equipment Leasing
• Hire Purchase
• Bill discounting
• Venture capital
• Housing finance
• Insurance services
• Factoring

(i) Equipment leasing

A lease is an agreement under which a company or a firm acquires a right to make use of a capital asset like machinery, on payment of a prescribed fee called „rental charges‟. Long-term.

(ii) Hire Purchase

Hire purchase is a mode of financing the price of the goods to be sold on a future date. In a hire purchase transaction, the goods are let on hire, the purchase price is to be paid in installments and hirer is allowed an option to purchase the goods by paying all the installments.

(iii) Bills Discounting

Bill discounting is a short tenure financing instrument for companies willing to discount their purchase / sales bills to get funds for the short run and as for the investors in them, it is a good instrument to park their spare funds for a very short duration.

(iv) Accounts Receivable Financing / Factoring

A type of asset-financing arrangement in which a company uses its receivables – which is money owed by customers – as collateral in a financing agreement. The company receives an amount that is equal to a reduced value of the receivables pledged.

Factoring is similar to the above with the only difference that the factoring firms purchase the receivables outright taking ownership of the receivables. The entire responsibility of collecting the book debts passes on to the factor.

(v) Venture Capital

Venture capital (VC) is financial capital provided to early- stage, high-potential, high risk, growth startup companies.

The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc.

(vi) Housing Finance

Housing finance refers to providing finance to an individual or a group of individuals for purchase, construction or related activities of house/flat etc.

Housing loan is extended by way of term loans; for a number of years (5-20) at a certain rate of interest and against some.

(vii) Insurance Services

Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as premium

(viii) Mutual Funds.

A mutual fund refers to a fund raised by a financial service company by pooling the savings of the public. It is invested in a diversified portfolio with a view to spreading and minimizing the risk.

Free Based Financial Services

Fee based income does not involve much risk. But, it requires a lot of expertise on the part of a financial company to offer such fee-based services.

Examples of Free Based Financial Services

• Corporate advisory services
• Bank guarantees
• Merchant banking
• Issue management
• Loan syndication
• Credit rating
• Stock Broking
• M & A, Capital restructuring

(i) Merchant banking

A merchant banker is a financial intermediary who helps to transfer capital from those who possess it to those who need it.

Merchant banking includes a wide range of activities such as management of customer securities, portfolio management, project counseling and appraisal, underwriting of shares and debentures, loan syndication, acting as banker for the refund orders, handling interest and dividend warrants etc.

(ii) Loan Syndication

• Similar to consortium financing.
• Taken up by the merchant banker as a lead manager.
• It refers to a loan arranged by a bank called lead manager for a borrower who is usually a large corporate customer or a government department.
• It also enables the members of the syndicate to share the credit risk associated with a particular loan among themselves.

(iii) Credit Rating

Evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtors ability to pay back the debt and the likelihood of default. Some credit rating agencies; ICRA, CRISIL, S & P, Moody’s.

With increasing frequency, companies in the financial-services industry are pooling resources, expertise, and capabilities to create market utilities focused on specific functions such as client services and on-boarding, trading and execution, and cash and collateral management. We define a market utility as follows: a multiparty commercial cooperative that fulfills a common need in a mutually beneficial way based on the capabilities that each party brings to the cooperative and the role that each plays.

More than 40 market utilities have been founded in the financial-services industry over the past several years, and in some cases multiple utilities have sprung up to perform the same function for example, trading and execution, or data management. Many of our clients have pondered whether the formation of these utilities is a fad, and if not, whether they need to participate and in what capacity. It is our opinion that market utilities are going to be a permanent fixture in the industry. The formation of cooperative functions is a necessary response to the massive structural changes  regulatory as well as macroeconomic that are sweeping the industry and creating a common set of needs in areas such as liquidity, compliance, and data sharing. Companies can tackle these needs more efficiently if they work as part of a consortium rather than on their own.

Therefore, it is critical for industry participants to decide which market utilities they will participate in and what roles they will play. Should they team up with others to start and control their own utility? Should they join an existing utility with the idea of exerting some influence over its direction? Should they collaborate by offering expertise to a utility without concern for exerting control? Or should they simply use the facility and not worry about contributing capabilities or controlling its direction? For each organization, the answer will depend on the utility’s function, the level of control the company wants to exert, and the capabilities it will bring to the table.

We believe that in the near future, most financial-services industry firms will play different roles in several market utilities, and will thus need to manage a “portfolio” of market utilities in which they participate. With this in mind, we have developed a series of screening questions for executives to consider to determine if a particular activity done in-house is better suited to a utility and, if so, what role the organization should play in that utility.

Which activities are right for a utility?

With market utilities addressing more and more components of the value chain, executive teams need a set of criteria to determine which current functions are candidates for moving to a utility. Cost savings are an important consideration; however, a decision based solely on anticipated cost savings may ultimately disappoint. The decision about whether to participate in a utility should be grounded in the organization’s competitive strategy.

To identify the functions within the enterprise that might be better suited to a utility, we have developed several questions that an executive team should consider about internal functions.

Does the activity create a competitive advantage? If the answer to this question is yes meaning that the executive team believes that the activity is differentiating for the organization and creates a true competitive advantage then the organization should probably keep the function in-house and not participate in a utility. If the answer is no meaning the activity is non-differentiating and can be shared without a loss of competitive advantage then the activity is suited to a utility.

Does the activity address a common need of many industry participants? If the answer is yes, then the activity is suited for a utility; the high demand for a common solution is likely to promote collaboration and engagement. If the answer is no, or if a common solution could create disagreement and rivalry, then the activity is better suited to an internal shared service.

Does the activity have critical mass or global reach across many industry participants? Here again, if the answer is yes, then the function is suitable for a utility; the critical mass/global reach will encourage quick adoption and thus more rapid economic benefits. If the answer is no, or if a lack of scale or global reach would distort the economic value proposition, then the activity is better addressed by a technology solution or internal shared service.

Does the activity meet the common need in a mutually agreed-upon way? If the answer is yes, then a utility is appropriate. By agreeing on a standardized solution, individual players aren’t inclined to customize their own solutions. If the answer is no, and this lack of agreement among individual players would lead to customization, then the activity is better served by outsourcing providers.

Is the need met by a combination of capabilities that can be provided by collaboration? Once again, if the answer is yes, then the function is a candidate for a utility. There is a powerful incentive for players to cooperate if they recognize that cooperation will result in a solution superior to any individual solution. But if the answer is no, or if a single industry player could offer its own solution, then the activity is better served by an outsourcing provider.

Conclusion: Managing a utility portfolio

Market utilities have been heralded by some as the solution to the industry’s stagnant ROE, providing a level of scale and efficiency unachievable by any single participant’s transformational efforts. However, although we believe utilities offer a massive opportunity for cost savings, they should not be thought of solely as an extension of the shared-services model. Rather, they are an opportunity to address common industry needs through cooperation and capability sharing.

As the market utility landscape develops, firms must carefully consider their own roles given the utility’s purpose, the capabilities required to make the utility successful, and the level of control necessary for the firm to execute on its own strategy. As more of the value chain comes into play and more utilities are formed, executives will need to manage a portfolio of utilities and strike the right balance of roles based on business priorities and resources.

It is the presence of financial services that enables a country to improve its economic condition whereby there is more production in all the sectors leading to economic growth.

The benefit of economic growth is reflected on the people in the form of economic prosperity wherein the individual enjoys higher standard of living. It is here the financial services enable an individual to acquire or obtain various consumer products through hire purchase. In the process, there are a number of financial institutions which also earn profits. The presence of these financial institutions promote investment, production, saving etc.

Hence, we can bring out the Significance of financial services in the following points:

Significance of Financial Services are:

1. Promoting investment

The presence of financial services creates more demand for products and the producer, in order to meet the demand from the consumer goes for more investment. At this stage, the financial services comes to the rescue of the investor such as merchant banker through the new issue market, enabling the producer to raise capital.

The stock market helps in mobilizing more funds by the investor. Investments from abroad is attracted. Factoring and leasing companies, both domestic and foreign enable the producer not only to sell the products but also to acquire modern machinery/technology for further production.

2. Promoting savings

Financial services such as mutual funds provide ample opportunity for different types of saving. In fact, different types of investment options are made available for the convenience of pensioners as well as aged people so that they can be assured of a reasonable return on investment without much risks.

For people interested in the growth of their savings, various reinvestment opportunities are provided. The laws enacted by the government regulate the working of various financial services in such a way that the interests of the public who save through these financial institutions are highly protected.

Financial Services offered by various financial institutions

• Factoring
• Leasing
• Forfaiting
• Hire Purchase Finance
• Credit card
• Merchant Banking
• Book Building
• Asset Liability Management
• Housing Finance
• Portfolio Finance
• Underwriting
• Credit Rating
• Interest & Credit Swap
• Mutual Fund

3. Minimizing the risks

The risks of both financial services as well as producers are minimized by the presence of insurance companies. Various types of risks are covered which not only offer protection from the fluctuating business conditions but also from risks caused by natural calamities.

Insurance is not only a source of finance but also a source of savings, besides minimizing the risks. Taking this aspect into account, the government has not only privatized the life insurance but also set up a regulatory authority for the insurance companies known as IRDA, 1999 (Insurance Regulatory and Development Authority) .

4. Maximizing the Returns

The presence of financial services enables businessmen to maximize their returns. This is possible due to the availability of credit at a reasonable rate. Producers can avail various types of credit facilities for acquiring assets. In certain cases, they can even go for leasing of certain assets of very high value.

Factoring companies enable the seller as well as producer to increase their turnover which also increases the profit. Even under stiff competition, the producers will be in a position to sell their products at a low margin. With a higher turnover of stocks, they are able to maximize their return.

5. Ensures greater Yield

As seen already, there is a subtle difference between return and yield. It is the yield which attracts more producers to enter the market and increase their production to meet the demands of the consumer. The financial services enable the producer to not only earn more profits but also maximize their wealth.

Financial services enhance their goodwill and induce them to go in for diversification. The stock market and the different types of derivative market provide ample opportunities to get a higher yield for the investor.

6. Economic growth

The development of all the sectors is essential for the development of the economy. The financial services ensure equal distribution of funds to all the three sectors namely, primary, secondary and tertiary so that activities are spread over in a balanced manner in all the three sectors. This brings in a balanced growth of the economy as a result of which employment opportunities are improved.

The tertiary or service sector not only grows and this growth is an important sign of development of any economy. In a well developed country, service sector plays a major role and it contributes more to the economy than the other two sectors.

7. Economic development

Financial services enable the consumers to obtain different types of products and services by which they can improve their standard of living. Purchase of car, house and other essential as well as luxurious items is made possible through hire purchase, leasing and housing finance companies. Thus, the consumer is compelled to save while he enjoys the benefits of the assets which he has acquired with the help of financial services.

8. Benefit to Government

The presence of financial services enables the government to raise both short-term and long-term funds to meet both revenue and capital expenditure. Through the money market, government raises short term funds by the issue of Treasury Bills. These are purchased by commercial banks from out of their depositors’ money.

In addition to this, the government is able to raise long-term funds by the sale of government securities in the securities market which forms apart of financial market. Even foreign exchange requirements of the government can be met in the foreign exchange market.

The most important benefit for any government is the raising of finance without offering any security. In this way, the financial services are a big boon to the government.

9. Expands activities of Financial Institutions

The presence of financial services enables financial institutions to not only raise finance but also get an opportunity to disburse their funds in the most profitable manner. Mutual funds, factoring, credit cards, hire purchase finance are some of the services which get financed by financial institutions.

The financial institutions are in a position to expand their activities and thus diversify the use of their funds for various activities. This ensures economic dynamism.

10. Capital Market

One of the barometers of any economy is the presence of a vibrant capital market. If there is hectic activity in the capital market, then it is an indication of the presence of a positive economic condition. The financial services ensure that all the companies are able to acquire adequate funds to boost production and to reap more profits eventually.

In the absence of financial services, there will be paucity of funds which will adversely affect the working of companies and will only result in a negative growth of the capital market. When the capital market is more active, funds from foreign countries also flow in. Hence, the changes in capital market is mainly due to the availability of financial services.

11. Promotion of Domestic and Foreign Trade

Financial services ensure promotion of domestic as well as foreign trade. The presence of factoring and forfaiting companies ensures increasing sale of goods in the domestic market and export of goods in the foreign market. Banking and insurance services further contribute to step up such promotional activities.

12. Balanced Regional development

The government monitors the growth of economy and regions that remain backward economically are given fiscal and monetary benefits through tax and cheaper credit by which more investment is promoted. This generates more production, employment, income, demand and ultimately increase in prices.

The producers will earn more profits and can expand their activities further. So, the presence of financial services helps backward regions to develop and catch up with the rest of the country that has developed already.

Parties to Lease Agreement:

There are two parties under any lease agreement:

Lessor: Owner of the asset is known as Lessor.

Lessee: The party who uses the asset is known as Lessee.

Calculation of Equated Annual Install

When question specifies that loan is payable in Equal Installment then EAI should be calculated.

EAI = (Principle Amount)/PVAF_{(Interest  Rate, No. of Years)}

Note: Discount Rate or Interest for Calculation of EAI = Interest Rate on Loan amount without taking any effect of Tax on it.

Tax Shield on Expenses done at zero period will be taken during first year (Leasing Topic Only).

Present Value Factor of Annuity when Inflow/Outflow is at beginning of Year then

PVAF_(r,n) = PVAF_{[r, (n-1)]} + 1

Calculation of Lease Rent

When a leasing company desires a certain percentage on gross value of assets then,

Lease Rent = (Cost of Assets)/Annuity factor at rate desire of leasing co.

When Value of Machine and other Expenses given then,

Lease Rent = [PV of Cash Out Flow – PV of Inflow (Tax Shield on Depreciation/Expenses)]/Annuity Factor at Interest Rate

Salvage Value is deducted only when question specifies the method of depreciation as SLM.

Steps to Take Decision Whether Buy or at Assets on Lease by Lessee Point of view

Step I: Calculate PV of Cash Outflow if Assets by Funding from Loan.

Step II: Calculate PV of Cash Outflow if Assets is taken on Lease.

Step III: Comparing PV Cash Outflow in both cases.

Step IV: Decision: Option which has lower Cash Outflow should be chosen.

Note: Any Expenses which is common in both cases then those expenses is irrelevant for decision making.

Steps to take Decision whether Assets should be leased out or not by Lessor Point of view

Step I: Calculate PV of Cash Inflow (After Tax Lease Rent).

Step II: Calculate PV of Cash Outflow (Initial Cash Outflow and Recurring Expenses)

Step III: Calculate NPV (PV of Cash Inflow – PV of Cash Outflow).

Step IV: Decision: If NPV is positive then Assets should be leased out otherwise not.

Step to decision for which option to choose for Sale and Buy Back Case     

Step I: Calculate NPV at each option.

Step II: Compare NPV at each options.

Step III: Decision: Option which has Highest NPV should be chosen. 

Discount Rate to be used:

For Lessee: K_d(1 – Tax Rate)

For Lessor: Weighted Average Cost of Capital.

A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for the amounts plus the other agreed charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.

A credit card is different from a charge card, which requires the balance to be repaid in full each month. In contrast, credit cards allow the consumers to build a continuing balance of debt, subject to interest being charged. A credit card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card simply defers payment by the buyer until a later date.

The credit company provider may also grant a line of credit (LOC) to cardholders, enabling them to borrow money in the form of cash advances. Issuers customarily pre-set borrowing limits, based on an individual’s credit rating. A vast majority of businesses let the customer make purchases with credit cards, which remain one of today’s most popular payment methodologies for buying consumer goods and services.

Credit cards feature higher annual percentage rates (APRs) than other forms of consumer loans. Interest charges on the unpaid balance charged to the card are typically imposed one month after a purchase is made.

By law, credit card issuers must offer a grace period of at least 21 days before interest on purchases can begin to accrue. That’s why paying off balances before the grace period expires is a good practice when possible. It is also important to understand whether your issuer accrues interest daily or monthly, as the former translates into higher interest charges for as long as the balance is not paid.

Types of Credit Cards

Most major credit cards, which include Visa, MasterCard, Discover, and American Express, are issued by banks, credit unions, or other financial institutions. Many credit cards attract customers by offering incentives such as airline miles, hotel room rentals, gift certificates to major retailers and cash back on purchases. These types of credit cards are generally referred to as rewards credit cards.

To generate customer loyalty, many retail establishments issue branded versions of major credit cards, with the store’s name emblazoned on the face of the cards. Although it’s typically easier for consumers to qualify for a store credit card than for a major credit card, store cards may only be used to make purchases from the issuing retailers, which may offer cardholders perks such as special discounts, promotional notices, or special sales.

Secured credit cards are a type of credit card where the cardholder secures the card with a security deposit. Such cards offer limited lines of credit that are equal in value to the security deposits, which are refunded after cardholders demonstrate repeated and responsible card usage. Also known as “prepaid” and “semi-secured” credit cards, these cards are frequently sought by individuals with poor credit histories.

Similar to a secured credit card, a prepaid debit card is a type of secured payment card, where the available funds match the money someone already has parked in a linked bank account. By contrast, unsecured credit cards do not require security deposits or collateral. These cards tend to offer higher lines of credit and lower interest rates on unpaid balances.

Transaction steps

1. Authorization

The cardholder presents the card as payment to the merchant and the merchant submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (card-issuing bank) and reserves that amount of the cardholder’s credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction.

2. Batching

Authorized transactions are stored in “batches”, which are sent to the acquirer. Batches are typically submitted once per day at the end of the business day. If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the issuer, after which the held amount will be returned to the cardholder’s available credit (see authorization hold). Some transactions may be submitted in the batch without prior authorizations; these are either transactions falling under the merchant’s floor limit or ones where the authorization was unsuccessful but the merchant still attempts to force the transaction through. (Such may be the case when the cardholder is not present but owes the merchant additional money, such as extending a hotel stay or car rental.)

3. Clearing and Settlement

The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction.

4. Funding

Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus either the “discount rate”, “mid-qualified rate”, or “non-qualified rate” which are tiers of fees the merchant pays the acquirer for processing the transactions.

5. Chargebacks

A chargeback is an event in which money in a merchant account is held due to a dispute relating to the transaction. Chargebacks are typically initiated by the cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.

In this competitive era of vast modernization, maintaining your existence in the business industry is a tough task. In every vertical whether it be services, education, legal or business; there is an arduous competition. Every organization is trying to step on its rivals to move ahead and stay at the curve. In this world of prodigious opportunities and complexities, business organizations are looking forward to establish new connections and are finding new ways for innovation.

Advisory services are provided with the goal to support undertakings and overcome weakness in specific areas like finance, business, legal etc. A range of business advisors are bestowing best-in-class services to help organizations perform up to the ballpark and become a sovereign. Nowadays, start-ups are showing rapid growth in the industry, but the thing they lack is advisory service. Proper advisory services are required by every organization out there to leave a blemish on the audiences mind and the stakeholders too.

There are a plethora of advisory services like business advisory services, finance advisory services, legal advisory services, investment advisory services, corporate advisory services and much more.

Importance of Advisory services for your business

Advisory services are the keys to unlock your success.

Are you aware where your business is going? Are you aware who your target customers are? If you said no, it’s high time. You should definitely look for advisory consultants in order to save your sinking boat.

These days it’s arduous to talk about accounting profession without incorporating the words “business advisory services”. Advisory services are a huge need for every business organization out there. No mater you are a corporate giant or a just born start-up, you need advisory services at every step towards your success.

We’ve listed up some major factors that show how advisory services can help your organization to perform next level.

1. Advice on Financial aspects

Financial aspects are the backbone of every business organization. Whether you want to invest in your previous infrastructure or looking to expand your venture, you need proper financial strategies to remain at the top. Some financial advisors are offering services like investment advisory services, accounting advisory services and numerous others.

2. Increase the profit

If your organization’s profits were good but are suddenly facing downfall, it’s good time to get assistance from business advisories. Business advisors will re-imagine your business structure and with their strong ideation they’ll help you to manage and re-organize strategies to thrust your business like never before.

3. Structure and effective business plan

Business Advisory services will help you to prevent some crucial mistakes that your company often makes while trying to expand its venture. Expanding your venture is a major decision. In some cases, the urge to increase profits forces business owners to take early decisions which in-return brings huge losses and destruction. A proper planning is indispensable before taking such huge steps.

4. Identifying market growth

For business possessors it can be very fruitful, when their business thrive and they’re able to expand their business. But they lack somehow in identifying the market growth. The rigorous pace of growing market is really volatile and business owners face difficulties to cope up with the changing needs and requirements. A reliable business advisory firm can help business organizations with formulated techniques and strategies to conquer the difficulties.

5. Technology-driven Solutions

Technologies are revolutionizing every sector with its fast pace of evolution. Some businesses fail to take the advantages of technology and start losing their customers to others, who are more technologically advanced. Business advisors not only help you to cope with financial difficulties but also muster you for technological advancements to again hold the grasp and rule the market.

Having a reliable advisory firm at your side is a plus point. There are several companies offering best-in-class financial advisory services in Delhi and other regions and you should definitely avail one to charge up your business.

The Ecommerce industry has seen immense growth in the recent years and apart from some fluctuations in the global economy like demonetization in India, the situation has remained favorable for its growth. China and US are the largest of the e-markets. However, growth rate is expected to be even higher than US in the Asia Pacific region this year. The US e-retail market is among the largest ones in the world.  Apart from Amazon, Ebay and Alibaba, there are a number of important players in the market like Fipkart, Walmart, Coles and Best Buy. The technological factors have also supported the growth of the Ecommerce industry. Growth in the use of mobile gadgets has also pushed the ecommerce sales high. A larger number of people are now shopping using their mobile phones.  There are several factors apart from economic and political that affect the global ecommerce industry.  This is a PESTEL analysis of the ecommerce industry that analyzes how these various forces can affect the ecommerce industry and how deep can their impact be on it.

Political factors

While the threats may not be the same before the e-retailers as the physical retailers, still there are several political hurdles before them. There are several risk factors affecting the e-businesses. For example for the global leaders like Amazon and E-bay growth in Asia pacific region can be made difficult by the Red tape. Several news reports highlight how Red Tape in India can become major difficulty in the way of new businesses trying to extend their presence there. The political and regulatory challenges before the e-businesses have kept rising.  The growth of Ecommerce in EU has also been challenged by political factors. EU has kept targeting technology giants from US. Google and Amazon have already been targeted by EU. Such issues can be a threat to the growth of ecommerce in Europe and it is why several sources predict that the growth rate of ecommerce in Europe is going to be low. Political issues are not limited to just those discussed above but there are many more. Political stability in most regions of the world leads to economic stability. Political chaos can result .to disruption of business both online and physical. Overall, political issues can have a significant impact on ecommerce and its growth.

Economic factors

Economic factors are very significant in terms of business. Whether it is an online business or physical, economic factors can have a significant effect on it. It is because economic factors are directly related to business and their effect is also direct on business revenue and profits.  During the period of recession, spending had decreased. People had adopted cost cutting measures as the level of economic activity and employment had gone down. During such periods when economic activity has gone down, the profits and revenue of businesses can go down. E-businesses too cannot remain unaffected. Economic fluctuations since the recession have also kept affecting businesses from time to time since the recession. In several economies like Russia, Brazil and India, these economic fluctuations affected both global and local businesses. Now that the recession has passed and economic activity has returned on track, the ecommerce industry has flourished in the recent years. Higher economic activity means faster growth and higher revenue for the Ecommerce industry whereas lower economic activity means just its opposite. In this way, economic factors can have a direct and deep impact in the ecommerce industry.

Social factors

Socio cultural factors too have a deep impact in ecommerce industry. Most importantly e-retail brands find it the easiest to flourish locally. Growth in foreign markets can be full of challenges. Changing trends can also have an impact on businesses. The growing use of mobile technology has affected ecommerce. In most societies the mobile technology has been very popular and a larger number of people worldwide are now using mobile gadgets for shopping and other purposes. Socio cultural factors affect businesses in other ways too. Cultural factors have an impact on how these ecommerce businesses market themselves. In several societies of the world ecommerce is still seen as a sign of Westernization due to which it has seen low growth in these areas.

Technological factors

Technological factors are very important in the context of the ecommerce industry.  It is because the industry relies heavily on technology. Everything is based on technology in e-retail from sales to customer service. All the ecommerce brands are in a race to be technologically ahead of their competitors. From Amazon to E-bay and Flipkart, every brand is investing a lot in technology to find faster growth. Technology decides several things in the ecommerce world from popularity to profits. The reason that Amazon is ahead of the others is because it is technologically ahead of the others. It has managed its customer experience so well that its popularity is very high.  In this way, technology is a major influence on businesses and in case of ecommerce technological factors acquire a very special importance.

Environmental factors

Environmental factors too have a special importance in the context of Ecommerce industry. While the direct environmental impact of this industry is very low and nearly zero, it still focuses heavily on sustainability. Brands like Amazon have invested heavily in technology. Even in Ecommerce there are several areas where investing in sustainability can be highly productive. From sustainable packaging to waste reduction and renewable energy there are several areas where the e-retailers can invest in sustainability. Amazon has invested in renewable energy to gain freedom from the use of non-renewable energy resources.

Legal

Legal compliance is just as important for the businesses globally. Any tussle with the law can be a costly affair and even the e-retail brands can become a target unless they take care of compliance. It is why the big E-retail brands have separate teams to take care of the legal issues. Non compliance can result in financial losses as well as loss of image and reputation. From labor laws to sustainability laws, there are several areas where the e-retail brands have to be careful regarding compliance. Moreover, these laws differ from nation to nation and market to market and compliance in every area is important. So, in case of the companies operating internationally law can lead to major pressures and an increase in operational costs. The e-retail brands also have to be careful about the applicable laws and compliance.

In the Information Age, technology evolves fast and data travels even faster. It can be difficult for the law to keep up with new technologies and inventive ways to conduct e-business. Because of this, the law often lags behind, and lawmakers end up drafting laws to clean up Internet messes instead of preventing them. Take digital file sharing dubbed piracy for example, laws were not created to prevent digital piracy until millions of albums were stolen and the music industry was crippled. The lag in laws mean that e-business executives must rely on ethics as they move forward in e-commerce.

1. Client Privacy

Internet businesses have a legal obligation to protect the private information of their customers. E-commerce activity often involves collecting secure data such as names and phone numbers associated with email addresses. Many e-business activities also involve transactions, so customer banking or credit card information also ends up stored online. Legally, it is up to the e-business to store and protect or dispose of this sensitive data. The Children’s Online Privacy Protection Act, for example, protects the online privacy rights of children. Under this law, parents have control of what personal information their children can give to e-businesses.

2. Advertising Online

Several online marketing issues spring from the inherent anonymity of the Internet. It is often difficult to know the real identity of an e-business owner. A few online businesses take advantage of this in unethical or illegal ways. Some e-businesses track the online activity of their customers so that they can show advertisements based on the customer’s behavior. Behavioral advertising is not illegal, and it is not illegal to refrain from disclosing that an e-businesses tracks activity, although many people consider this nondisclosure unethical.

3. Copyright Infringements

Due to the Internet’s free flow of information, plagiarism and copyright infringement is a continual problem. The Digital Millennium Copyright Act addresses plagiarism and copyright infringement in the specific context of the Internet and e-business. Under this law, it is illegal to use online technology to copy and distribute legally copyrighted material, such as photography, articles or books, music or videos.

4. Net Neutrality

Net neutrality is the hotly debated idea that Internet users should have equal access to all websites. Most computers retrieve websites at the same speed, depending on the user’s Internet account settings or service, no matter if the site is a multibillion-dollar company or a neighbor’s blog. But some Internet providers have the capability to deliver different websites at different speeds. This is an issue because some websites could pay providers to deliver their content at faster speeds, while smaller business with less capital might not be able to afford the faster processing, and the Internet would lose its free-access-for-all feel. The Federal Communications Commission currently supports net neutrality and bans providers from participating in any program that offers extra pay for higher speed access to any websites.

5. Disintermediation and Reintermediation

 Intermediation is one of the most important and interesting e-commerce issue related to loss of jobs. The services provided by intermediaries are-

(i) Matching and providing information.

(ii) Value added services such as consulting.

The first type of service (matching and providing information) can be fully automated, and this service is likely to be in e-marketplaces and portals that provide free services. The value added service requires expertise and this can only be partially automated.  The phenomenon by which Intermediaries, who provide mainly matching and providing information services are eliminated is called Disintermediation.

The brokers who provide value added services or who manage electronic intermediation (also known as infomediation), are not only surviving but may actually prosper, this phenomenon is called Reintermediation.

The traditional sales channel will be negatively affected by disintermediation. The services required to support or complement e-commerce are provided by the web as new opportunities for reintermediation. The factors that should be considered here are the enormous number of participants, extensive information processing, delicate negotiations, etc. They need a computer mediator to be more predictable.

With the advanced and increased use of online media, online business is becoming a fast emerging trend. Every five in eight companies are operating online, conducting e-commerce business. But being functional online doesn’t mean you can escape legal matters.

There are various legal issues associated with eCommerce businesses as well. And if these issues are not taken care of in time, they can lead to serious problems for your business.

Described below are some of the common legal issues an e-commerce business faces.

1. Incorporation Problem

If you are a company operated merely via a website, not being incorporated is a crucial problem. Any purchase and selling activity related to your products will be considered illegal and you can’t claim your right in case of any fraud and corruption. Without incorporation, your business has no shelter.

2. Trademark Security Problem

Not getting your trademark protected is one of the main legal issues in the field of e-commerce. Since trademark is your company’s logo and symbol, the representation of your business all over the web, it must be protected. If you don’t secure it, it won’t take long before you’ll realize your trademark is being infringed upon. This is very common legal issue and can become a deadly threat to your e-business.

With the hackers on loose and cybercrime so common, trademark infringement of your business or by your business can be a serious legal matter and may hinder your business’s progress.

3. Copyright Protection Issue

While publishing content for your e-commerce website, using content of any other company can be a severe legal problem. This might mark an end to your e-business. There are many sites online which are royalty free and allow you to access their content and images. You may use those sites for creating web content for your business site.

Even if you unintentionally used copyrighted content, the other party can easily sue your business.

4. Transaction Issues

The Australian Consumer Law (ACL) governs all e-commerce transactions in Australia. Therefore, if you do not abide by the rules, you can get into serious law violation problems.

If your business fails to provide clear and complete description of the product, cost and purchase details, information about delivery i.e. when the customer will receive products and other information related to exchange and refunds, the ACL can impose penalties on your business.

5. Privacy Issues

When it comes to online businesses, privacy is the major issue that can create problems both for the business and customers. Consumers share information with businesses online and they expect the sellers to keep their information confidential. By just one minor mistake and leakage of valuable information of a customer, you’ll not only lose your potential customer but your image and reputation will become a question mark. Moreover, you’ll be subjected to serious legal problems according to Australian privacy laws.

If e-commerce businesses lead to exposure and advantages for businesses online, then it certainly has given rise to some legal issues too that can be avoided by keeping in mind the rules and laws framed by Australian Government.