MICROPAYMENTS: Looking after the pennies

A definition

• Micropayments become important when considering the sale of small pieces of digital information;
• A micropayment relating to a physical item, such as the purchase of a penny sweet, would never be possible online because the delivery charge would be higher than the cost of the product;
• However, a piece of information costing a penny could be sold online because the delivery cost is effectively zero (if you exclude the cost of setting up a facility to make the sale in the first place).

Why now?

• The last few months have seen a number of new micropayments initiatives come on to the scene, some instigated by big name players such as BT, Vodafone and News International;
• Organisations trying to run network-based businesses continue to search for ways in which revenue can be generated effectively online, and the age of micropayments may finally be dawning.

Micropayment Technologies

• There are three methods of effecting micropayments:
• Micropayments accounts: making a payment into an account - sometimes called a wallet - using a credit card;
• Payment cards: payments can be debited against either disposal or rechargeable cards;
• Charge to an existing bill: the final method of payment is to have the payments charged to monthly ISP bills or to mobile or fixed line phone bills.
• Micropayments are not suitable as a business model for all types of goods, and are exclusively used for the sale of non-tangible goods over the internet or using a mobile device;
• The key benefit is the ability to sell goods which previously could not be sold over the internet.

Business Models

• Payment models are based around per click charges, time-based charges, or a combination of both;

• For pre-paid accounts, the micropayment provider will pay the merchant their cut of the revenues, usually on a monthly basis, and keep a commission for itself;
• Most micropayment companies will also vary their commission based on the amount of revenue made;
• In some cases the micropayment provider will charge a flat fee, which changes depending on usage;
• The only area in which micropayments have made a significant impact to date has been in the purchase of mobile content and services.

The Impact on Content Players

• For both business and consumer information providers, using micropayments may mean re-thinking product offerings to encompass the possibility of selling very small pieces of information;
• In order to encourage end users to pay even small amounts of money for digital content and services it will be important to prevent them easily accessing the information for free;
• The usage of micropayments is at present primarily focused around consumer marketplaces;
• Micropayments have not really been used to date in business environments, but there are a number of benefits which these systems could offer to business information providers.

The Future for Micropayments

• Research from the Nilson Report has found that micropayments and low value mobile payments could account for as much as 5% of worldwide credit and debit card usage by 2007, pushing the figure from $5.7 trillion to $6 trillion;
• Services like PayPal have already started to demonstrate that effective models can be set up to imitate cash on the networks;
• Future services may include, in consumer markets, the purchase of individual book chapters, access to as-yet-unreleased movie trailers, or downloads of licensed music tracks;
• In the business world, buying access to small pieces of business-critical information (an up-to-date share price or a company profile) will be the crucial driver.