A micropayment is basically a small payment to purchase content online. It allows a Web vendor to charge a penny or more to download a Web page, music, cellular phone ring tones or other services. Once an account has been opened, users pay for the content in a few ways: online credit card transactions where they pay a lump sum upfront; direct billing to their Internet Service Providers; or by purchasing an AT&T “PrePaid Web Card” at the local convenience store (similar to existing pre-paid long distance cards currently in circulation). Companies do not need to have a merchant account to participate because the micropayment company handles everything — all they need is a Website.

The idea does seem to be catching on. According to a report by the Online Publishers Association (OPA) in partnership with ComScore, micropayments (defined by the OPA as less than $5) increased to $3 million in the third quarter of 2002, a growth of 1000 percent (10 times) over the same period in 2001.

Who Is Using Micropayments?

A Gartner Group survey from 2001 found that 40 percent of online merchants want to sell items for $10 or less, but haven’t been able to do so, because the transaction fees eat up their profits. This has been the problem with micropayments over the past few years.

When looking at things objectively, it seems that micropayments are still a good idea. A site that receives half a million hits each month, and is charging a penny per page, will bring in $5,000 each month. If there is a micropayment company involved and they need to be paid (at let’s say 20 percent), the company still receives $4,000. That is more than some sites are getting from ads.

But what about the consumers? How do you sell them on micropayments? If someone accidentally hits the back button but then returns to the page, are they charged twice? Does hitting “refresh” cost the user double? What about those who pay for content and then realize that they are unhappy with the article? And can those who are too young to have a credit card, or those who choose not to own one, shop online?

Building a Model

A few years ago, merchants tried to accept micropayments, but no matter what companies came out with a solution, they all seemed to fail. The problem was that the Web needed one de facto standard — all merchants have to be on the same system.

The model for micropayments has needed to follow in the footsteps of the telecommunications industry — at the end of the month, enough long distance charges have accumulated to warrant sending an invoice. The same belief on the Web is that although each “visit” might only be a few pennies, when you have enough people the profits quickly add up.

Some believe the best way to achieve success with micropayments is to take money upfront in increments large enough so that the vendor doesn’t lose money in the transaction, such as $10 or $20. The funds would then be placed into an electronic wallet, and if they aren’t used in an allotted time frame, they are either refunded or carried over.

Others suggest collecting the money one micropayment at a time, but the problem with this is at the end of the month if someone only used the site a couple of times, what would be the use in tracking down a few pennies?

Another proposed solution has been a global system that identifies flagged Web pages (as written in the HTML code) as cost-per-visit. Everyone would be charged in one currency, which would later convert to the legal tender of the country, and the payments would come from the electronic wallet. Transaction complete.

If only it were that simple.

Many consumers and merchants either don’t know about micropayments or are afraid of the unknown and weary of putting their money into this new technology. But, a 1998 study by NetRatings, Inc. found that heavy users looked at about 46 pages each day. If there were micropayments involved, even at the cost of a penny per page, that would mean it would be costing these users about $13 each month to get their information. Times that by the 135 million or so people using the Internet and that is quite a chunk of change.

But what does that mean in the real world?

In 2002, Forbes.com changed its online archives from a subscription-based database to $2.95 per view. Without even really promoting the new system, the company started noticing it was making $2,000 to $5,000 in sales each month.

The American Online Journal Publishing Service was the first major academic publisher to offer content on a per-article basis. In the past, the group had been charging $300 to $5,000 per journal, but later changed to individual article prices of $10 to $25. They then realized that there were more people out there interested in their articles than they had originally thought. Because the prices were less, more people could afford to pay for them.

What Do Consumers Want?

A survey released by the 12th Australian Conference on Information Systems (2001) revealed that 77 percent of respondents felt that micropayment systems are important, although many of them are not familiar with how the current technology works.

According to the results, consumers feel that all micropayment systems must include:

• Privacy — (number one priority) individuals want to be the ones who decide when information is being sent about them. Those who run micropayment systems will know a user’s surfing habits. What if they sell this information for their own personal gain?
• Security — consumers need to know that the transaction will be authentic and confidential.
• Adaptability — must be able to support a large number of people and meet changing requirements.
• Usability — everyone needs to be able to complete a transaction smoothly: merchants, consumers and brokers – something that people can use at any time throughout the day.
• Universality — system must be able to support transactions throughout the world.

The Future of Micropayments

An August 2002 survey by Forrester Research found that 31 percent of consumers download music and burn CDs often. Micropayments should be successful in this area. In fact, they have already started to flourish.

Apple Computers has a popular downloading service that charges 99 cents per song (and has sold 6.5 million digital downloads). Even Napster, which was acquired from bankruptcy, will be re-opening this year as a paid service. But, it is still a win-win situation for all. Record companies are making money from songs that they don’t have to package and market. Users are downloading high quality songs that they actually want (for less than the price of a gumball). And the company providing the service (whether Apple or Napster) is covering its costs, even after the micropayment company has been paid.

Or what if advertisers paid for content? With Pico-Pay, users who want to view an article must first sit through a series of ads. When the commercials are finished, the user has “earned” enough money to view the article. This benefits everyone: advertisers set their price per click (ex. 50 cents) and the duration of time the ad must be viewed before they are charged (ex. 15 seconds); Web users are getting free content; and online publishers get paid for their content. This is very similar to how things work in radio and television advertising, except it is over the Web.

Making Micropayments Readily Available

A study by ATKearney and the Judge Institute at Cambridge University (based on 5,600 mobile phone users on four continents) found that 40 percent of cell phone users would like to be able to perform small-cash transactions on their handsets, but only two percent of them have actually done so. The intent to use it was highest in Japan (50 percent), Europe (46 percent), the rest of Asia (43 percent) and the U.S. (38 percent). Since this is a device that charges more money as additional minutes are used, so people are used to paying more. And there are so many additions for these phones with ring tones, games and even the potential for buying goods from a vending machine.

Steps Being Taken Throughout The Globe

In March 2003, the Mobile Payment Services Association (MPSA) formed in Australia. Four global operators were the founding members: Vodafone, T-Mobile, Orange and Telefonica Moviles.

In June, MPSA announced the creation of Simpay (a global micropayment solution that sets a standard in mobile payments). It makes up for what the previous attempts at micropayments were lacking in the past: a way to connect people and machines in a global economy, where the Web knows no boundaries.

Micropayments can become quite popular, and the secret to lower transaction fees is by increasing the number pf people using the service.

All dollar amounts are in U.S. funds.

Courtesy of Tophosts.com

micropayments currency