Micropayment Model for Monetizing Small-Microtransactions: Behavioral Shifts are Reigniting the Micropayment Option…

Micropayment is an online financial system that processes very small sum of money; some say less than one U.S. dollar, others say less than five U.S. dollars… but, exact definition depends on the business case and target group.

According to experts, key micropayment drivers, include; monetization of digital content, small online purchases, and emergence of new business models… However, one slightly cynical provider has commented– that the true meaning of micropayment is any transaction whose value is currently too small to be worth bothering with– about one U.S. dollar…

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One important issue that has prevented the successful emergence of micropayment systems is the need to keep processing costs very low for individual transactions. This is difficult when processing transactions that are very small sums of money; even if the fee is just a few cents.

According to ‘Peppercoin and Ipsos-Insight’; more than 10 million consumers said that they had purchased digital content for less than $2 in the past year… While digital music is the item most likely purchased, other items, such as; articles, games, ringtones… are also frequently purchased. However, the micropayment is still messy-fragmented– bit like early days of the Internet itself– and it still lacks a universal solution, i.e.; low-cost, high-speed, secure, flexible… 

One trend recognized by many people– that play games on smartphones is a shift among developers to micropayment as an alternative to traditional subscription-based payment, that is; providing the basic game for free, but requiring some features to be paid for with micro-currency, which is ultimately fed by real-life payments. For example, you might download a racing game at cost, but accessing better cars and extra tracks costs in-game money, which are purchased one-click at a time, without a credit card. With this model, the player can scarcely resist the upgrade purchases: Developers now have monetized the game.

According to ‘Frost & Sullivan’; growth of micropayment is driven by usage of mobile payment solutions… and, cloud-based mobile payment  is also expected to contribute to the expansion of micropayment. Although, traditionally, micropayment is the processing of very sums of money, e.g., less than $1.0… and, since micropayment is without any industry ‘standards’; some companies are redefining micropayment to suit their systems, for example; ‘PayPal’ defines micropayment as payment that are less than $12.00, and they charge a lower fee for these transactions.

Also, Facebook has ventured into the micropayment realm, using PayPal’s micropayment service for Facebook Credits. Facebook Credits are a form of virtual currency that consumers pay up-front for. The credits can be spent in apps on Facebook. Apple also uses a form of micropayment for purchase of its songs. But, Apple’s model is slightly different from the intended use of micropayment: Apple aggregates a user’s song purchases to one credit card transaction and allows users to prepay by putting credit on their account, and that seems to be the prevailing micropayment scheme…

In the article Google Rebooting Content Micropayment Initiative by Robert Andrews writes: Consumers may not buy all kinds of web content, but Google is now courting publishers who want to charge for rebooted version of its micropayment  system. Google is now going ahead with full version of its content micropayment platform under the Google Wallet moniker.

According to Pali Bhat; Google Wallet will support content payments typically ranging between $0.25 and $0.99, with content obfuscated after an opening preview and a 30-minute ‘instant refund’ for unhappy users. This development marks the arrival of a big beast in to a micropayment facilitation space populated by several smaller vendors like ZnakIt, but also bigger providers like PayPal, whose own digital content platform has been gathering pace. Google’s system works like similar rivals, for example, Cleeng, redacting  article text in what Google is calling a ‘rich preview’ and ‘rich obfuscated content’. In the same way, images that must be paid for can also be pixelated.

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Payment must be made before readers can see the whole article. The Google Wallet overlay enables swift (dare I say ‘frictionless’?) payment for users who already have card registered in Google Wallet account: It’s all rather quick. But, will any of it work?

According to Google: Users love free content, and so we expect that advertising will remain most effective monetization model for most content on the web. However, we know that there is more great content that creators could bring to the web if they had an effective way to sell individual articles that users can find with search. Google has been making good advances with Google Wallet for digital goods this year, introducing in-app payments and recurring subscriptions, plus payments for games…

In the article Death of Micropayment by Elizabeth Millard writes: Will the concept of micropayment fade into the footnotes of e-commerce history, or will this business model find new success? Despite the number of failed companies in this sector, advocates of the micropayment model still believe it can work. During the boom, they say, the concept was ahead of its time…

Today, among the micropayment firms are working hard to spiff up the industry’s image, challenges remain. However, according to Clay Shirky; it’s possible that the micropayment business model is too flawed to work. Everybody who imagines doing micropayment is basically thinking about forcing users to pay a little here and a little there… Literally, they’re nickel and diming them. He noted that the idea of this model is intriguing enough to stay alive, despite past failures and current problems.

To become profitable, a site must elicit large volumes of transactions, which is very difficult, even for established e-businesses. Even online porn industry, which has tried on several occasions to adopt a micropayment strategy akin to the 25-cent peep-show booths in the offline world: They can’t make it work online… And, those guys are the e-commerce geniuses, so if they can’t do it, who can?

However, despite rough road of the past and current potholes, micropayment companies still believe sunny days lie ahead. According to Kurt Huang; I think future is very bright… The music industry is doing us a great favor in validating the price point, and indeed, micropayment companies are carefully watching the pay-per-song battles currently being waged heatedly among Apple’s iTunes Music Store and its competitors. It is possible that similar conflicts will arise in the video game, publishing, movie… industries.

Going forward, the market is poised to leverage the technology, more so than back when the technology was first introduced. Before, the timing wasn’t right, but it is now…

micropay thCAM0U1W5In the article Micropayment Promising or Penny-Ante by Steve Smith writes: Online micropayment is an idea that just won’t die…nor will it quite come to life. Attractive as it may sound to consumers and some publishers, the idea of spending $2.0 – $3.0 here or there for a song, an article, or a day of access to a site remains in a zombie-like state. Despite increased interest in the model and no shortage of firms with payment solutions users just aren’t buying in…

Ultimately, it comes down to consumer behavior, and there are no signs that has substantially changed. Sure, millions of people are buying 99-cent songs at iTunes, but according to Apple, most are buying them in larger album packages rather than nickel-and-dime purchases. People do not buy content same way they do candy.

Some of the micropayment solutions themselves admit that the early customers are not loading more money into their accounts than they expect to spend on initial buys, which suggests that a significant barrier for this model remains. Without a big enough network of partnered content sites, consumers don’t buy into the network and spend across multiple partners.

And without this kind of consumer support, no one company can break through to be ubiquitous in the market and attract the major content publishers… No doubt the large companies are being sensible by sitting back and waiting for the category to shake out, but unless a major content venue steps-up to let itself and its customers experiment with these micropayment networks, the category may not shake-out so much, and stay zombie-fied waiting for the right voodoo.

Trust in business is a necessary condition for consumer to buy anything. That’s why companies need to ensure that all their processes, and especially their payment systems are trustworthy and secure. Increased security will attract more customers and improve business overall. However, high levels of security bring high costs.

Companies must weigh benefits and costs associated with different levels of security. For example, the amount of money a company may pay for security could be more than the amount lost to fraud. Also, the cost of clearing and settling a payment is approximately 20-cents, which is prohibitive for any purchase of one dollar or less… that is a key-difficult hurdle for micropayment to overcome…

According to Adam Thierer; there continues to be a debate about what counts as a micropayment, but the fact that so many more people are paying just a couple of bucks or less for content in mobile-app stores suggests that its only going to be easier for people to pay even smaller sums for content in coming years… We’re not nearly as reluctant today to surf away when something says 99-cents on our screen, and increasingly we’re hitting the ‘buy’ button…

The really interesting question is to what extent we can expect micropayment to grow and become more widely utilized for other types of content. Some people in the ‘news’ business are hopeful that micropayment can help monetize news content… However, most are skeptical that micropayment is going to ‘save the news’, since funding ‘news’ is really expensive and micropayment alone will not cover the cost…

But perhaps there are options, for example; micropayment could become a part of an array of new business payment models that media could tap into in an effort to reinvent themselves, and thrive going forward.

For example, subscriptions, advertising, micropayment… working together could all be part of the answer. However, we are still tinkering with the micropayment model, and many people have grown at least a tad bit more optimistic that micropayment can at least be considered part of the conversation, again…