Micropayments Update

Are micropayment systems gaining ground? A recent article on Internet Week.com suggests just that with the title “Big Bucks in Micropayments.” While acknowledging that itty-bitty transaction mania faded once, (and its resurgence is doubted by some) the article points to signs that this time it may be for real – not so much as a payment mechanism for content but as a coin replacement for vending machines.

Thanks to Paid Content for pointing me to Internet Week piece, from which I draw these three excerpts:

“Demand for so-called micropayment systems is growing quickly. Some 14 million Americans made digital-content purchases of $2 or less in 2004, up from 10 million in 2003, according to market-research firm Ipsos-Insight.”

“Merchants are depending on micropayment system providers to expand their customer base. It costs merchants $25 on average to attract each new customer through advertising and marketing; customers need to make 20 or so purchases of small-ticket items in order to be profitable.”

“For major credit-card companies, the micropayment explosion is an opportunity to boost transaction volume. Visa estimates that online micropayments totaled $3 billion in 2004, about half of it for music, says Billy Knupp, VP of product innovation at Visa USA.”

And there lies the potential for a micropayment explosion, at least as I read the article. It notes that “400 billion transactions of $5 or less are made each year, totaling $1.3 trillion.” This would include everything from a cup of coffee to a vending machine transaction. Radio frequency identification (RFID) technology apparently is the key. The article notes that credit card companies are experimenting with RFID cards that can debit by proximity.

I found another article, in the April 8, 2005 American Banker magazine, that also referred to the potential for moving micropayments into the vending realm. I could not find a link to that piece, however, so if you’re interested in reading more it may require a library trip. (Note: Internet Week and American Banker both rely on Mark Friedman, president of micropayment vendor Peppercoin, for the most enthusiastic comments in this regard and his firm is pushing offline micropayments.)

At risk of succumbing to hype, I think offline micropayments offer a convenience that may make it compelling to consumers and to the financial institutions that would have to make this happen. Would a micropayment system, perhaps incorporating RFID, be superior to debit card swipes? I don’t know enough about the technologies to even hazard a guess.

But it seems clear that online content will not drive whatever developments do occur in this realm. Content creators may simply have to adapt to whatever micropayment models do evolve. Content payments – outside of music – may not draw enough dollars to warrant consideration in the design stage.

Speaking of content dollars, the Online Publishers Association recently reported that “consumer spending for online content in the U.S. grew to $1.8 billion in 2004, a 14 percent increase over 2003.” Entertainment/lifestyles (i.e. music) surged 90 percent and is poised to surpass personals/dating. Sports and games also gained big. Paid news rose .4 percent and business/investment revenues declined 6.3 percent.

Content did fare relatively well in March on OPA’s index of how much time browsers spend online, gaining 1.1 percent in clock-share versus commerce, communication and search. Earlier in the week I lamented that content was devolving into nothing more than flypaper to catch eyeballs. Well, at least that business model is still working.

Tom Abate MiniMediaGuy Cause if you ain’t Mass Media, you’re Mini Media