Making Micro Payments Work

I do my best to avoid writing blogs about themes or articles posted on Mobile-Financial, as I want to keep delivering interesting content to our reader base that is different from the articles that are already posted.  I see this as a duplication of content in some sense, even if I offer an alternative point of view. However, with that said, sometimes it is great to call attention to articles that are very good and present a diverse set of viewpoints.  

There is an excellent article in the E-Commerce Times focusing on the challenges and opportunities with making the micro-payments model work.  The author, Mr. Sheehan, asserts that only digital content will work with on-line micro-payments.  Digital content can be readily downloaded, as opposed to physical goods that require shipping & handling and inventory storage that quickly makes them cost prohibitive.

The article focuses only on digital content, but I also believe domestic Peer-to-Peer transfers can also be included into the micro-payment model. It has all the same features of digital content. I would also include payments for online poker and other gambling sites, as credit card companies typically reject these transactions.  The article also discusses that although PayPal and Google Checkout try to get creative processing payments, in the end, a credit card largely, or completely, processes the payments.

So what can we conclude?   Three major transactional opportunities exist where credit cards cannot properly support the payments. To reiterate, these are:

1)  On-line digital content (Low or Zero variable cost)

2)  Domestic Peer-To-Peer

3)  Online Gaming

In the E-Commerce times article, Mr. Sheehan suggests the ACH (Automated Clearing House) system as an alternative solution. I agree this could be leveraged, but has some serious issues that need to be addressed first. In the mean time there are many vendors and providers trying to proactively solve this issue by creating closed loop systems, or systems supported by cards.  However, no one is addressing the key business drivers, which are consumer convenience and low cost payment processing.

For example:

1)  Online gaming sites allow a variety of payment options, each mixing and blurring the line of customer convenience and cost efficient processing. Western Union payments, credit cards and ACH payments are examples of these options.   

2)  Payment options for zero variable goods are numerous.  Currently, premium SMS is very popular, but missing the mark on cost efficient processing.  These of course do not work when there is variable cost associated with the content.

3)  PayPal is primarily supporting Peer-To-Peer payments, but we have already identified that this is not cost effective and typically processed by a credit card company.  

Whether it is a credit card company, financial institution or a service like Google Checkout or PayPal, someone will make this model work.  The focus will likely be on one area, such as digital content, and if it can work for one area, then basically all that is required to succeed in the other areas is to change the marketing materials.    

Ecommerce Times Article

Micro-Transactions Easy and Cheap

Posted on: Tuesday, November 3, 2009