Micropayments are going to change the game for all of us. Or are they?

Technology has changed how companies process international payments for goods and services sold. A decade ago, things looked very different: big corporations were the only ones moving large-dollar amounts across country lines.

Business models

A change in many business models, caused by our shift to an on-demand economy — facilitated, of course, by e-commerce and mobile — means companies are now making higher volumes of smaller payments.

A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A second generation of micropayment systems then emerged in the 2010s, which have fought and merged and fed into the micropayment companies we see today. These are being continually challenged by startups in the space, as well as new tech and changing regulation.

Yet there are many challenges to any startup looking to grow in the micropayments arena.

Photo by Didier Weemaels via Unsplash

Regulatory

When a corporation pays a manufacturer millions for raw materials, they can likely afford to take the hit on a small wire fee to move the money. For businesses that sell smaller items or services, however, that fee could eat into a larger proportion of the total transaction value. Therefore it is in the interest of smaller, ‘indie’ retailers to solve the micropayments puzzle.

There’s no question that customers value the user experience and convenience of micropayment-based services. The success of cab apps, online marketplaces and other small payment-based services are testament to this. So the received wisdom, that the cost of incurring a charge on a small transfer of money, must be challenged.

Users

Paypal’s standard account has a rate of around $0.30 per transaction + 3%. However, they do have an account that is not advertised publicly with lower fees for small transactions. A micropayment is less than $0.01 USD. Otherwise, it’s just a payment.
One way around this has traditionally been to do what essentially everybody does in this space: sell a microcurrency in macro-units ($10, $20, etc), and then make authorisations to spend the microcurrency as friction-free as possible — i.e., you still pay $5 to my blog, but that buys you 100 articles to read. The Washington Post and many other online publishers are utlising this model with some success.

The actual purchasing process should be as smooth and seamless as possible to prevent customers from backing out before the transaction is complete. A small fee is further incentive to see the order to completion.

When dealing with multiple payment processing platforms, however, it becomes far more difficult to maintain consistency, which in turns creates a less than optimal user experience. The more disjointed the checkout process, the more likely the buyer is to drop out, no matter how small the charge.

Clickbait

Others have been vocal about the negatives of using a micropayments system for online news media, at least, but is there potential for this technology, properly used, to be the thing that saves online journalism and finally gets us all paying for the content we consume? Blendle thinks so. So does the Financial Times.

But what about the rest of us? What about writers and editors, the traditional ‘gatekeepers’ of the fourth estate? Quoting from the above Wired article, Columbia School of Journalism professor Rita McGrath warns of the potentially pernicious effect this model could have on news aggregation, similar to the commercialised ‘clickbait’ effect we see now:

If micropayments do work, they could be a financial boon to publishers. At the same time, McGrath warns that micropayments — especially those facilitated by a third-party platform — could have an insidious effect on what readers read and writers write. If readers are buying individual stories instead of paying for a subscription directly, she says, Blendle could decide what kinds of stories or topics to promote and which to bury. Meanwhile, if editors and writers can reap real monetary success from the platform, they may begin to shift the kinds of stories they write to what people are willing to pay to read. “Are people going to pay to read stories about Syrian refugees? About abuse?” McGrath asks. Will writers even need to work for The New York Times?

To Finish: 2 Micropayments Processors That Could Be The Next Big Thing

After the end of Tipjoy and Amazon Flexible Payment Service, who is going to usher in the brave new world of micropayments?

PayPal

We mentioned them before. The big dogs. They have the resources to succeed in this space.

Payza

Payza’s e-wallet platform claims to provide members worldwide with “convenient and flexible loading and withdrawal options”. It already has over 13 million members in 199 countries and using its services with 26 different currencies. Took over Alertpay in 2012 and the rest is history.

If you know of any other startups making waves in the micropayments space — and I’m keen to hear of any, as they all seem to have been dropping like flies for the last few years — get in touch in the ‘Responses’ section below!