The History of Micropayments

The Hallmarks of History

Micropayments as far as online transactions are concerned are defined as payments ranging from fractions of a cent to no more than $5.00.

Introduction

Micropayments as a form of settling online transactions has been anticipated for a long time and its emergence comes as no surprise to many people who have been keenly following the concept. One of the biggest advantages of micropayments is replacing large forms of upfront payment with smaller payments.

For instance, before the emergence of micropayments, getting a subscription to paid content such as online newspapers and magazines required a user to pay 30 days or a whole year’s subscription upfront. This is no longer the case, thanks to micropayments. An individual can pay for a single day’s access for a fraction of the original cost. Micropayments have yet to become commonplace due to a number of challenges.

These include:

  • Unreliability in ease of use and security.
  • User interface
  • And billing method are also challenges facing this payment method.

There are other factors that have to be put into consideration while assessing the sustainability and advantages of micropayments as a method of settling online transactions.

First, it is worth noting that micropayments have gone a long way in helping intellectual property owners to get paid when their content is downloaded. Before the onset of micropayments, authors and artistes had to forgo a lot of money due to non-payment of their content downloaded illegally online. This is no longer the case. For as little as $0.99, users can buy a single song and itemize their purchases.

However, the challenge that arises is what happens to content that was initially free but now has charges imposed on it. People who could initially access this content because it was free would now be locked out. Another challenge facing micropayments is the issue of security and user anonymity.

Making micropayments means that companies are in a position to keep track of your payments and this has made many users cautious about making micropayments to relatively unknown sites that may have the content they need to purchase. It is these challenges that have made micropayments a novelty that has yet to take off. From this viewpoint, we hope to explain why micropayments have yet to become a safe and sustainable way of doing business online, but will be.

We’ve been here before

From the very onset, micropayments sparked interest in some of the largest corporations in the world. Compaq and IBM were among the first giant corporations to come up with a micropayments platform as early as 1999. This is because they foresaw that micropayments would be an available payment option of the future and they did not want to miss out on this market. They strongly advocated the World Wide Web Consortium to develop a micropayments standard which would comprise such things as type, price, expiration, and duration among many others.

Numerous companies were formed on the expectation by the founders that the micropayments system would sooner or later be the most commonly used method of processing online payments. A few on this long list of companies includes FirstVisual, BitPass, Millicent, Cybercoin, Internet Dollar, Digicash, Beenz, Flooz and Pay2See among many others. All these companies, however, experienced very little success and eventually closed shop. This was because of several reasons.

The first was that many people expected web content to be free of charge. They felt that they were already making an investment by time spent visiting these websites. This was coupled with the fact that the targeted users had already spent a lot of money buying computers. Charging them to access content was unfeasible. These people, therefore, shunned all online content that needed payment to access and opted for free online content.

Another factor was that many of these micropayments companies’ clients (the internet companies) did not feel that they needed micropayments to become successful. They were already generating enough revenue from the advertising income they were making.

Another major drawback that led to the failure of these companies was the need to make a profit after paying for all their operational costs. The profit margins to be realized from transactions of $0.99 and under are too small to sustain large enterprises.

What industries are exploring micropayments?

The world of online gaming has also provided a platform in which micropayments can be used. This applies to both gaming on video game consoles such as Sony’s PlayStation and also on mobile phone games.

Purchase of games, as well as in-game purchases for mobile games, normally cost less than $10, few pass the $5 mark and many cost $0.99. For video games consoles, the charges can be billed based on the duration of gameplay or even the level. Many video game providers charge less than $1 for an hour of gaming or a level.

Paypal

The application of micropayments is being expanded by many companies to become more encompassing. For instance, PayPal defines a micropayment as any online payment below $12 and it charges less for such a transaction ($0.05 and 5% compared to $0.30 and 5% for amounts larger than $12).

Facebook

Another company that has embraced the concept of micropayments is Facebook through the payment service provided by PayPal. Facebook credits are a form of payment in which customers pay up front for virtual currency that they use to purchase various apps on Facebook.

Apple

Music that is bought on Apple’s iTunes store be it a single track or an entire album can be paid for using their micropayments system. This also goes for audiobooks and apps. The model used by Apple, however, is different from the conventional definition of micropayments.

Apple’s model is referred to as the aggregate and pay model. In this model, all purchases a user makes are aggregated to one credit card transaction, and the user has the option of prepaying for purchases by depositing money into their iTunes accounts.

Conclusion

Thankfully with the introduction by major technology companies, most of the general public has now been exposed to micropayments in one shape or form. If you are a developer looking to add micropayments to your mobile app, SaaS platform, or side project. Take a look at our API docs to get started integrating Popcoin into your application.

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