Early on, the web saw many services that were free to the end-users and funded by advertisers. Banner click-thru rates were high, advertisers were excited to get their name out on the internet, and it was widely thought that one could be profitable simply by being popular on the web.
These days, businesses often make profits online by selling subscriptions to their premium services, or by selling individual products. Many can do well by leveraging relationships and using automation to bring good deals to their users while still earning their cut. Many online businesses employ online credit card authorization as their payment method, while others allow alternatives such as PayPal, Telecheck, Yahoo! PayDirect, and simply “send check or money order to”.
However, there is a price to pay for taking credit card transactions, typically from 2-5% of the transaction goes to the networks that authorize the credit cards, plus monthly charges and setup fees. While these charges aren’t astronomical, they take their toll in a competitive world where margins are slim. These fees prevent online businesses from selling smaller products and services because the profit can’t keep up with the charges.
Enter the new wave of online currency: Micropayments. By reducing the number of transactions that go through the credit card authorization networks, the overall cost of online payments is reduced and micropayments become possible. Some companies have devised methods to do this by creating accounts for subscribers that can be used at various sites. The company can then batch many payments together to cut down on the fees, while periodically charging their customers and paying the vendors. Some have come up with more creative ways to minimize the number of transactions such as Peppercoin, who have created a method of using statistical averages that even out payments in the long run. In a way, PayPal could be included as a forerunner in the micropayment arena, as it follows the pay-as-you-go account scheme.
A possible hurdle for the micropayment industry is coming up with a standard that could be used across many micropayment services. Before that can be made available, it is unlikely that the demand will reach enough subscribers on both the customer and vendor sides of the deal. Another thing to consider is the possibility that if micropayment services become more widespread, credit card authorization networks will try to recover the lost revenue by increasing prices, fees, or installing other mechanisms to counter the decline.
Shaw Binary Systems, Inc. (SBSI) is beginning to research the possibilities of setting up micropayment methods for many of its clients. Many may be able to make use of custom systems that make use of the membership accounts they already have. SBSI is also looking to find other creative methods to further automate the online credit card authorization process and reduce the costs to clients. Micropayments are just another example of how automation can streamline revenue collection and save money for vendors and consumers alike.
