As applications for phones, music, online games, and other forms of cheap entertainment become more widespread, a new method of payment known as micropayments is becoming a growing industry for developers, businesses, and consumers.
Micropayments are payments that are too small to be affordably processed by a credit card company or other electronic transaction processing mechanism. For example, if a customer purchases a download for $1 using a credit card, it would cost the merchant 25 cents plus 2 percent of the transaction to process it, leaving only 70 cents net.
But using a system to capture these payments without the cost could mean a new online revenue stream for Web site owners who charge very small fees to access their content. For online magazines or other publishers of content it could mean an end to cluttered advertising and a return to subscription-based readers.
Though effective micropayment methods have lacked uniformity within the tech community, deterring the majority of customers from embracing this payment method, there are a few methods that are emerging as pack leaders, including the following:
- Direct to bill: Mainly associated with telecommunications (and also called mobile payments), this method adds the charges to the customer’s service bill at the end of the month. If you’re looking to implement a system into your business, Zong offers a very easy to use payment system by phone and text message.
- Merchant aggregation: This model is probably the most familiar and made popular by the Apple iTunes store. This system groups together small charges, which are submitted back to the customer as a single transaction. This model works particularly well for credit card purchases because the larger charge at the end of the month offsets the transaction fees.
- Prepaid accounts: Another common and familiar form of micropayment is a card that customers apply money to and small purchases are deducted from it.
- Direct transfer: A user’s bank account is accessed directly to pull the necessary funds. Consumers can find this dodgy for obvious reasons and may shy away from these types of purchases if they don’t feel secure.
- Subscription models: This may become the most prominent form of micropayment. Users are charged a nominal fee for either a monthly or annual subscription that allows them to access products.
Although the future of a standard micropayment system has yet to be determined, the development and implementation into Web sites has slowly begun creeping into many of the most popular sites today. Social networking sites Facebook and MySpace already use third-party payment services, Spare Change and Social Gold.
Game console makers such as Nintendo, Microsoft, and Sony have begun implementing micropayments to generate income and add value and content to the games they offer. For example, players can make purchases that enhance the gaming experience, such as character clothing and weapons to increase powers.