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Micropayments

This document outlines the evolution and significance of micropayments, detailing how they redefine transaction dynamics in the digital economy. It highlights the necessity for efficient small transactions, which facilitate immediate purchases for low-cost digital goods. The report covers current micropayment providers, the potential market barriers, and consumer benefits, including improved security and privacy. It also discusses different architectures for micropayment systems and the role of merchants and strategic partners in this evolving landscape.

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Micropayments

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  1. Micropayments IOM599 - October 30, 2000 Allen Cinzori Dan Salenger Steve Vincent Raymond Yee

  2. Micropayments Agenda • The Evolution of Transactions • Customer Model • Benefits Provided by the Internet • Technology Overview • Current Micropayment Providers • Conclusions

  3. The Evolution of Transactions • Barter • Currency • Credit • Micropayments

  4. What is a Micropayment? • Very small transactions • defined as under a few dollars • potentially a percentage of a cent • Immediate transaction processing • Distinct from national currency

  5. Why is there a need for Micropayments? • Currency use requires transfer costs • Physical transfer costs • Processing transfer costs - credit card • Information can be a low price product • No shipping required via the Internet • Buy only what you need - Yield Management

  6. Substitutes to Micropayments • Subscriptions • All or nothing purchase decision • Yield Management information lost • Aggregation of Purchases • Extended time until merchant is paid • Consumers may only want one purchase

  7. Micropayment Market Potential • Barriers to prior success • Transaction volume • Accessibility to inexpensive technology • Business Wire projects huge growth • $22.2 Billion in 2001 • $288.6 Billion in 2003

  8. Strategic Partners Merchants Consumers Micropayment Customers

  9. Strategic Partners • Billing Access to Consumers • ISP • Utility Companies • Phone / Cable Operators • Potential source of investment funds

  10. Merchants • Information merchants have products to sell • Stephen King • Photographic stock houses • Record Companies - secure form of MP3 • Pay-per-view model desired • Credit card transactions are inefficient • Customers under 18 don’t have credit cards

  11. Consumers • Micropayments provide potential benefits • Ease of use (one click shopping) • Anonymity • Security

  12. Benefits via the Internet • Improved Security • Absolute security is unchanged • Relative Security is greatly improved • Universal Acceptance • Language independent • Currency independent

  13. More Benefits via the Internet • Reduced Transaction Cost • improved security reduces cost of fraud • Overhead services reduced • Network infrastructure established • Anonymous Payments

  14. Positives Consumer privacy Transactions can take place off-line Negatives Merchants do not get consumer information Consumer hardware Service Provider Consumer Merchant Consumer Merchant Service Provider Anonymous Architecture $ z z & z $

  15. Positives Similar to credit cards (lower change barrier) Lower transaction cost Negatives Single point of failure Transactions require Internet connection Consumer Merchant Service Provider Central Server Architecture $ $ & x x

  16. Positives Greater personal security than CSA Negatives Consumer hardware Setup complexity Sacrifice anonymity Service Provider Consumer Merchant Consumer Merchant Service Provider Public Key Architecture $ x z z x & z x $

  17. Micropayment Providers • eCharge • “Eliminates fraud with a 100% guarantee” • iPin • “The ubiquitous payment system for the global Web” • MilliCent • “Simple to install” • Qpass • “The most successful micropayment solution”

  18. eCharge • Central server architecture • Charges 2% to 8% plus $.10 to $.25 • Multiple payment channels • Phone, credit, prepay • 14 merchants currently using product • MP3 • McAfee.com

  19. iPin • Central server architecture • Multiple payment channels • Phone, ISP, cell phone • Product launch in Fall 2000 • Current testing w/ AT&T WorldNet

  20. MilliCent • Public key architecture • Allow purchase as low as 1/10th of a cent • Multiple payment channels • Phone, credit, prepay, ISP • Charges 13.25% to 14.5% per transaction • Testing in Japan

  21. Qpass • Creates complete commerce infrastructure • PC’s, PDA’s, cell phones • Payment channel • Credit • Expensive setup cost • Unique pricing structure • Well respected client list

  22. And the Winner is... • Highly fragmented market • No existing standard • Unclear “winner” • But our guess is…

  23. The Future • New Technologies • Emerging Standards • Role of Industry Leaders • Changing Consumer Sentiment • Structural changes in digital information industries

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