Whatever Happened to Micropayments? 318
prostoalex writes "Remember Flooz? Or Beenz? With a few notable successes (PayPal, and that's about it) online micropayment industry is saving its success stories for future generations. New York Times reports about two nascent micropayment systems, one coming out of Stanford, one out of MIT, that are supposed to help the content producers and Internet users to engage in less-than-a-dollar financial transactions without huge overhead costs, so typical of credit card payments. BitPass requires you to purchase a virtual debit card with a certain amount on it to pay for products and services, and PepperCoin consolidates numerous micropayments into one bill that is then split between the content providers that managed to sell their product to the Internet user." I still believe that single penny transactions will revolutionize the net.
What happened? (Score:2, Interesting)
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1-800-759-0700
Paypal's success was based on $10 free/eBay (Score:5, Interesting)
Paypal also had a lot of marketting muscle and a catchy name.
To top this off, Paypal also started to guaranty their purchases.
It also ended up being the way that Paypal was used for other payment services because of the debit card that allowed it to prosper. I would for instance use my Paypal card to pay Billpoint or PayDirect if it was offered. This would get me 1.5% back.
StormPay and C2it are the services frauds use. Bidpay is reasonable, but never use it to pay for anything just to be paid.
The author misses Paydirect, which controls Yahoo payments. This is a decent service and is in some ways a superior "eshopping cart" service. Many small websites or discount hardware websites use Yahoo stores and the PayDirect service.
I do agree with the author that "penny payments will revolutionize the internet though" - I see the internet broadband/wifi/otherwise being free in most cases within 10 years. I see ISPs as selling "credit cards" rather than subscriptions. These cards would allow you to send and receive email and view websites. The ISPs in turn act as a bank for websites such as Slashdot. Paying them for the number of views that have crossed their service say 1/100th of a cent for every page view.
I think email should cost 1 cent to send, 1 cent to receive. I think it should be 1 penny each page/email view or bulk 1000/100MB /views for $1 -- 10,000/ MB/ views $10 -- 100,000/MB / views $50 - therefore sites that want to remain free can, sites that want to charge can almost transparently.
Micropayments with the iTunes Music Store? (Score:4, Interesting)
Micro-content providers (Score:3, Interesting)
If we are going to have the concept of micro-payments, why can't we have micro-content providers?
I regularly post to Slashdot. I am essentially a micro-content provider to Slashdot. I have posted over 800 comments, many of them high Karma scorers. If I made, say, one cent per Karma point, then I would be about 30 dollars better off by now! Woohoo!
What about non-virtual 'micropayments' (Score:5, Interesting)
Naaah. There's no conundrum. (Score:2, Interesting)
Nuisance cost (Score:3, Interesting)
If people have to take deliberate action to spend a penny, it's not going to work; at $7.20/hour, if it takes them five seconds to read and respond to a prompt, they've spent more in their time than the penny they're paying.
However, if the payments are made automatic, a different problem takes over: People aren't culturally ready for having their money spent, by a computer, on their behalf. Never mind that every time their thermostat turns on, it's spending their money -- that's sufficiently hidden from the users.
The only way I can see micropayments becoming mainstream is if they are refundable within a given time limit -- but that would only work if people don't start "charging back" all their payments.
Re:Micro-content providers (Score:3, Interesting)
I've been thinking about adding some kind of micropayment system to my book review page.
"If you found this review useful, please click here to donate 10cent to our bandwidth bill" or something. But adding the possibility of diverting some of those cents to the person who wrote the review and some of them to the sites account, would be very, very interesting.
Today people just write the reviews because they can and for the fun of it, but nothing says "I like that" as a bit of money, even if it's only a few cents.
Re:Missing the Obvious (Score:5, Interesting)
Governments should absolutely be moving with the times and providing transaction-fee-free plastic money and online money. Currency should be as neutral and transparent as possible, in order to facilitate a smooth and efficient marketplace. We've always supported the overhead required to create and manage the paper money, we should do the same for modern currency.
~
Paypal is *not* micropayments!!! (Score:3, Interesting)
Re:What happened? (Score:2, Interesting)
psxndc
All micropayments are not created equal. (Score:5, Interesting)
In the real world, Shirky's argument translates to: "No one will buy a candy bar for 50 cents because they will be paralyzed by the user overhead." And, of course, we know this wrong. The candy industry (just to give an example) makes millions of dollars of profit a year selling 50 cent candy bars.
Likewise, there is a legitimate zone of value for digital content that falls between a dime and a couple bucks. 50 cents for an online comic you like, or for a song from a band you want to support, isn't any different than 50 cents for a candy bar.
Micropayments are just payments. And I think it'll be funny if, in a couple years, the artists and writers and bands who are making money off of micropayments can read Clay's article and have a good laugh.
Current, working system makes 20000 payments a day (Score:1, Interesting)
(E-gold, for those who are unfamiliar, consists of 1,500 Kg of gold in various depositories, and a database for keeping track of who owns which fraction of that gold. As currency enters or leaves the system new gold is bought on the open market, or liquidated from the reserves: i.e. it's a real currency, just like the dollar used to be)
Payments are possible down to 0.3 of a cent, and the system has been around for years.
Given that this technology has been around for years and works exactly as a micropayment system should, this raises two questions about why it isn't everywhere:
1> Can a micropayment system work at all? Given this system has all of the necessary properties, and isn't used universally for micropayments, is the model just broken?
(actually: I just checked the E-gold system statistics [e-gold.com] and it looks like they moved 22000 transactions for less than 10 cents yesterday alone so perhaps that counts as a functioning micropayments system? But if it works just fine, what's limiting it's growth?
2> Is it possible that any micropayment system needs to be universal before it can be used? Even though there have been various past and current schemes which were technologically feasible, does it require a PayPal-sized entity to start offering micropayments before there is enough of a userbase to make it feasible to charge for things?
$0.02, no pun intended
How does Apple handle $0.99 music store payments? (Score:5, Interesting)
I've been hearing for years that the cost of handling credit card payments makes it impractical to use it for purchases of less than about $10. So how does Apple do this?
Certainly a big appeal of the Music Store is that you pay only for what you use and are NOT saddled with an automatic $5.95 or $8.95 per month.
Do they batch them? Do they actually lose money on someone who only buys one song a month, and gamble that most users will buy more than that?
Re:Missing the Obvious (Score:5, Interesting)
With plastic the government has to become a bank (the money the card represents has to be managed by somebody). This implies that people have the ability to get money into the bank (direct deposite, tellers, etc..). That's big money right there.
Then there is the question of fraud.. with money there is no question. Posession almost entirely determines ownership of paper money. When someone robs you, it is a criminal matter. However, if you don't catch the crook you don't get the money back. With plastic fraud is much easier to get away with (you just need a number after all), and so government has to support THAT as well.
So the government is going to have to get into the banking business... which is not something I beleive it should stick it's nose in. Let it make the currency, leave it to the private sector to manage that currency.
Isn't it ironic? (Score:2, Interesting)
On the one hand, there's a faction trying to eliminate the penny [homestead.com] in the US because it's nearly worthless (nothing costs <$0.05 anymore). On the other hand, people are trying to figure out how to charge micropayments on the net. Aren't these opposite approaches to the same problem?
It seems to me that when a commodity gets cheap enough, people are willing to pay a flat fee for nearly unlimited usage. The most obvious example is phone service. Do you think people will ever really want to spend their money in tiny increments? I don't.
"Micro"-Payments at Kinkos (Score:2, Interesting)
Micropayments: good or bad? (Score:2, Interesting)
On the good part: the control of the contents is in the hands of the clients, not the sponsors. Better content will win. They liberate us of the danger of bad subscriptions... lots of times one can tell whether the site sucks or not in a couple of clicks, and what now would be a US$20 subscription could be a couple of micropayments. They also would liberate us of the "subscriber-only" links that appear around here :)
But: nice to see how you manage to get the transaction overhead below the US$0.01, although this can be done with "virtual credit accounts". And while supporters can argue that we already use micropayments, like for water and electricity, there's a little detail that gets no airtime: most of the things that work on micropayments are monopolies or cartels. Remember dial-up internet? Pay as you use? Once flat-fee came into the block, pay per use went out fast... as the flat-fee guy rakes in the money.
Other issue that can be seen with micropaymentes is the fact that they clutter our surfing experience. There is, your previously unencumbered surfing now is awash with little transactions. Plus the confusion factor: the idea is to embed the micropayments into the links, so that it is automatic. So, you have this link that a) has you assess if it's worth to click that link and at the same time b) tells you it costs so little that it's nothing.
This working scheme that tries to save everything *but* the user's time doesn't sound so hot to me. Add to that de aggregation/disaggregation of products: is the newspaper worth a buck? is each article worth five cents? and so on... the pricing isn't clear anymore, when you had your newspaper for a dollar.
So, in my opinion, while having control of content in the hands of the customers and getting rid of subscriptions is fine, I think there's a lot to be fixed in the current schema of micropayments...
Simple reason why micropayments are bunk (Score:5, Interesting)
When you contest payment with your bank, what happens? Well, you talk to an actual live human being, who will do actual human things, and make a decision on whether to refund you the money and whether to prosecute a third party. And your transaction fees pay his salary.
What happens when you contest something with PayPal? You drop them an email (good luck trying to talk to anyone), and then they freeze your account [paypalsuit.com], sieze (i.e. spend) your money, and (if they're feeling particularly communicative) tell you to go screw yourself. They do that not because they're evil (although they probably are) but because they simply don't make enough margin on their transactions to be able to afford to investigate them, and because they know that it's not worth anyone's time to sue them, even in small claims court, for the contested amounts.
Now, when the transaction value drops to 1 cent, what's the best case margin on that? You've got purchase and maintenance costs on your servers and database, plus bandwidth costs for those 128bit SSL encrypted transaction details that fly both ways. Half a cent? More if you handle a lot. A loss if you don't handle enough to amortize your setup costs.
Now, how many fraudulent transactions do you have to have - from a single source - before it's worth taking any action? It costs ten cents for a staffer to click on a button, so you're talking twenty transactions. If the staffer has to think at all, it's a hundred. If they have to do any investigatation at all - for example, to decide if a bunch of transactions are from a single source - it's thousands. If you want to hand it over to a lawyer or other third party, it's tens or hundreds of thousands.
But that's fantasy land, because it's not worth even recording the details of the transaction that would allow you to decide if it was fraudulent or not. The logs themslves would take a huge chunk out of your profit. You'd simply have to trust the referrer.
Well, that's not working out too well for credit cards [theregister.co.uk] right now, but at least cc issuers can pass back all the costs to online retailers [e-gateway.net] for credit card fraud.
But if it's not worth your while even retaining transaction records for micropayments, or to investigate fraud after the fact, how are you going to protect themselves from fraud?
I suspect that you're not. It comes down to the equation of whether it's worth anyone's time to crack the system. Well, as thousands of open source projects, white hat hobbyist hackers, and karma systems show, lots of people don't put a dollar value on their time. And given that the chances of being caught are minimal, well, why not give it a go? After all, it's only avoiding a penny a time. Who can that hurt?
Any popular micropayment system will (I suggest) be defrauded, and the costs will come right out of the payment backer's pocket. We've seen how PayPal deals with that; ignore it. Don't answer the 'phones. Freeze the account, and spend the money in it. With micropayments, who's going to even bother complaining? And if they do, how much are they going to have in their account? $5? It's barely even worthwhile seizing that, and not worthwhile at all if you have to send or even read a letter.
There is simply no compelling reason for anyone to manage micropayments, other than as a tool of desperation to prop up a flagging or non-existent business model (*cough* slashdot *cough*). There's precious little profit to be made from it, and a lot of opportunity to be scammed so badly that you won't even realise that you're bankrupt until you total the figures at the end of the year and find out that most of your payments came from Mr M. Mouse.
I suspect that it's good old fashioned economics that are stopping any of the big financial institutions from implementing mi
Re:All micropayments are not created equal. (Score:3, Interesting)
> The people that want a specific candy bar will pay for it if it means they can't get that candy bar otherwise.
Speculation, and I assert otherwise. Find a counter example.
>Just because something's free doesn't mean you want it, as plenty of ugly couches left on the curbside with "FREE!" signs on them can attest.
Have you ever moved a couch? That's a high transaction cost, not a free one. Notice how I talked about the cost of negotiating the transaction, not the dollar value of it. Find a better counter example.
>Obviously, some people won't pay for anything. But many will, especially to support the artists they like.
Sure, that $109.30 for U2 [musiclink.com] will really persuade them to go indie, and the $10 for Linkin Park [musiclink.com] shows just how much you wacky kids will pay for your college boy rawk.
Heh, how much have you paid?
i want systems like this, but tip-based (Score:2, Interesting)
Re:Everything on the Net is Free (Score:2, Interesting)
I'll pay you to mod this up! serious!! (Score:2, Interesting)
Most of my transactions are bigger than micro but not all.
Anyway to show one good use of micropayments I will pay the first 10 people to mod me up, advise me of your e-gold account number (and if you have 1mdc the initials for the account), allow me time to pay you, I am working and on the road.
Here is a freebie [1mdc.com] to get you started...
I have another interest in anonymous money, but that is another subject, if interested google should show my interests or if your even slacker, email me.