Micropay for Your Purchases--Someday
Clever new packages for handling small transactions on the Internet are rising phoenix-like from the ashes of mid-nineties failures. What's allowing this rebirth, according to vendors and market analysts, is unexpectedly rapid acceptance of Web purchasing, a greater understanding of the convenience and security demanded by consumers and merchants, and the sheer size of the e-commerce opportunity.
First-generation "micropayment" schemes are either dead or struggling. First Virtual Holdings got out of the business last July, citing insufficient volume, and encouraged its customers to sign up with rival CyberCash. Five months later, pioneer DigiCash filed for Chapter 11 bankruptcy protection. CyberCash dropped its CyberCoin micropayment effort in February 1999 to focus on other Internet payment and point-of-sale systems.
Vendors most often blame failures on consumer reluctance to adopt new payment methods and the resulting unprofitably low dollar volumes. Another negative: Most early schemes required pre-funding of electronic wallets or purses. "Some wallets store all the information on another site," notes Andrew Bartels, a senior research analyst at Giga Information Group. "A customer who's doing that is essentially handing their wallet to someone else."
Micropayments have always been about selling Web-based content, and in the early days of the technology, the content tended to be articles and research reports.
But micropayment vendors predict that new types of content will fuel future demand for their products. Much of the activity is at music download sites such as Liquid Audio and MP3.com, where visitors can download songs for around a dollar each. Online games are expected to soon be sold on a per-play basis, and the current growth in application service providers, along with plans by mainstream vendors like Microsoft and Corel to "rent" software, are expected to create an even greater need for micropayment mechanisms.
Smart cards contain microprocessors that can store personal information and cash balances, creating a secure and reasonably private electronic "purse" for small amounts. Microsoft last month released the Smart Card Toolkit, and American Express recently introduced the Blue card, a smart card customers can use for micropayment purchases both online and offline. Next year Amex will fund an online wallet.
Smart cards don't work as well for large e-commerce purchases, however; they require that a dedicated piece of hardware--a reader--be attached to each user's PC.
Consumers can register with sites like 1ClickCharge and Qpass to either draw from a wallet funded with advances from their regular credit card as they visit partner sites, or have their small purchases aggregated into amounts large enough for the card issuer to process without losing money.
ECharge takes a different approach, putting consumers through an online credit application before issuing a digital certificate good at eCharge merchant partners. The bill arrives via e-mail.
iPIN and Trivnet aggregate micropayments onto your ISP or phone bill. Trivnet Chief Executive Officer Moti Dolgin says this approach frees consumers from identifying themselves each time they visit a Trivnet-compatible merchant, but the credit-card camp says people who don't have personal accounts with service providers--notably employees behind corporate firewalls and college students--can't use such systems. Dolgin offers credit-card billing as an alternative.
Web merchants pay a pretty penny to drink from the micropayment stream. Payment vendors typically take 5 percent to 30 percent per transaction.
However encouraging the new schemes may sound, the micropayment industry has a frontier feel that will likely result in a plethora of incompatible payment mechanisms.