Once upon a time people used credit cards for big purchases like holidays. Not any more. Now you can buy a 99cent song on i-Tunes with your credit card or charge your hamburger at McDonald’s to your plastic. In 2004 the average credit card transaction in the US was $67.81. Back in 1999 it was $72.83. Add to this the possibilities created by contactless payment, stored value cards and pre-pay and you have a recipe for radical change in the financial services sector.
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Diary of an accidental futurist – observations on current & future trends
The idea of micropayments is nothing new, it is the implementation that has failed.
The Problem – Credit Card Fees on sub $5/$10 purchases
The Solution – Minimum Charge Amount of X dollars
There are currently several models available to solve these problems. iTunes aggregates payments, secured against a large bank account, and then charge all of the purchases when they accumulate the necessary amount of sales.
Second Life implemented a complete artificial currency that is floated against the USD in near real time. A little too crazy for most people.
PayPal introduced a new pricing model, where they take .05 cents and 5% of every transaction. This is probably the best stand alone micropayment implementation to date.
But the major issue with PayPal is the buying experience, and the lack of support in certain countries. The fact the customer has to leave your site to make a purchase, and you have no control over look and feel, are major turn offs.
So where is the solution? Cyworld almost gets it, and services like Microsoft Live and other gamer related service offerings are also very close. The companies and services mentioned above both use some sort of artifical currency, acorns, Linden Dollars, or some sort of points. Users are required to purchase a minimum of 10 or more dollars, reducing transaction fees and enabling all future purchases with the artifical currency to be frictionless and fee free.
The evolution of micropayments will come when money “appears in your account,” and you also have the option to add money at any time. When I say appear, I am referring to a method of eanring indirect revenue, maybe through Google AdSense, revver.com advertising royalties, customer loyalty points, etc. If I could spend my artifical currency on numerous sites, earn money into it, cash out my royalties when I wanted, buy a ringtone, buy a music video, upgrade my MySpace page, deposit more money when needed; I’d say you found the solution!
Look for it Q1 2007.