At A Glance – Micropayments

A model for managing low value transactions

Micropayments can be defined as any small amount of money that is transferred online. Typically understood as payments of less than one US cent to a couple of dollars, the origin of the micropayment lies in an alternative to subscription charges. When companies started to charge consumers for content and products online, they needed to implement secure and reliable payment systems. They could either charge customers one lump sum for bulk access – much as we might subscribe to an online newspaper today – or bill them for each piece of content at a time. Micropayments are now widespread across the field of ecommerce, from the gaming industry to paying for apps or digital music downloads.

Charging consumers for what they actually use is clearly a preferable business model from the client’s perspective. High subscription charges put off potential customers, many of whom will only require minimal access to goods or services. The problem with facilitating micropayments, however, is that each individual transaction incurs costs. Processing hundreds, thousands or even millions of low value transactions has to be cost effective for all parties involved. For traditional brokers such as credit card providers, who take small percentages of sales, it can simply not be worth the effort to manage micropayments.

One possible way of processing micropayments is for companies to lump them together over time – only charging the customer when they have accrued an amount over a certain value. This comes with the need to collect a consumer’s credit card details, however, and is a barrier to those reluctant to hand over their personal information.

This model also excludes impulse buyers, who are crucial to many kinds of sales. A viable micropayment model has been found in blockchain, with Bitcoin protocols facilitating multiple payments to a recipient. However, in July 2017 micropayment company SatoshiPay decided to move away from their Bitcoin model, citing rising fees as the blockchain became more congested. Their decision to favour IOTA is based upon its predicted function as a payment system without any fees.