Micropayments

IOM599 - October 30, 2000Allen CinzoriDan SalengerSteve VincentRaymond Yee

Micropayments Agenda

• The Evolution of Transactions

• Customer Model

• Benefits Provided by the Internet

• Technology Overview

• Current Micropayment Providers

• Conclusions

The Evolution of Transactions

• Barter

• Currency

• Credit

• Micropayments

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

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

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

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

Micropayment Customers

Consumers

Strategic Partners

Merchants

Strategic Partners

• Billing Access to Consumers

– ISP

– Utility Companies

– Phone / Cable Operators

• Potential source of investment funds

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

Consumers

• Micropayments provide potential benefits

– Ease of use (one click shopping)

– Anonymity

– Security

Benefits via the Internet

• Improved Security

– Absolute security is unchanged

– Relative Security is greatly improved

• Universal Acceptance

– Language independent

– Currency independent

More Benefits via the Internet

• Reduced Transaction Cost

– improved security reduces cost of fraud

– Overhead services reduced

– Network infrastructure established

• Anonymous Payments

Anonymous Architecture

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

$ $

Central Server Architecture

Positives• Similar to credit cards

(lower change barrier)• Lower transaction cost

Negatives• Single point of failure• Transactions require

Internet connection

Consumer

Merchant

Service Provider

$

$

Public Key Architecture

Positives• Greater personal

security than CSA

Negatives• Consumer hardware• Setup complexity• Sacrifice anonymity

Service Provider

Consumer

Merchant

Consumer Merchant

Service Provider

$ $

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”

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

iPin

• Central server architecture

• Multiple payment channels– Phone, ISP, cell phone

• Product launch in Fall 2000– Current testing w/ AT&T WorldNet

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

Qpass

• Creates complete commerce infrastructure– PC’s, PDA’s, cell phones

• Payment channel– Credit

• Expensive setup cost

• Unique pricing structure

• Well respected client list

And the Winner is...

• Highly fragmented market– No existing standard

• Unclear “winner”– But our guess is…

The Future

• New Technologies

• Emerging Standards

• Role of Industry Leaders

• Changing Consumer Sentiment

• Structural changes in digital information industries