Micropayments

[Dave Birch] I’ve been reading a report on micropayments from the Federal Reserve Bank of Phildelphia (except when England were playing Sweden, of course). It concludes that the primary vehicles for electronifying micropayments in the US will be the existing payment card networks (which I’m not absolutely sure about) but outside the US both smart card and phone-based micropayments could be more important (which I’m pretty sure about) It does, however, say that the US is approaching a “tipping point”.

Technorati Tags: e-purse, micropayments

The report had a nostalgic tinge for me, because it uses the Mondex trial in New York in 1997/98 as a case study saying that because (amongst other things) the cards and the infrastructure were expensive, it never became compelling for either customers or merchants. But as I recall, there was one category of merchant for whom it was compelling: laundromats. I remember wondering, at the time, why laundromat owners were investing tens of thousands of dollars in stored-value cards at the same time as banks were saying that there was no business case. In fact, prompted by some work I was doing for one of our clients, I wrote an article about it.

Looking at laundromats turned out to be fascinating. One of their drivers for shifting to digital money was differential pricing, which I’d not come across before. When they used coins, the cost of a load of laundry was fixed at $X. But with digital money, it could be $X at peak times, $Y at off-peak times and $Z at 3am. This distributed the use of the machines, maximising the machine utilisation and optimised revenues, creating a business case for migration. There may be other businesses where the same is true: that is, there may be other businesses where the ability to change prices on the fly rather than operate in fixed (coin) denominations actually tips the business case. I remember assuming that the business case would be based on not having to collect coins and not having machines out of service because of jammed coins slots and being genuinely surprised when the operators said how important differential pricing was.

As an aside, the Fed report also mentions (while discussing one of our favourite topics: EDY and so on in Japan) that in 2005 and the first few months of this year the Bank of Japan has seen the first fall in coins in circulation since records began. Is DoCoMo succeeding where Mondex didn’t?

In case anyone is still interested, the article on the use of smart cards in laundromats in late-90s New York (!) is available as a PDF for download here. You can gasp in amazement at my January 1999 prediction of imminent keyfobs and watches for low-value payments and laugh yourself silly at my confidence that they would soon be in use on the Internet!