[Dave Birch] It’s odd how memory works. I read in the newspaper that several thousand people have burned millions of gallons of aviation kerosene flying to Bali (these things are never in Barnsley, are they) to discuss climate change, and it reminded that several months ago, amongst all of the vital global stuff being discussed by the great and good at the World Economic Forum in Davos, Bill Gates told a breakfast meeting that Microsoft is developing on an online payment system that will be cheaper than credit card transactions, making it possible for companies to charge small fees for Web-based content and services they now offer for free. Apparently he described a system that would undercut credit card fees, making it profitable for an online newspaper to charge small fees for individual articles, for example. He said:

“If you want to charge somebody $0.10 or $1 a month, that will just be a click…you won’t have to manage some funny thing or pay some big credit charge, where half of it goes to the clearing.”

This sounds like a great idea, and I’m really looking forward to trying it out.

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Microsoft are only one of the non-banks trying to boost e-commerce by developing “better” payment systems. Now, I’m wholly in favour of competition as a way to improve things rather than regulation or legislation, and because of the nature of innovation in large organisations — much remarked upon here recently — tend to think that it will be a non-bank that comes up with a practical way to crack the micropayments problem. Personally, I always liked the old DEC Millicent idea: when you put the cursor over a paid link, the cursor changes to a little currency sign to warn you that 10 cents (or whatever) is going to be deducted from your pre-paid purse when you click on the link. But the user interface isn’t the whole of a new internet micropayments payments system — if it was, we’d have more of them by now.

I’ve often remarked on this absence of a decent micropayment mechanism in the online world, but its undeniable that all efforts to date were somewhat unsuccessful (to put in mildly) and the concept has been hibernating since the dot-com bust. There has always been one reasonable criticism, and that is (essentially) that customers don’t like micropayments, partly because they don’t like uncertainty. Yet micropayments have arrived — just not in the way they were originally envisioned. I buy songs on iTunes for 79p, which is undeniably a micropayment, and the system seems to work OK. Similarly, website operators can earn small amounts whenever someone clicks on the ads on their pages. The expectation was that a handful of companies would provide platforms — or perhaps a single ubiquitous platform, such as the Microsoft one discussed above or my old favourite, the red button — that would let users to pay a penny, a dime or a dollar for a bit of content. In the “old days”, content owners such as newspaper companies were looking forward to using such a system, but the problems were insurmountable. At the same time, advertising provided a much better income than was envisaged. While the sub-one cent transaction didn’t arrive via payments, something like micropayments grew up at the advertising payment end — where payments can be effectively aggregated — rather than the consumer payment end.

The result was that many micropayments companies shut down or gave up and changed business models. The names are familiar to Digital Money denizens: DigiCash, CyberCash, First Virtual Holdings and Peppercoin. They used various systems, but in general users loaded prepaid accounts with credit cards and then drew from those accounts. As the Times article notes, in the mid- to late ’90s,

electronic cash had become such a popular concept that some politicians worried that it might threaten the stability of the nation’s currency.

And I don’t doubt that, one day, it will (if politicians haven’t destabilised the currency themselves already). Consumers were reluctant to pay even a tenth of a cent for something they believed should be free, leading to the paradox of “free” music but expensive ringtones.

Clay Shirky, at the time, put forward another theory:

There is a certain amount of anxiety involved in any decision to buy, no matter how small.

So micropayments wouldn’t work because it requires too much mental transaction cost on behalf of the buyer. There’s undoubtedly something in this, but again it cannot be the whole story. I, for example, expended absolutely no mental effort whatsoever when I bought The Moody Blues “I’m just a singer in a rock and roll band” from iTunes a couple of days ago. I heard it on the radio driving home, remembered how much I liked it, spent seven seconds searching for it on iTunes and clicked the button to buy it. Since I know that songs on iTunes cost (essentially) nothing, I buy them. But why have “closed” systems like iTunes worked? Why can’t I use my iTunes account to buy stories from the Financial Times archive, for example? Perhaps there just isn’t enough margin in the transactions to make the inclusion of any third-party viable. Or perhaps it’s just early days.

It’s not all about the online world. Introducing micropayments in the physical world provides for another way of thinking about problems. I say this because I heard a fascinating example from Singapore the other day. The story concerns university campuses and printing. Colour laser printing is expensive, so the colour toner cartridges were kept locked and when students wanted to print something they had to go and get permission and load the cartridges. An enterprising company built an EZ-Link unit for HP colour laser printers, so that students could use their EZ-Link (contactless transit) card to pay for printing. Result: everyone’s happy (all the students have EZ-Link cards anyway), no-one wastes times loading and unloading cartridges, students don’t waste paper and toner printing things they don’t need to and the company running the microtransaction services is doing rather well.

This subject deserves more thinking, deserves revisiting in the light of changing technology and more sophisticated media because price is information. A market without prices isn’t a proper market, whether its students printing from laser printers or online content. But a market with prices is still hopeless if there’s no efficient, workable payment mechanism. I don’t, as a consumer, especially care whether my one euro charge for accessing some great web content is billed to my mobile phone bill, broadband bill, prepaid account or anything else, so long as it’s easy.

My opinions are my own (I think) and are presented solely in my capacity as an interested member of the general public. [posted with ecto]

2 comments

  1. Micropayments are no doubt the answer, anyone who thinks otherwise doesn’t know what they’re talking about. The biggest problems with the micropayment systems that came and went were convenience and UI. It had to be as simple as one-click to buy and you needed a good UI so that people would know exactly how much they were paying for each click, if they cared at all considering how small the amounts are. It will happen, if only because it’s the only sensible solution, despite the stupidity of all those who tried to implement it so far.

  2. Micropayments are the crack cocaine of payment systems; as soon as a journalist writes about it, she’s hopelessly hooked. As soon as a business starts pursuing it, like crack dealers, their halflife shrinks to single digits in binary arithmetic.
    Having said that, there are ways to make it happen, and it has succeeded. e-gold for example consistently showed a payment system that was an order of magnitude lower cost to users than the competition. The answer to why is not in the technology areas but in the business areas – governance, value and finance.
    Hence, the real reason why efforts at it fail are also in the business area, not the technology. But this is true of any payment systems operation, the tech only makes up maybe 10% of the equation.

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