If we put nanopayments (ie, payments below, let’s say, a few cents) to one side, and we assume that payments over ten quid will be dealt with through other channels, there’s still a ten pence to ten pounds sweet spot that really ought to be filled by pre-paid offline contactless solutions in the physical world and some sort of equivalent in the virtual world. What that equivalent will be is not clear at all. Just to illustrate with a couple of examples that relate to the two different subsectors (ie, paid content and P2P) that I refer to in my response, I had a couple of e-mails about new micropayment targeting different environments. One of these was sparechange, a Facebook application for sending small amounts P2P between friends, and Znak it!, which is “coin” scheme for the web. In Znak it!, the consumer prepays for coins of predetermined amounts (as they did for Digicash, Millicent and so on) and then spends the coins on paid content at web sites. I’ll give it a try when it’s up and running. In sparechange the customers load a pre-paid wallet that is then used to fund P2P transactions. Unfortunately, I couldn’t try it out because when I tried to load it using PayPal, this happened:
Just when I was complaining about contactless the other day, I found it really annoying to have the transaction declined but not to be told why. Anyway, I gave up, as any normal person (such as all the people who don’t read this blog!) would.
When it comes to thinking about the need for micropayments, and taking on board the basic arguments expressed in the Neilson and Shirky pieces, I think we need to examine two separate questions. One is the question of whether micropayments are needed in order to either stimulate or support various types of content based industries. The other is the question of whether interpersonal micropayments are needed for more general purposes.
The subject of micropayments for content has been much discussed since the very dawn of e-commerce and it is one area where thinking has changed greatly over the last decade. It was difficult to predict when the first websites were created that the combination of paid search and advertising would turn out to be such an enormous and widespread industry. Many people (and I was one of them) couldn’t see how a rich content environment could be nurtured without some form of micropayments: I can remember, at various times, looking at Digicash, Cybercoin, Hashcash, Millicent and goodness knows how many other schemes for one client or another. Since payments mean trade, I assumed that creating new micropayment schemes would lead to more, and new kinds of, e-commerce. I was wrong: None of the micropayment players were able to get a toehold (on the Internet: Premium SMS worked very well for mobile), and the physical world e-purses never established a bridgehead in the virtual world either. So nothing much happened.
Meanwhile, the world of advertising moved forward to deliver new services for the web, services that were enabled by the web itself. The result of these paths has been that many new content businesses have simply abandoned the idea of using payments at all, let alone inventing their own micropayment mechanisms, instead focusing on various advertising-supported and advertising-related business models. While these are clearly dominant at present, it is not transparently obvious to me that this necessarily means that these business models will continue to be dominant in the future. I am certainly no expert on either advertising or the relationship between advertising and monetised content, but it does strike me that advertising-supported models may be a little inflexible. They suit certain kinds of content, but not others. They may not, in the long run, support a wide enough variety of content to continue the process of innovation and experimentation that has formed the online environment that we know today. Therefore, while it is true to say that there is little demand for new micropayment mechanisms to support paid content at this time, I would not rule out a resurgence of interest in more sophisticated micropayment schemes in the future.
The issue of interpersonal low value payments, perhaps visualised as an order of magnitude larger than the micropayments envisaged in the paid content world, is rather different. Here, there are a variety of very successful new payment systems that began life as interpersonal low value schemes, but grew as they began to support new businesses in a very flexible way. Around the world, these schemes have grown up in different sectors and have been spurred on by different applications, ranging from microfinance and remittances to rural trade and social payments. PayPal has grown to be a sizeable business on the Internet and in a number of developing countries (examples including Kenya and the Philippines form excellent case studies) a variety of mobile phone-based payment systems are already at scale. It seems to me that there is plenty of room for further innovation in this space, guided by the demands of different markets (some of which, such as the international remittance market, are very large indeed) and driven forward by new technology. These should be encouraged, because we do not know what kinds of new businesses may emerge in these markets once these kind of payment mechanisms are available. Payment mechanisms that can obtain traction because of the trust and familiarity gained through interpersonal use can move on to support business in ways that need not be designed into them at inception. This strikes me as being critical to keep innovation moving along: I know that it sounds a little like the “if we build it” business model that is so difficult to justify with charts and spreadsheets, but it feels correct.
As for how to support either the content or interpersonal micropayment scheme developments, I strongly believe (in the absence of any conclusive evidence to the contrary) that we should look to competition rather than regulation or intervention to assist that evolutionary process. I wonder if regulatory roadmaps have not supported competition in the micropayment space because they have been constrained by a focus on the law-enforcement agenda? This is an absolutely legitimate agenda, of course, and no one would seriously suggest that payment systems should escape regulation. We know that good regulation has helped to develop the payments market to where it is today, and I have personal experience of payments organisations outside of Europe looking enviously at the European regulatory environment — no regulation at all is not useful in the payments world. Markets appreciate certainty. It could be that the payments roadmap has focused on a law-enforcement agenda to an inappropriate degree, though. This is quite understandable, given world events, but a correction might be the best way forward.
What I mean by this is that there is a tension between anti-money laundering (AML) and “know your customer” (KYC) regulation and the more inclusive agenda that we need to follow in the payments mass market. Perhaps a rebalancing to allow “light touch” regulation with exemption from more stringent KYC regulation would mean that limited value electronic purse and micropayment schemes could be provided to a wider market had a lower price. This allows the payment system to address to address subsectors that it cannot at present: Largely in the pre-paid area, where it is difficult to deliver cheap, simple, effective products to the less well-off segments of society because KYC and AML form both barriers to entry and raise transaction costs. A suggestion might be to raise the current limit of 150 euros maximum balance and 2,500 euro annual turnover for a light touch pre-paid account to 500 euros maximum balance and 20,000 euros annual turnover: My hope is that this would make it profitable to provide inexpensive pre-paid accounts to the general public with zero transaction costs. If this could be delivered in a simple implementation (almost certainly involving mobile phones) then it might make a “one euro, one click” low-end transaction viable over the Internet and mobile channels. The goal would be to have one pre-paid account that I could use to send my brother the 50 euros I owe him by using a menu on my phone or an SMS or something, but also to be able to send the person who wrote the great blog I am reading a euro by clicking on a button or something.
These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]