A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A second generation of micropayment systems emerged in the 2010s.
Contents
- Definition
- History
- Early research and systems
- IBM Micro Payments
- iPIN
- Millicent
- NetBill
- Online gaming
- Recent micropayment systems
- Flattr
- M Coin
- PayPal
- SatoshiPay
- Swish
- Zong
- References
While micropayments were originally envisioned to involve very small sums of money, practical systems to allow transactions of less than 1 USD have seen little success. One problem that has prevented the emergence of micropayment systems is a need to keep costs for individual transactions low, which is impractical when transacting such small sums even if the transaction fee is just a few cents.
Definition
There are a number of different definitions of what constitutes a micropayment. PayPal defines a micropayment as a transaction of less than £5 while Visa defines it as a transaction under 20 Australian dollars.
History
Micropayments were initially devised as a way of allowing the sale of online content and as a way to pay for very low cost network services. They were envisioned to involve small fractions of a cent, as little as US$0.0001 to a few cents. Micropayments would enable people to sell content on the Internet and would be an alternative to advertising revenue.
During the late 1990s, there was a movement to create microtransaction standards, and the World Wide Web Consortium (W3C) worked on incorporating micropayments into HTML even going as far as to suggest the embedding of payment-request information in HTTP error codes. The W3C has since stopped its efforts in this area, and micropayments have not become a widely used method of selling content over the Internet.
Early research and systems
In the late 1990s, established companies like IBM and Compaq had microtransaction divisions, and research on micropayments and micropayment standards was performed at Carnegie Mellon and by the World Wide Web Consortium.
IBM Micro Payments
IBM's Micro Payments was established c. 1999, and were it to have become operational would have "allowed vendors and merchants to sell content, information, and services over the Internet for amounts as low as one cent".
iPIN
An early attempt at making micropayments work, iPIN was a 1998 venture-capital-funded startup that provided services that allowed purchasers to add incremental micropayment charges to their existing bill for Internet services. Debuting in 1999, its service was never widely adopted.
Millicent
Millicent, originally a project of Digital Equipment Corporation, was a micropayment system that was to support transactions from as small as 1/10 of a cent up to $5.00. It grew out of The Millicent Protocol for Inexpensive Electronic Commerce, which was presented at the 1995 World Wide Web Conference in Boston, but the project became associated with Compaq after that company purchased Digital Equipment Corporation. The payment system employed symmetric cryptography.
NetBill
The NetBill electronic commerce project at Carnegie Mellon university researched distributed transaction processing systems and developed protocols and software to support payment for goods and services over the Internet. It featured pre-paid accounts from which micropayment charges could be drawn. NetBill was initially absorbed by CyberCash in 1997 and ultimately taken over by PayPal.
Online gaming
The term micropayment or microtransaction is sometimes used to the sale of virtual goods in online games, most commonly involving an in game currency or service bought with real world money and only available within the online game.
Recent micropayment systems
Current systems either allow many micropayments but charge the user's phone bill one lump sum or use funded wallets.
Flattr
Flattr is a micropayment system (more specifically, a microdonation system) which launched in August, 2010. Actual bank transactions and overhead costs are involved only on funds withdrawn from the recipient's accounts.
M-Coin
A service provided by TIMWE, M-Coin allows users to make micropayments on the Internet. The user's phone bill is then charged by the mobile network operator.
PayPal
PayPal MicroPayments is a micropayment system that charges payments to user's PayPal account and allows transactions of less than US$12 to take place. As of 2013, the service is offered in selected currencies only.
SatoshiPay
SatoshiPay is a micropayment processing platform for online media. The service allows websites to monetize content through single click or automatic payments and removes friction associated with existing paywall solutions by operating without signup or software download for the end user. Transaction amounts down to US$0.01 or less, which the company calls "nanopayments", are enabled by the use of smart contracts and blockchain technology.
Swish
Swish is a payment system between bank accounts in Sweden. It is designed for use when private people pay each other instead of using cash (cash has become fairly little used in Sweden after 2010), but also sports clubs etc who don't want take the cost of a credit card reader is using it. The cell phone number is used as user number, which must have been registered in the internet bank at a Swedish bank. A smartphone app is used to send money, but any cell phone can be used as receiver. The lowest payment is 1 SEK (around €0.11) and the highest 10,000 (around €1,100), although 150,000 SEK can be paid if the transaction is preregistered in the internet bank. The fee is in general zero, but the banks have hinted a future fee of 1 SEK. It has become popular with 50 % of the Swedish population as users in 2016.
Zong
Zong mobile payments was a micropayment system that charged payments to users' mobile phone bills. The company was acquired by eBay and integrated with PayPal in 2011.