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The Green Sheet Online Edition

November 08, 2010 • Issue 10:11:01

Mercator explains growth in micropayments, virtual purchasing

A recent webinar hosted by Mercator Advisory Group discussed the spread and standardization of new types of online micropayments happening in line with a burgeoning market for virtual game-based digital content.

In "Social Networks and Consumer Payments: Disruptions Ahead!", Patricia McGinnis, Director of Banking Advisory Service at Mercator, described the race between different online payment providers to reach a "critical mass" of adoption in the online gaming space that will allow them to also reach into mainstream payments.

"There is a growing global core of nonbank alternative payment providers who are specialized in the micropayment needs of online social gamers," McGinnis said. "Those playing in the micropayments space for game payments are not satisfied with that particular segment. They are extending their reach into trying to provide a channel for other kinds of payments."

From many, one

Those competing for leverage with micropayments include online game providers, alternative payment providers and social networking companies, McGinnis said. Collaborations between these different entities are helping to spearhead the evolution of micropayments, she added.

For example, when Facebook-based games like Farmville first cropped up, the different games offered separate virtual currencies to users to make in-game purchases.

"Similarly, every game vendor had to build all the interfaces to attract the largest number of payment mechanisms so consumers wouldn't turn away and not buy the accessories," McGinnis said.

Facebook recognized the problem and developed a single, standardized virtual currency that can be used to buy accessories in a range of games from different game providers, according to McGinnis.

"It means that all the game vendors just write a single interface ... the way that the consumer buys a [widget] is by paying for it with Facebook credits," she said. "From the consumer's point of view, they buy credits, they have only one virtual currency account and they can use it in all the games that are embedded in Facebook."

The standardized currency can be bought with a wider range of payment types than some of the individual game currencies that preceded it, she added.

70-30 split

Under Facebook's system, online game providers get 70 percent of every purchase made within their game offering, while Facebook receives the remaining 30 percent, McGinnis said. Game vendors are amenable to such a revenue sharing arrangement because the money from virtual product sales represents 100 percent profit - virtual goods cost nothing to produce.

Within an online game, "another one of those little pink fuzzy sweaters for your white fuzzy poodle - the real cost to produce this content is nil," she said. "That's not true as you move into the physical world of e-commerce."

Also spurring the growth of micropayments is the involvement of alternative payment providers that, as Facebook has striven to do, are making it easier for large numbers of people to make such payments.

For example, a company called BOKU Inc. allows consumers to make micropayments by billing payments to mobile phone accounts, with payments confirmed when users reply to text messages. This is helping extend the micropayment market - and, particularly, the online gaming virtual content market - to young people who are less likely to carry credit cards, McGinnis said. end of article

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