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A Thing

Teeny Tiny Transactions Are Back and Adding Up

Now that music fans can download songs-legitimately-for less than a dollar each, the question of how to pay for them comes up. As other types of digital content to buy also proliferate, the need for consumers to be able to pay for news articles, cartoons or images increases.

The concept of online 'micropayments' for small-amount online purchases is not new, but is once again gaining a real foothold in the world of e-commerce. The difference now is that a handful of micropayment providers are using the existing payment infrastructure (i.e. debit and credit cards) to process the tiny transactions.

New and established companies are implementing new ways to process payments ranging from a few cents on up. Stored-value-like accounts, aggregated billing and advances in gateway and back-end applications are now coming together to make processing small increments possible, popular and profitable.

The Online Publishers Association said that single-purchase content sales grew faster than any other category of fee-based online content in 2002. During the first half of 2003, U.S. consumers bought $748 million worth of online content, up 23% over the previous year. Single micropayments of under $5 now account for 8% of all paid content and services sold online, the Association reported.

Yaga Advanced Payment Services in San Francisco currently offers two types of micropayment accounts. The stored value account lets customers prepay for future purchases by loading money into an account; purchases are subtracted from that account until funds are depleted. Yaga's aggregated billing system lets merchants collect a series of small payments and process them as one transaction when the customers' accounts hit a threshold or billing period. Yaga counts among its micropayment clients some large publishers, such as Knight-Ridder News Service and Tribune Media Services (TMS).

BitPass was founded in 2002 in Palo Alto, Calif., strictly as a company that processes micropayments to foster the small transactions that allow anyone to sell and buy digital content and services. The company serves both merchants and consumers; one of its main goals is to make it easy for the transactions to happen.

BitPass consumers, or 'spenders,' buy virtual pre-paid debit cards using existing methods, such as PayPal, Visa, MasterCard, Discover or American Express. The service integrates into the spender's browser without any required software downloads. BitPass has simplified the process for merchants, or 'earners,' as well. The set-up requires a few simple steps and takes about 30 minutes to complete; it provides earners with free gateway programs.

Peppercoin of Waltham, Mass. is another micropayments processor that also builds on the existing payment infrastructure. This system, though, requires users to download software which is based on cryptography, digital certificates and mathematical algorithms. Merchants collect small payments and process them as one large payment to keep transaction costs down.

Another company, PaymentOne, lets consumers make several small purchases online and pay for them on their local phone bills. Deloitte & Touche ranked this San Jose, Calif.-based company number 39 out of 500 on its list of the fastest growing technology companies in North America for 2003, the Technology Fast 500.

One problem with micropayments is that because of their size, a lot of them are necessary to generate profits. But with free online content options dwindling for consumers, and as content and service providers become more numerous and creative in their offerings, it seems a safe bet that consumers will catch on, too.

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