Micropayments is one of the most exciting topic in payments right now. As e-commerce continues to grow and the pressure to monetise digital content increases, the big question is: How do you make big bucks out of cents? Duygu Tavan reports.
The sale of digital content movies, games, apps presents clear opportunities for online payments processors, but margins are tight and need to be carefully calculated. A number of solutions have been or are being developed to enable online retailers to sell digital content efficiently. Currently, the prevailing models are subscription (services such as NetFlix, enabling users to watch movies online for a per-month fee), or aggregation (such as Apples iTunes/App Store).
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But these models leave a gap in the market for services that can enable digital merchants to sell their content on a pay-as-you-go model that is efficient for the merchant and convenient for the consumer. VRL Financial News is publishing an in-depth report on this micropayments opportunity, taking an in-depth look at:
- Emerging micropayments business models,
- the business case for micropayments,
- the size the micropayments opportunity
- how payment card and service providers are positioned to capitalise on the opportunity
- the rise of new payment services and user interfaces
The report defines micropayments as transactions of under 5 that take place online or on a mobile and deliver a virtual good instantly.
Subscription-based business models are considered ideal by many digital merchants. Subscribers guarantee regular, predictable revenue streams and, by bundling different layers and aspects of the content into one single and recurring transaction, the merchant keeps payments processing costs low.
But the subscriptions model requires a commitment on the part of the consumer, who may simply wish to watch a single movie rather than sign up to a recurring monthly service.
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The Seven Success Factors
Value Partners, which provided the research at the heart of the VRL Financial News report, identifies seven success factors with which any successful micropayments solution must comply.
These are:
1. Tailoring the business model to suit the type of product and type of consumer
Not all payment solutions are suitable for all types of products or consumer needs and requirements. An effective micropayment solution must be tailored to the exact requirements of the type of product and the buying preferences of the type of consumer who is buying it.
2. Developing a cost-effective solution
The processing cost of individual transactions can create a significant hurdle to the financial viability of a micropayments solution or of the business model of a digital content provider. Whenever the cost of the individual transaction is proving excessive, there are two possible solutions:
- Aggregating payments in an e-wallet
- Re-evaluating and streamlining the cost for micropayments by selectively enabling only specific payment underlying products or driving consumer behaviour to them.
3. Provide consumers with a secure, widely accepted and easy-to-use payment method
For consumers to embrace the payment system, the service would need to be considered as secure by the consumer and so delivered by a trusted brand. It would also need to be widely accepted. Consumers tend to forget passwords password fatigue so a single payment system, which works across multiple content and service providers would be attractive. In addition to these two factors, a micropayment service would have to be easy to use. As the transaction values are of low value and the purchase often made on an impulse, the system needs to be in one click.
4. The service needs to gain critical mass quickly
The success of a system relies on the network effect a critical mass of merchants and consumers using the system. In a relatively developed market, such as in Europe, a provider could leverage existing propositions to gain critical mass, or look to partnerships with a merchant who has sufficient scale to drive the proposition.
5. There has to be a fixed focus and it has to be ensured that all stakeholders are fully aligned
Ideally, the proposition would be offered by a single organisation with clear objective. Multi-party partnerships have the advantage of encouraging co-operation across industries or within an industry. But governance issues and conflicting agendas often slow down the roll-out of micropayment services and also dilute the proposition in a way that it does not meet the original purpose.
6. Service providers need to be mindful of regulatory requirements
Both the financial services and the media industries are highly regulated. Even if the original proposition may not initially merit regulatory scrutiny, it is essential that in building the proposition, there is awareness of and compliance with adjacent regulation, which may impact on the business and the business proposition in the future. And this may hinder progress and/or expansion.
7. Service providers need to be able to integrate data with customer profiles and transaction data
Payment is a key part of the user experience and consumer behaviour has to be integrated with service usage data and profiling both to gain customer insight based on payment data and to enhance merchants propositions by collecting and managing rich data on the transactions.
The report is available to purchase from VRL Financial News. For further information, please contact Jeannie Lam:
T: +44 (0) 20 7406 6579
Jeannie.Lam@vrlfinancialnews.com
