Whatever Happened to Micropayments?

prostoalex writes "Remember Flooz? Or Beenz? With a few notable successes (PayPal, and that's about it) online micropayment industry is saving its success stories for future generations. New York Times reports about two nascent micropayment systems, one coming out of Stanford, one out of MIT, that are supposed to help the content producers and Internet users to engage in less-than-a-dollar financial transactions without huge overhead costs, so typical of credit card payments. BitPass requires you to purchase a virtual debit card with a certain amount on it to pay for products and services, and PepperCoin consolidates numerous micropayments into one bill that is then split between the content providers that managed to sell their product to the Internet user." I still believe that single penny transactions will revolutionize the net.

micropayments on /.

I still believe that single penny transactions will revolutionize the net.

Plus, a micropayment system on /. would allow us to quantify the value of the elusive first post:

320 refreshes waiting for next story
1 hit Reply page
0 hits to preview page (and it shows)
1 hit submit page
75 refreshes to see if FP gets modded down

at $0.01 per Slashdot page hit, an FP would be worth $3.97.

Re:micropayments on /.

Er... how much for +1 Karma?

Priceless.

Yeah

I'll bet ya $0.000838 that it's not over yet.

I dont get it...

The mere fact that the article reports on two different systems highlights an enormous problem in the world of micropayments: competition creates more problems that it solves! The beauty of a micropayment system is that one doesn't have to keep an account with a single provider, and oftentimes these providers are small enough so that an account would be senseless anyway; the issue created, however, is that consumers moving from one provider to the next are going to need a common ground for payment between them. Although this is what a micropayment service is supposed to be, a flourishing of different micropayment systems will mean consumers will have to stick to one and be limited in where they can spend, or go through the hassle (and probably expense) of creating accounts with many, partially defeating the original purpose. What do I see happening? 1. A single system gains the monopoly, and micropayments start to actually look worthwhile. OR 2. Consumers just continue to resort to big name information providers which they create accounts with, maintaining the status quo. If the e-coins system I was a member of earlier in theis decade is any indication, I see the latter as the much more likely of the two evils to occur...

Missing the Obvious

Governments are supposed to be responcible for maintaining a robust and useful currency system. Supplying a robust currency system should be a slam dunk, no brainer extension of the current monetary system. Online, government secured currency is what is needed.

One of the reasons a 3 cent transaction is doable is that there is not a business making the transaction unworkable by adding a fee. The voter is once again uncouncious, failing to force government to live up to its obligations.

Re:Missing the Obvious

THANK YOU! It is obvious, and it's been a problem for a while now. Online transactions aren't the only problem. We have a plastic currency society now, paper money is all but obsolete (though IMHO there will always be a place for it). In order to function now, it is arguably necessary to have a credit or debit card, yet private companies control who can and can't have one, and on what terms. It's just the same as if one person could use a $20 bill free of charge because they're "good" at using money, but another person had to pay $1 out of every $20 to someone else because they're "bad" at using money, and then there's the person who simply isn't allowed to use money at all because he doesn't have much to start with and he's been very bad at using it correctly in the past!

Governments should absolutely be moving with the times and providing transaction-fee-free plastic money and online money. Currency should be as neutral and transparent as possible, in order to facilitate a smooth and efficient marketplace. We've always supported the overhead required to create and manage the paper money, we should do the same for modern currency.

~

Re:Missing the Obvious

The overhead of paper money is FAR less than plastic. Money is made and released, and the governments obligation ends there.

With plastic the government has to become a bank (the money the card represents has to be managed by somebody). This implies that people have the ability to get money into the bank (direct deposite, tellers, etc..). That's big money right there.

Then there is the question of fraud.. with money there is no question. Posession almost entirely determines ownership of paper money. When someone robs you, it is a criminal matter. However, if you don't catch the crook you don't get the money back. With plastic fraud is much easier to get away with (you just need a number after all), and so government has to support THAT as well.

So the government is going to have to get into the banking business... which is not something I beleive it should stick it's nose in. Let it make the currency, leave it to the private sector to manage that currency.

Re:Superman III

Just make sure you put the decimal point in the corect place. You don't want to end up in a Federal Pound-Me-In-The-Ass prison.

Ok..

Call me an old curmudgeon but I think micropayments are just another new way to be (pardon the pun) nickel and dime'd to death. My bank already does it with service charges, my phone company does it with every little "feature", my cell company does it, et al ad nauseum.
The only ones that will PROFIT!!! from this are the big companies pushing it on us.

Just 5 cents per month

I run a medium-sized content website. I get between 4 and 5 million pageviews per month, about 10,000 unique visitors per day, and about 180,000 unique visitors per month.

I've figured out that if I could get each unique visitor to pay me just a nickel -- 5 cents -- per month, I could take down the banner advertising, quit my day job, and work on my site full time (and therefore make it that much better with more information).

Think about it. What if you had to pay content sites just $0.05 per month to access the content? Most internet users visit perhaps at most 100-200 different content sites per month. That would add just $10 to your monthly bill, and all advertising could be eliminated.

I would think that sites that are successful in selling you things -- like Amazon -- wouldn't charge you to enter, so that may even cut down on the number of sites you have to pay for each month.

With a price point of just $0.05, you wouldn't have to think to yourself, "gee, should I click on this link, do I really want to spend the money"?

I've tried various forms of banner advertising, sponsorships, commission links, etc., but I still can't earn close to $0.05 (on average) from each visitor (I'm at about $0.003 per unique).

I don't want to make my site into subcription-based, I'd rather keep it free, or free enough so that people could still easily view it.

Face it, the content on the internet has slowed down a lot since the dot-bomb. That's a direct result of there being no money in content publishing. It's closing up even further; one by one sites are becoming subscription-only. Pretty soon the internet is going to be one big magazine rack with the magazines all shrink-wrapped, and just a few free-zines in the corner.

Simply giving web publishers a few table scraps each month would dramatically revitalize what was once a very promising source of content and entertainment. Micropayemnts are one of the few ways that this can happen.

Re:Just 5 cents per month

I would think that sites that are successful in selling you things -- like Amazon -- wouldn't charge you to enter, so that may even cut down on the number of sites you have to pay for each month.

Aye, therein lies the rub. Once they discover that people are willing to pay micropayments for access, even the commercial players like Amazon won't be able to resist.

Soon, Amazon would be free for people who have purchased $n worth of stuff, and a micropayment for people just browsing. After all, if you're merely using the site as a reference, you should be happy to pay. Oh, and why should they foot the bill for you to comparison shop? Etc.

And prehaps it's redundant to state this, but the size of a micropayment is proportional to the number of sites requiring them. When every site costs $0.01 / visit, soon "premium" sites will cost $0.015, and so on. Eventually, we get the magazine situation you describe; the mechanism may be different, but the net result is the same.

Whatever Happened to Micropayments?

Whatever Happened to Micropayments?

I believe they fell through the cracks.

Micropayments just became nanopayments...

Whenever you surf to an advertising-sponsored site you are paying.
I believe the problem with micropayments is the lack of a 'lender of last resort', namely a government backing the scheme. In countries where governments have shown an interest (Finland, Japan,...?) micropayments seem to work just like any other kind of virtual cash.
Certainly there is no technical hurdle to overcome: compared with giving someone your credit card and saying 'I trust you to take what I owe you and no more', and sending them a 'cheque' by email (PayPal) or by SMS (a system I wanted to make), it's clear that a payments system does not have to be perfect to succeed, it just needs backing from banks and government.
Presumably banks are wary of real micropayments because they make so much money from credit cards, the main alternative.
Presumably governments are wary of real micropayments because they see their tax bases being nuked.
I don't see either of these fundamentals changing soon.
PayPal succeeded because they found a niche that was opening at the time, and were were very good, very lucky, to exploit it fully. But without credit cards in the background, PayPal would never have worked.

The MicroPayment conundrum...

The problem with there being competing systems for MicroPayments is that consumers don't want to have multiple accounts (well at least I don't anyway).

Let's say Slashdot joins MicroPayment provider X, and New York Times Online joins MicroPayment provider Y, I need to have accounts with X and Y if those 2 websites happen to be in my favourites.

Interoperability needs to be sorted out right up front; otherwise no one company will be successful.

The obvious players are Visa and Mastercard. I suspect that they are just treading water until there is a whiff of possible competition, at which point they will swoop in together make MicroPayments happen between them.

The real reason micoropayments haven't worked:

The stupid names. "Flooz"? "Beenz"? And I'm not thrilled with "PepperCoin," either.

Paypal's success was based on $10 free/eBay

It's not that Paypal is/was the only success, it's that they hooked everyone with free money and low fees. Since they had "other" (read as offshore gambling) sources of income and HUGE DeutcheBank investment + very lucky for the moment, stock market returns that allowed them to beat out competition. (eCount, PayMe, and there was another that skips my mind, that I used, that was really really good.)

Paypal also had a lot of marketting muscle and a catchy name.

To top this off, Paypal also started to guaranty their purchases.

It also ended up being the way that Paypal was used for other payment services because of the debit card that allowed it to prosper. I would for instance use my Paypal card to pay Billpoint or PayDirect if it was offered. This would get me 1.5% back.

StormPay and C2it are the services frauds use. Bidpay is reasonable, but never use it to pay for anything just to be paid.

The author misses Paydirect, which controls Yahoo payments. This is a decent service and is in some ways a superior "eshopping cart" service. Many small websites or discount hardware websites use Yahoo stores and the PayDirect service.

I do agree with the author that "penny payments will revolutionize the internet though" - I see the internet broadband/wifi/otherwise being free in most cases within 10 years. I see ISPs as selling "credit cards" rather than subscriptions. These cards would allow you to send and receive email and view websites. The ISPs in turn act as a bank for websites such as Slashdot. Paying them for the number of views that have crossed their service say 1/100th of a cent for every page view.

I think email should cost 1 cent to send, 1 cent to receive. I think it should be 1 penny each page/email view or bulk 1000/100MB /views for $1 -- 10,000/ MB/ views $10 -- 100,000/MB / views $50 - therefore sites that want to remain free can, sites that want to charge can almost transparently.

Re:Paypal's success was based on $10 free/eBay

I think paying anything to recieve an email is an extremely bad idea, at least not without implementing some important features.

You can't forget about the spammers ... eventually they'll have to pay to send their emails which of course will put a major dent into their business, but until there is no way at all that they can send bulk emails, people will not want to have to foot the bill of receiving emails they didn't want anyway.

Now, if you DO want to charge for receiving emails, charge some sort of a flat rate, scaled slightly by bulk; if you recieve thousands of emails, your rate goes up. If you recieve a couple a week, the rate is a bare minimum. This would, again thinking about spam, require that the companies charging for email access use extremely good spam blocking systems, and provide a method of allowing users to quickly and simply report spam that slips through the cracks, perhaps an address to forward to, which is randomly checked by humans in order to prevent abuse. This way, it is entirely up to the user to deal with any spam that doesn't get blocked, and if they get charged for anything they didn't want then it is entirely their fault.

So, in order for a company to charge for incoming email and not start hemorrhaging customers, they will have to both offer a quality of service significantly better than 'free' services, and also provide a means for the user to not get economically raped by unsolicited email.

just my oversized $0.02

(imagine if it did cost $0.02 to post on slashdot.. wouldn't that be ironic?)

Payment System

I am part of a group that actually runs a website that charges a subscription fee for the premium content on the site. We looked at (and tested) a number of payment models.

What worked best was simply putting an inexpensive yearly fee in place. People pay once and can forget about worrying about any recurring charges or running up some kind of tab that will only come back and surprise them later.

After a year, more than half of them renew their accounts too. And just so they can have access to a giant database of humorous, strange, and twisted photos and media files. Go figure ...

Sarcasm?

Disaffected youth #1: I still believe that single penny transactions will revolutionize the net.
Disaffected youth #2: Are you being sarcastic, dude?
Disaffected youth #1: [dejectedly] I don't even know anymore.

Micropayments with the iTunes Music Store?

I know that somebody always mentions Apple in /. stories nowadays, but does anyone know how they overcame the micropayment issue with their iTunes Music Store? I would think that some lessons could be gleaned from their experience with it.

Re:Micropayments with the iTunes Music Store?

I remember reading about this system. What they do is actually pool your mico transations and charge at the end of the billing period instead of instantly charging you when you make the purchase. Apple is gambling that you'll buy enough stuff during the billing period to make the transaction fee charged to Apple palatable.

Re:Micropayments with the iTunes Music Store?

I read from one source (which could be completely unreliable) that Jobs and Co. had discussions with the banks to cut down their fee, in order to make the whole thing feasible..

They also clump together purchases made over a 48 hour period into one, larger purchase, cutting down further on bank fees...

Micro-content providers

If we are going to have the concept of micro-payments, why can't we have micro-content providers?

I regularly post to Slashdot. I am essentially a micro-content provider to Slashdot. I have posted over 800 comments, many of them high Karma scorers. If I made, say, one cent per Karma point, then I would be about 30 dollars better off by now! Woohoo!

What about non-virtual 'micropayments'

I've started leaving the spare change when I buy little stuff like coffee, takeout food, and trinkets at small shops. Imagine what would happen to the economy if everybody left their 37 cents after buying coffe? The people working minimum-wage at the coffee shops would be making over $30/hour! I think 'micropayments' in real life (not online) could seriously revolutionize the economy, it would finally give the poorest amongst us the ability to make decent (and tax-free) earnings.

The Right Idea at the Right Time

Most micropayment companies have failed in the past for two reasons:

1) They debuted at the height of the dotcom craze, when advertising money, venture capital, and ludicrous business plans were everywhere. Back then, users were getting so much of their online experience subsidized by these factors that micropayments weren't attractive to them. Now, in the depressed post-boom environment, micropayments are becoming attractive to consumers again.

2) Most micropayment companies focused on the wrong markets. Micropayment companies have traditionally focused on large content providers, trying to get already successful businesses to change their business model to something their consumers were skeptical or even resentful of. BitPass, however, has instead focused on a bottom-up approach, marketing to individual content producers like webcomics creators, artists, and musicians, who haven't been able to charge what their work was worth until now. I think this is going to be the deciding factor in their success.

I'm working on a BitPass user group site to help the BitPass community grow. If you're curious, I'll post to my journal [slashdot.org] when the site is up.

No. Micropayments are dead.

I've been saying it for years, and I continue to be right. Micropayments don't solve a customer problem, they solve a provider problem. If you don't solve a customer problem, you don't have a success. Nobody wants to be nickle and dimed to death on the net. It's time to retire this monumentally dumb idea.

The amount of time, effort and money poured down this rathole is really sad.

This has been answered!

And the answer is, they will *never* happen. read all about it [openp2p.com] here. In that article, Clay says so much, so perfectly, that I won't quote any of it--just go and read the whole thing. OK, I can't resist. One of his points is micropayments have too much "user overhead"--you have to make a descision for literally every penny you spend, and that alone makes it not worth it. As he says, the user is getting conflicting messages: "This is worth so much you have to decide whether to buy it or not" and "This is worth so little that it has virtually no cost to you."

All micropayments are not created equal.

The big problem with Shirky's analysis is that he makes no distinction between payments of, say, half a cent, and payments of a dollar or more. And that's a major flaw in his argument.

In the real world, Shirky's argument translates to: "No one will buy a candy bar for 50 cents because they will be paralyzed by the user overhead." And, of course, we know this wrong. The candy industry (just to give an example) makes millions of dollars of profit a year selling 50 cent candy bars.

Likewise, there is a legitimate zone of value for digital content that falls between a dime and a couple bucks. 50 cents for an online comic you like, or for a song from a band you want to support, isn't any different than 50 cents for a candy bar.

Micropayments are just payments. And I think it'll be funny if, in a couple years, the artists and writers and bands who are making money off of micropayments can read Clay's article and have a good laugh.

Who cares about the tech?

It's great that all of these people are coming out with new Micropayment "technology", but let's face it. The problem has never been the technology, it's simply one of marketing.

Until you can convince consumers and possibly their service providers to accept micropayments, you might as well employ trained chimpanzees to do the actual processing.

A bad idea that shoud have stayed dead

Ugh. Micropayments were a bad idea back in the dot-com days where they were concieved, and they're still a bad idea today. People won't visit sites where they are going to be (literally) nickel-and-dimed to death. People don't want yet another financial account to keep track of, yet another critical login to remember.

Even if one of these schemes manages to attract an appreciable following, large enough to be noticed by the credit card companies, then what? All it would take is a simple policy change to put them out of business. Maybe $50 gets unlimited sub-$5.00 transactions per month, or something like that. The whole micropayment concept is necessitated by the desire to avoid high transaction fees on credit card payments. Once the credit card companies wake up and provide a plan tailored for the smaller retailer, the entire micropayment industry disappers. Perhaps it will take a micropayment company that looks like it is on the verge of real success to do it, but as soon as they attract the attention of the big boys, they will be wiped out, pretty much overnight.

Any business that can be invalidated by a policy change by a larger, competing institution is not, in the long term, viable.

Nuisance cost

The big problem for micropayments is this: Are they automatic?

If people have to take deliberate action to spend a penny, it's not going to work; at $7.20/hour, if it takes them five seconds to read and respond to a prompt, they've spent more in their time than the penny they're paying.

However, if the payments are made automatic, a different problem takes over: People aren't culturally ready for having their money spent, by a computer, on their behalf. Never mind that every time their thermostat turns on, it's spending their money -- that's sufficiently hidden from the users.

The only way I can see micropayments becoming mainstream is if they are refundable within a given time limit -- but that would only work if people don't start "charging back" all their payments.

What if micropayments just worked?

I hereby declare the following idea mine: what if you just charged micropayments, and it worked? Suppose that it costs 3 cents to process a 1 cent transaction, but if you're doing 80 billion transactions a month, you don't care because:
1) one day, people will find a way to make it profitable, and
2) when that day comes, you'll already own the market & make back everything you lost.
Just do business & wait for technology to catch up. There's too much fussing about whether or not it would be profitable from the get-go.

Paypal is *not* micropayments!!!

I know people use paypal for tip jars and stuff, but paypal is *not* micropayments! paypal is a system where anyone can use a credit card to send money to anyone else, with neither side having a merchant account. *that* is the problem paypal solves. paypal does *not* make it easier to pay $.01 or $.03 for a web page. (they are still driven by banks who charge a minimum of $.10 to $30 per transaction, AFAIK.) The reason we will never, ever, ever see true micropayment systems is because the human brain does not want them [openp2p.com]. Here's a bit from that article:

Imagine you are moving and need to buy cardboard boxes. Now you could go and measure the height, width, and depth of every object in your house - every book, every fork, every shoe - and then create 3D models of how these objects could be most densely packed into cardboard boxes, and only then buy the actual boxes. This would allow you to use the minimum number of boxes.

But you don't care about cardboard boxes, you care about moving, so spending time and effort to calculate the exact number of boxes conserves boxes but wastes time. Furthermore, you know that having one box too many is not nearly as bad as having one box too few, so you will be willing to guess how many boxes you will need, and then pad the number.

For low-cost items, in other words, you are willing to overpay for cheap resources, in order to have a system that maximizes other, more important, preferences. Micropayment systems, by contrast, typically treat cheap resources (content, cycles, disk) as precious commodities, while treating the user's time as if were so abundant as to be free.

Already answered years ago...

Clay Shirky said it best in his article The Case against Micropayments [openp2p.com]:

The Short Answer for Why Micropayments Fail

Users hate them.

The Long Answer for Why Micropayments Fail

Why does it matter that users hate micropayments? Because users are the ones with the money, and micropayments do not take user preferences into account. [...]

To summarize, when the cost of clicking a link is only time (how long will it take to load that link on my 28.8 modem), its a relatively simple decision. When its both time and money, a judgement has to be made. Sure, for a penny a page, one might not worry about it, but nobody's going to make money on a penny a page, no matter what "they" say; that only works on click-rates the size of CNN, MSNBC, Slashdot, source-forge, etc. And even then, when they see "the bill", it'll be like getting their first credit card bill and having no idea just how much they "spent" online...then they'll be reconsidering each and every link and users don't want to do that.

Users surf or they don't. If you had to pay a per-minute charge for doing real surfing in the pacific ocean, you wouldn't surf, so (extending the metaphore) why would you do it at home? There's a reason AOL and all the other ISPs got rid of their traditional per-minute charges and people buy cell phone and long-distance plans with max minutes instead of per-minute charging; the variable at the end of the month isn't worth the hassle.

Points of View

Yeah, micropayments sound great to content providers. "Everyone will pay me for only what they use and all of what they use!" But it sounds awful to users.

Let's look at some real-world examples:

• Take-a-penny trays
• All-you-can-eat buffets
• Free refills on non-alcholic drinks everywhere
• 6 packs, 12 packs, 24 packs (you don't just buy only as many bottles/cans as you want)
• Unlimited local calls on home phones
• 600-minute & 1200-minute cell phone plans

Maybe these aren't all completely relevant, but I just don't see paying a little bit for each click being of value to consumers. I see it as being a huge pain in the rear, even if it is all automated and trusted. (cough, Paypal, cough)

I think the real problem is that much of the internet's content just isn't worth any money to us. We can get a lot of content for 50 cents per day from the local newspaper. We can get content faster from TV at no incremental cost (but arguably less convenience). The internet can be great, but I ain't paying for Slashdot. The Motley Fool already lost me when they went subscription; they just aren't worth it.

If most everything interesting went pay I think there would be enough people volunteering news/info sites and discussion boards that we could still get our free internet. We may have to move to a p2p distribution model since running a centralized site as busy as Slashdot, for example, costs a pretty penny in bandwidth.

Read this article about micropayments first

Before you go off and invest large sums of money in more daft micropayments schemes, you might want to read this article about why consumers don't accept them:

http://www.openp2p.com/pub/a/p2p/2000/12/19/microp ayments.html [openp2p.com]

Rich.

E-gold

E-gold [e-gold.com] works wonders. Pay any weight of gold, silver, platinum or palladium, all backed in real life by metal. You own the real metal and a payment is just a transfer of ownership. You don't even have to pay by weight, you can say $100USD worth of e-gold.

Been running for years, working really well, the only thing is the slow adoption rate and the fees. When (or if) this reaches critical mass it will be the best of all the options.

This is how i pay for my hosting and brought my domain name, not no mention a few other things.

How does Apple handle $0.99 music store payments?

I've been wondering about this since it opened... and I haven't had my account long enough to find out for myself. Maybe $0.99 isn't a micropayment, but it certainly is a minipayment.

I've been hearing for years that the cost of handling credit card payments makes it impractical to use it for purchases of less than about $10. So how does Apple do this?

Certainly a big appeal of the Music Store is that you pay only for what you use and are NOT saddled with an automatic $5.95 or $8.95 per month.

Do they batch them? Do they actually lose money on someone who only buys one song a month, and gamble that most users will buy more than that?

EZ-Pass toll payments and "recharging"

The New York State EZ-Pass toll transponder system, and probably many others, may not be a "micropayment" system but certainly occupies some kind of middle ground. They initially bill your credit card $15, which establishes $15 in your EZ-Pass account. Toll payments of $0.65, $1.15, etc. gradually reduce the amount; when the amount gets low, they hit your credit card automatically for another $15 "recharge."

So perhaps one of the things that's happening with micropayments is that these "credit card auto-recharge" accounts are serving some of the functions for which micropayments would otherwise be needed.

I'm not quite sure what happens when you terminate your EZ-Pass account; I assume they send you a check for $6.22 or whatever. I suppose that if I had thirty or forty of these accounts, it might get to be annoying having $500 or $1000 tied up in tiny, non-interest bearing, spendable-for-only-a-single-purpose accounts.

street performer protocol - or meter-based scripts

micropayments aren't going to fly, unless there's a cross-vendor api that allows me to choose my own micropayment gateway and not be limited to only -their- micropayment customers. and that isn't likely unless the treasury gets involved. (you can give me a call at my mars cottage when they get around to that)

what content sites -should- do instead, is let people charge up a site-specific 'meter', with say, $5. and as they view content, you deduct micropayments from the script total. when they hit 0, you either bring the ads back for that user or prompt em for more dough.

alternately, sites could just use the street performer protocol. seems to work just fine for every worthy webcomic to date. if not enough people buy t-shirts and prints and collectibles, you close up shop and go somewhere else, or try again (perhaps in a different format).

no need for pvp or penny-arcade or homestarrunner to go to micropayments. sites less dedicated to merchandising can stick with metered subscriptions. everyone wins. (except the micropayment banks)

its just easier for everyone involved if you ask me. plus, there's no additional costs/worries/security issues that you'd get with micropayment banks charging fees, going under, getting hacked, etc, etc, etc

Simple reason why micropayments are bunk

When you contest payment with your bank, what happens? Well, you talk to an actual live human being, who will do actual human things, and make a decision on whether to refund you the money and whether to prosecute a third party. And your transaction fees pay his salary.

What happens when you contest something with PayPal? You drop them an email (good luck trying to talk to anyone), and then they freeze your account [paypalsuit.com], sieze (i.e. spend) your money, and (if they're feeling particularly communicative) tell you to go screw yourself. They do that not because they're evil (although they probably are) but because they simply don't make enough margin on their transactions to be able to afford to investigate them, and because they know that it's not worth anyone's time to sue them, even in small claims court, for the contested amounts.

Now, when the transaction value drops to 1 cent, what's the best case margin on that? You've got purchase and maintenance costs on your servers and database, plus bandwidth costs for those 128bit SSL encrypted transaction details that fly both ways. Half a cent? More if you handle a lot. A loss if you don't handle enough to amortize your setup costs.

Now, how many fraudulent transactions do you have to have - from a single source - before it's worth taking any action? It costs ten cents for a staffer to click on a button, so you're talking twenty transactions. If the staffer has to think at all, it's a hundred. If they have to do any investigatation at all - for example, to decide if a bunch of transactions are from a single source - it's thousands. If you want to hand it over to a lawyer or other third party, it's tens or hundreds of thousands.

But that's fantasy land, because it's not worth even recording the details of the transaction that would allow you to decide if it was fraudulent or not. The logs themslves would take a huge chunk out of your profit. You'd simply have to trust the referrer.

Well, that's not working out too well for credit cards [theregister.co.uk] right now, but at least cc issuers can pass back all the costs to online retailers [e-gateway.net] for credit card fraud.

But if it's not worth your while even retaining transaction records for micropayments, or to investigate fraud after the fact, how are you going to protect themselves from fraud?

I suspect that you're not. It comes down to the equation of whether it's worth anyone's time to crack the system. Well, as thousands of open source projects, white hat hobbyist hackers, and karma systems show, lots of people don't put a dollar value on their time. And given that the chances of being caught are minimal, well, why not give it a go? After all, it's only avoiding a penny a time. Who can that hurt?

Any popular micropayment system will (I suggest) be defrauded, and the costs will come right out of the payment backer's pocket. We've seen how PayPal deals with that; ignore it. Don't answer the 'phones. Freeze the account, and spend the money in it. With micropayments, who's going to even bother complaining? And if they do, how much are they going to have in their account? $5? It's barely even worthwhile seizing that, and not worthwhile at all if you have to send or even read a letter.

There is simply no compelling reason for anyone to manage micropayments, other than as a tool of desperation to prop up a flagging or non-existent business model (*cough* slashdot *cough*). There's precious little profit to be made from it, and a lot of opportunity to be scammed so badly that you won't even realise that you're bankrupt until you total the figures at the end of the year and find out that most of your payments came from Mr M. Mouse.

I suspect that it's good old fashioned economics that are stopping any of the big financial institutions from implementing mi