Micro-Payments

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MICRO-PAYMENTS

Micro-payments are online transactions of low value, ranging from several pennies to approximately $10.00. Micro-payments are commonly used to pay for downloads of newspaper articles, electronic books, music clips, or software, but could be used for virtually any low-priced item for sale on the Internet.

Because the cost of accepting credit cards for small purchases is prohibitively expensive, some companies involved in e-commerce have turned to third party vendors to manage the billing and collection of micro-payments. Such vendors normally receive a percentage of each transaction as compensation.

According to Computerworld, the micro-payment concept was especially popular in the early days of the World Wide Web. However, the popularity waned because the process of working with third-party vendors was considered too cumbersome by those involved. For example, in order to participate companies and consumers often had to install special software on their systems or fill out forms. Problems also surfaced when companies and consumers were registered with different third-party vendors. Finally, the issue of privacy was a factor that contributed to consumers' reluctance.

Both Forrester Research and the Gartner Group expected person-to-person micro-payments to grow in popularity. Communications International also expected the concept of mobile commerce to take off, where mobile phones and wireless devices like personal digital assistants (PDAs) are used to make micro-payments. In the early 2000s, Andersen Consulting developed prototype technology called Mobile Micropayments that had many potential uses. According to InformationWeek, the technology enabled consumers to receive special offers from merchants in their immediate location via their wireless device. For example, a consumer who walks past a vending machine might be presented with a range of selections on the display of his or her PDA, which could be purchased immediately.

Micro-payments represent a large amount of revenue. According to Communications International, Visa International estimates worldwide payments for items less than $10.00 to be $1.8 trillion annually. With the overall growth in e-commerce, it's unlikely the concept of micro-payments will disappear. For handling traditional online transactions of this kind, Internet service providers and telephone companies were poised to play a larger role in the early 2000s, according to EContent. Because these companies already have established financial relationships with large numbers of customers, it is possible for them to offer Internet payment services as an added benefit. Not only does this reduce the need for special software, it also reduces security concerns, since trusted financial information remains with the ISP or phone company.