"Over the next eighteen months one of the most significant obstacles to making money from the Internet will be overcome. The lack of trusted, cost-effective and convenient mechanisms for users to pay for low value products and services has been one of the main reasons for the Internet’s failure to deliver the on-line revenue envisaged. Micropayments – typically for transactions between GBP £0.10 and GBP £10 - provide this missing link.
Content owners, merchants, hosting companies, network operators and financial institutions all need to be aware of the opportunities and threats that microbilling presents. This white paper looks at how companies (and individuals) will generate revenue from micropayments, what the options and obstacles are, who the early movers are in the market and how a microbilling capability could be implemented.
At the height of the Internet gold-rush, investors, corporations and consumers charged into what promised to be a perfect market, consisting of hundreds of millions of people with billions of dollars to spend. Disappointment and dissolution set in as the revenues failed to materialise. The original vision wasn’t wrong, just premature. Micropayments are a critical element in making that vision a reality for e-businesses today."
David Slater, StorageTek

Filled with the promise of unbelievable wealth and heralded as a true advocate of entrepreneurship and innovation, the Internet was positioned as the new means to do business. Unfortunately for most, the promise was far from the truth. Internet companies learnt that hype didn’t lead to revenue and profitability but did add shareholder value that was unsustainable. Traditional business acumen still applied regardless of the new media age. The same mistake will not happen twice. eBusinesses that survived the turbulent past are now much the wiser and new Internet start-ups are more likely to think small, have solid business foundations and grow organically. This will lead to more opportunity and more innovation as businesses harness the Internet to establish a niche that drives profit. The new age eBusiness will ask –

• What is my target market and business model for sustainable profitability?
• How do I provide to my customers exactly what they want and how do I charge for it?
• What new technologies do I need to embrace to ensure success?
• What supporting infrastructures will I need for my business and will they accommodate future transformations and growth?

For those that have the answers and get it right, the opportunities are huge. By 2002, the Business-to-Business and Business-to-Consumer markets are estimated to be well over $1Trillion and $100 Billion respectively.
Previous barriers to the electronic payment market and profitability are also being addressed, promoting competition and entry to market. Customers’ reluctance to buy online is being addressed by more innovative and secure means of transacting; E.U. legislation is being standardised and developed for consumers and the online community to establish best practices and avoid confusion. Issues regarding mixed-currencies are being addressed through multi-currency technologies and European initiatives such as the introduction of a single European currency. Tax issues are also being addressed by national governments to provide the means to regulate the on-line community.
Consequently, the market is maturing and new innovators are emerging. The level of success in the eCommerce space will be dictated not only by the proposition but preparing for new technologies, implementing the right infrastructure, planning for growth and the ability to conform to customer requirements by offering the appropriate payment methods. The transition of potential eProspects to regular and loyal eCustomers will be largely dictated by how secure, user-friendly, flexible and convenient the payment mechanism is.

The diagram below shows 4 key elements required to achieve ‘Net profit’. The four ‘Cs’ – Collection, Convergence, Convenience and Content – all of which will determine who and what will be successful in the new generation of eCommerce and Internet payments.


New innovators are leading the way in ePayments, introducing new technologies and online payment methods, which are both convenient to the customer and profitable to the providers. Traditional online payment brokers such as Banks and Credit Card networks are losing custom and market share to the likes of Person-to-Person Payment Providers as the methods of payment and collection become more secure and better suited to customers’ buying behaviour. Cheaper and convenient payment methods will inevitably lead to an Economy of Scale – profit through volume.

Inevitably, ‘Payment Service Providers’ (PSPs) are becoming the next generation of Banks, traditional banking fraternities will become virtual telecommunications companies and telecommunication companies will become Banks by applying for licences or striking strategic partnerships with financial services institutions. Everyone’s main goal: to own the customer, the online experience and maximise profit. So what does the consumer gain from all of this? A one-stop shop, regardless of whether it is a Bank, Telco or payment service provider that manages all of their communications, online purchases and experiences.
Online purchases will and are, finding their way onto monthly telephone bills or appearing as ‘value add’ additions to Internet access service charges. Similarly, there would be nothing to prevent a Bank from aggregating all of a customer’s online transactions and Internet services, then charging it directly to the customer’s Bank account.

What will make the Business-to-Consumer market place so compelling for most eCommerce players, as well as the breakdown of previous barriers to market, is the arrival of new technologies and payment models that will change consumer spending behaviour. Current payment methods have restricted the market, preventing the likes of teenagers and the under 18s to purchase goods without cash - Smart Cards, mobile handsets and micropayments will revolutionise the way in which future electronic payments are initiated and handled. As alternative Internet-enabled and mobile devices (mobile phones, PDAs) saturate the market, they become an extremely attractive and convenient alternative to cash or cheques. Similar to cash, these types of online transactions will be small and frequent in nature. Convenience will drive business. The more convenient the proposition, the greater volume of transactions, the more profitable revenue is generated. Micropayments will provide a mechanism for payment whatever the age, whatever the need.

Also driving the need for micropayments are web content publishers and information providers. With content being their main product, micropayments provide a huge opportunity to charge for information. For existing publishing companies, it’s also a means to recoup diminished sales of traditional publishing media such as magazines and newspapers or generate additional revenue streams by changing existing propositions. Whatever the approach, clicks will become the online publisher’s core revenue. The more clicks, the greater number of transactions, the more revenue will be generated.
Anderson Harvy and StorageTek jointly deliver professional services that assist organisations in formulating a micropayment strategy and executing it based on these four Cs. For more information, links to micropayment resources, a description of the consultancy methodology and a full version of the White Paper please refer to:

http://www.micro-payments.net