The Digital Wallet

We're all familiar with the online purchase options: nowadays they are major credit cards or PayPal (mostly).

The problem with any of these is the overhead fees that the vendor (bank or PayPal) charges which normally amounts to a fixed per-transaction fee, plus a percentage of the value of the transaction.

Were you to buy a $10 item online using your credit card, the merchant would probably pay something like $0.60 in fees to the vendor, and receive $9.40 for the item.

Were you to buy a $1 item the same way, the vendor would probably pay $0.35 in fees, receiving $0.65. That means that the processing fees are 35%.

Should you buy a $0.30 item using your card from this merchant, he or she would probably end up owing the card vendor a cent or two: not the model of a profitable venture.

Micropayments

The notion of micropayments (as small as a fraction of a penny) has been around for as long as the Internet, give or take. On the surface of it, it is a great idea. You want to read a very interesting blog entry, right on topic, and it's certainly worth the $0.05 that the writer is asking. If only there was a way to pay this, without incurring a $0.35 overhead fee doing so.

At the turn of the millennium a host of characters attacked this problem and offered solutions: FirstVirtual, Cybercoin, Millicent, Digicash, Internet Dollar, Pay2See, MicroMint, and Cybercent. None of these firms is around today.

An interesting article written by Clay Shirky in 2000 offered several reasons why micropayments will never make it. It is an interesting read, and still fresh food for thought. His pain point: users don't like it. They'd rather buy a collection of blogs for $1.00 or a subscription for $10 a year.

Over the next few years--while the credit cards got into the full Internet swing of things, and PayPal grow beyond eBay's pet (yes they own PayPal) payment system--not much happened in the micropayments arena. Then the economy turned, and now there is speculation (again) that micropayments is an idea whose time has come.

In November of last year, a Forbes article reported that American Express had just bought RevolutionMoney, a startup, for $300 Million. While they don't yet offer micropayments as a service, they do offer MoneyExchange, a PayPal like service for Free (a good sign) which you can also use to receive payments from readers of your blog, also Free to both writer and reader--though both must be RevolutionMoney account holders.

And that is a micro step in the right direction. Perhaps even it.