Evaluation of Micropayment Transaction Costs

Electronic money, in general, is used for trading over electronic channels such as the Internet, or mobile networks. Micropayments, in particular, can be used for the purchase of low value intangible goods (i.e., nonphysical assets like data and information). For these products, the use of payment instruments like on-line credit cards tends to be more expensive than the actual product. For this reason, a micropayment mechanism needs to keep the cost of the individual transaction low. There are many factors that contribute to the cost of running such a system and they come from the different disciplines that are involved in an electronic-payment (e-payment) system. Therefore, in order to design an efficient micropayment mechanism it is very important for the designer to consider and minimize each of these cost factors. In this paper, we identify the most interesting of the technological factors and we present ways to minimize them. We argue that one of the main reasons that the micropayment systems have not been widely used yet is that their cost has been forbiddingly high; this is probably due to the fact that there are certain cost factors that have been undervalued by the majority of e-payment developers.