The Fall and Rise of Micropayment Systems

Market research companies expect that low value products such as online music and videos will become an important source of revenues for merchants in the future (Leong 2003). These revenues will mostly add up from individual payments for such products rather than from subscriptions (Ulph Jennings 2003). Content spending reports of Online Publishers Association already show that subscriptions slowly lose terrain in favour of individual content payments. The share of content subscriptions dropped from 89% in 2003 to 84.6% in 2004. Among the individual content payments, the share of micropayments increased from 7.4% in 2003 to 17.9% in 2004. Almost 50 million US-Dollars were paid with micropayment systems in 2004 (OPA 2004 and 2005). In conclusion, we expect that micropayment systems will play an important role, because they allow „pay-per-use“ of low value products. Micropayment systems are electronic payment systems that support low value money transfers at low transaction costs. Although, the credit card systems are the most popular online payment systems, they transfer only large amounts of money at rather high transaction costs. Generally, high value payments have a high risk for losing money. To lower this risk, credit card systems increase their security, which in turn results in increasing the costs per transaction. That is why credit card systems have a certain lowest payment value limit and money transfers lower than that limit are not economically feasible. For such transfers micropayment systems are used. The minimum and maximum micropayment values, however, vary with the reading audience. Micropayments are processed very fast, instantaneously and at low risks of losing money (Figure 1). In the relatively short history of micropayment systems two generations are distinguished (Böhle 2002). The first generation of micropayment systems began around 19941 and lasted until the end of the 1990’s. The developers of these systems primarily aimed at the introduction of the electronic form of cash (called ECash, E-Coins, digital cash or tokens) on the Internet. They focused on the genera-