Making Micro-Payment Models Work Online (E-Commerce Times)
Some may think that nearly any product can be sold over the Internet. But in reality low-priced products, and in particular low-priced physical goods, have generally not been a viable selling option particularly when purchased in small quantities. The problems tend to center on two key cost issues: 1) the fees retailers must pay to financial institutions for accepting credit cards (the main payment option for Internet purchases), and 2) the costs incurred when shipping physical goods. Both costs eat away at retailers’ small profits on low-priced products, thus offering retailers little incentive to sell these. Low-priced services have fared better as shipping costs are often taken out of the equation (e.g., digital music) but the credit card fees still exists.
The problems surrounding purchases of small quantities of low-priced products is an important reason why many websites selling these products require accounts to be filled with a minimum amount of funding (e.g., Apple iTunes) before a purchase can be made or they have a setup that accumulates product purchases that are then included in a monthly billing system.
Micro-payments, variously defined as methods allowing for low-priced product purchases (anywhere from a few cents to a few dollars) have for many years been touted as a way to handle this. But so far it hasn’t quite worked out though as discussed in this story it is not stopping companies from trying to figure it out.
Efforts in the past to address the costs of card processing of micro-payments by aggregating transactions into a single batch have not been successful. Other efforts to jury-rig credit cards for micro-payments include forcing the customer to purchase “credits” in round increments like $20. Pre-selling credits creates a stored value and closed-loop payment system, akin to the gift cards sold at grocery line checkout or in mass transit ticketing, where the funds may be used only with a single merchant.
Besides the cost of credit card fees and shipping, what other costs do retailers face who may consider selling low-priced products over the Internet?
Image by Stevendepolo