Micropayments: a work in progress

The pioneers of the internet predicted easy payments of small amounts would happen routinely online. In fact, the term was first coined in the 1960s.

Micropayments (defined as involving sums amounts of anything below $20 and in certain use cases much less than $1 down to fractions of a cent) promise to create new opportunities for novel business models and peer-to-peer payments, with potentially far-reaching implications.

They could change the world of work, enabling payment by the minute or the second for work. They could replace subscription fees, enabling users to pay for the exact amount of services they consume – tipping bloggers, musicians, artists, and other media or content creators.

Micropayments could even usher in an era of machine-to-machine payments, via the internet of things (IoT). Governments and insurers could introduce them to create much more granular insurance products (some fintech innovators are working on insurances per journey, for example) or for taxation, such as metering road use.

So where are they?

Thirty years on from the creation of the first world wide web infrastructure, we’re still waiting for workable micropayments. One barrier has been the clearing and settlement fees of the established payments networks, such as Visa and Mastercard, which has historically made micropayments solutions impractical.

Put simply, the technology has not existed before to provide a cheaper solution. There have been many attempts but no solution has gained mass, global adoption with an approach that satisfies all parties in the transaction.

Several partial consumer solutions exist – such as Coil – offering to disburse micropayments for online content in exchange for monthly subscriptions, but they are not universal and none have yet attained wide use.

Lately, blockchain-based technology has promised the answer to the practical problem of how to administer many tiny transactions rapidly and at low cost.

In this respect, the other important developments in micropayments are coming from the big social media platform owners, such as Kik; Facebook with its proposed Libra currency due to launch in 2020; and Tencent’s WeChat, which offers a micro-tipping solution that is widely used in China.

Already enjoying mass adoption, such platforms have etablished the scale and the customer relationships that mean they could be the first to establish workable micropayments solutions that can be adopted en masse.

Given how elusive the mass use of micropayments has been so far, the hope is that this time the new generation of solutions adds up to more than just small change.

Published: 03/05/2020