Micropayments IOM599 - October 30, 2000 Allen Cinzori Dan Salenger Steve Vincent Raymond Yee

Micropayments Agenda The Evolution of Transactions Customer Model Benefits Provided by the Internet Technology Overview Current Micropayment Providers Conclusions

The Evolution of Transactions Barter Currency Credit Micropayments

What is a Micropayment? Very small transactions –defined as under a few dollars –potentially a percentage of a cent Immediate transaction processing Distinct from national currency

Why is there a need for Micropayments? Currency use requires transfer costs –Physical transfer costs –Processing transfer costs - credit card Information can be a low price product –No shipping required via the Internet –Buy only what you need - Yield Management

Substitutes to Micropayments Subscriptions –All or nothing purchase decision –Yield Management information lost Aggregation of Purchases –Extended time until merchant is paid –Consumers may only want one purchase

Micropayment Market Potential Barriers to prior success –Transaction volume –Accessibility to inexpensive technology Business Wire projects huge growth –$22.2 Billion in 2001 –$288.6 Billion in 2003

Micropayment Customers ConsumersStrategic PartnersMerchants

Strategic Partners Billing Access to Consumers –ISP –Utility Companies –Phone / Cable Operators Potential source of investment funds

Merchants Information merchants have products to sell –Stephen King –Photographic stock houses –Record Companies - secure form of MP3 Pay-per-view model desired Credit card transactions are inefficient Customers under 18 don’t have credit cards

Consumers Micropayments provide potential benefits –Ease of use (one click shopping) –Anonymity –Security

Benefits via the Internet Improved Security –Absolute security is unchanged –Relative Security is greatly improved Universal Acceptance –Language independent –Currency independent

More Benefits via the Internet Reduced Transaction Cost –improved security reduces cost of fraud –Overhead services reduced –Network infrastructure established Anonymous Payments

Anonymous Architecture Positives Consumer privacy Transactions can take place off-line Negatives Merchants do not get consumer information Consumer hardware Service ProviderConsumerMerchantConsumerMerchantService Provider  $$

Central Server Architecture Positives Similar to credit cards (lower change barrier) Lower transaction cost Negatives Single point of failure Transactions require Internet connection ConsumerMerchantService Provider  $ $  

Public Key Architecture Positives Greater personal security than CSA Negatives Consumer hardware Setup complexity Sacrifice anonymity Service ProviderConsumerMerchantConsumerMerchantService Provider  $$ 

Micropayment Providers eCharge –“Eliminates fraud with a 100% guarantee” iPin –“The ubiquitous payment system for the global Web” MilliCent –“Simple to install” Qpass –“The most successful micropayment solution”

eCharge Central server architecture Charges 2% to 8% plus $.10 to $.25 Multiple payment channels –Phone, credit, prepay 14 merchants currently using product –MP3 –McAfee.com

iPin Central server architecture Multiple payment channels –Phone, ISP, cell phone Product launch in Fall 2000 –Current testing w/ AT&T WorldNet

MilliCent Public key architecture Allow purchase as low as 1/10th of a cent Multiple payment channels –Phone, credit, prepay, ISP Charges 13.25% to 14.5% per transaction Testing in Japan

Qpass Creates complete commerce infrastructure –PC’s, PDA’s, cell phones Payment channel –Credit Expensive setup cost Unique pricing structure Well respected client list

And the Winner is... Highly fragmented market –No existing standard Unclear “winner” –But our guess is…

The Future New Technologies Emerging Standards Role of Industry Leaders Changing Consumer Sentiment Structural changes in digital information industries