The purpose of this report is to identify the key factors determining the success or failure of a micropayment system. Through analysis of the differences between normal payment systems and micropayment systems a hypothesis was formed, stating that the most important characteristics of micropayment systems are ease of use, pervasiveness, fixed transaction cost, and transaction speed.

Over 120 differing payment solutions were found through market research, mostly using Internet sources. These were classified into the subgroups electronic check, buyer-initiated bank transfer, merchant-initiated bank transfer, prepaid merchant account, prepaid merchant voucher, invoice, and payment relationship sharing.

An analysis was carried out focusing on those payment systems that represent success stories such as i-mode and PayPal, and those that represent failure stories such as Beenz and Millicent. A number of interviews were also carried out with relevant companies in Stockholm, Tokyo, and San Francisco. The following conclusions were reached:

• A payment solution’s likelihood of success increases significantly if it builds upon an existing billing relationship between a company and its users.
• Trust is more important than security. Users and merchants are more likely to use an insecure payment system from a trusted company than a secure payment system from an untrusted company.
• The hypothesis about which characteristics are most important for a micropayment system was supported by the research. However trust appears to the single most important characteristic, and should be added to the top of the list.
• It is extremely difficult for new payment systems to achieve widespread acceptance. Any company that wishes to enter this area must have plenty of capital, be willing to wait years before return on investment, establish partnerships with major trusted companies that have existing payment relationships with millions of users (for example banks and telecom operators), implement a technical solution that is fast and easy to use for all parties, and make sure that both merchants and buyers actually benefit from the new payment system.