What makes a micropayment
solution succeed?
Abstract
(see the full report at http://home.kniberg.com/henrik/thesis/)
A micropayment system, in the context of this report, is defined as a system
that is designed to handle payments as small as €1 or less. There
are a number of such payment systems on the market today such as PayPal,
Paynova, and i-mode. There are also a number of payment systems that have
disappeared such as Beenz and Millicent, and there are most certainly a
number of new payment systems being developed by companies worldwide.
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:
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A payment solution’s likelihood of success increases significantly if it
builds upon an existing billing relationship between a company and its
users.
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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.
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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.
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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.