ANTICIPATING MICROPAYMENT GROWTH

This publication has been discontinued on July 19, 2011.

Introduction

Abstract

Over the past year, the number of micropayments transactions processed over electronic networks has skyrocketed. Sub-five dollar sales of online digital content and mobile content showed significant growth from 2003 to 2004 and no signs of slowing down. Indeed, mobile micropayments grew from roughly $2 billion to $5 billion between 2003 and 2004 while micropayment purchases of digital content over online channels grew at a rate of over 250 percent for the same time period. In the physical world, the transformation of traditional small dollar cash only payments to electronic micropayments is driving growth in what has been predicted to be a trillion dollar market.

"The number, volume, and growth of micropayment transactions is pretty staggering on the surface. Weve tapped a rapidly growing market for transactions that has become a must have in the arsenal of electronic network providers," according to Mike Friedman, Director of Mercator Advisory Groups Emerging Technologies Service and lead analyst on the report. "There is a wealth of opportunity for dedicated micropayment processors and traditional network players, and we have only scratched the surface."

In Anticipating Micropayment Growth, Mercator Advisory Group examines the current state and potential for growth of micropayments. The report features data on micropayment transactions occurring online, over mobile networks, and in the physical world. Digital content data is broken out by market segment updating previous Mercator Advisory Group research on micropayments. The report also highlights trends in the payment industry driving micropayment growth and identifies specific technologies and segments likely to provide additional growth opportunities.

In addition to current volumes and micropayment growth, Mercator Advisory Groups latest report explores changes to interchange rates and transaction fees by some electronic payment network providers. New rates and fees focused on generating volumes in the micropayment and small dollar space come on the heals of contactless cards and POS technology, but are likely to increase adoption of card payments for sub-five dollar purchases. Finally, the report identifies the leading players in the micropayment market.

Table of Contents

• Index of Figures...........................................................................................................................3
• Index of Tables............................................................................................................................3
• Introduction...................................................................................................................................4
• Defining Micropayments................................................................................................................5
• Micropayment Business Models....................................................................................................6
  • Online Digital Content..............................................................................................................7
  • Mobile Digital Content...........................................................................................................11
  • Coin Operated Micropayments.............................................................................................13
• Enabling Growth..........................................................................................................................14
  • Contactless...............................................................................................................................14
  • Interchange and Transaction Fees........................................................................................14
  • Micropayments and Online Gaming.....................................................................................17
  • Wireless POS...........................................................................................................................18
• Competitive Landscape.................................................................................................................19
  • BitPass.....................................................................................................................................19
  • Click & Buy.............................................................................................................................19
  • PaymentOne............................................................................................................................20
  • PayPal......................................................................................................................................21
  • Paystone..................................................................................................................................22
• Looking Forward..........................................................................................................................23

Index of Figures

• Figure 1: Micropayments grew faster than other single use payment categories for online content from 2003 to 2004...........................................................................................................................8
• Figure 2: Strong growth in online research purchases at the sub-five dollar level........................9
• Figure 3: Greeting cards and credit help were strong growth areas in 2004..............................10
• Figure 4: Mobile micropayments are composed primarily by ringtones and games....................11
• Figure 5: Consumers are increasingly using credit and debit cards to make small dollar payments.......................................................................................................................................12
• Figure 6: Comparing PayPals micropayment and standard transaction fee schedules..............17

Index of Tables

• Table 1: Micropayment processing models.....................................................................................6
• Table 2: Micropayment qualifying interchange rates: MasterCard and Visa..............................15

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