By adaptive - March 20th, 2012

[M]icropayments have been talked about for years. They have been tried online, but social media could be the space where they really take off. Selling goods via smart phone apps, and through Twitte...

Micropayments have been talked about for years. They have been tried online, but social media could be the space where they really take off. Selling goods via smart phone apps, and through Twitter feeds could be highly lucrative for corporations that have goods or services that lend themselves to micropayments.

Back in the late 1990s, several micropayment products were developed, including FirstVirtual, Cybercoin, and ChargeIt, which allowed small purchases to be charged against a phone bill or pre-paid card. None of these was particularly successful, although similar products continue to be offered, including MobileMoney and DaoPay.

Pay-as-you-go mobile phones are a type of micropayment system, while in parts of Africa, where credit cards are not widely used, mobile-phone accounts are used for banking and to make payments for small purchases. In London, the Oyster Card is a pre-charged swipe card used to pay for local travel, and it has become widely accepted by commuters since its launch in 2003. There has been talk of extending the use of Oyster Cards for the purchase of other low-cost items such as newspapers and confectionery, but these have so far come to nothing.

The demand from online publishers

The online newspaper and magazine market is theoretically ideally suited for micropayments – to sell single issues, individual articles or other one-off content – and the industry has tried to persuade various online players to develop suitable products. In 2009, the Newspaper Association of America (NAA) asked several companies to look into the idea, and at the time, Google said it was going to develop a micropayments system for use through its Checkout online payment solution.

That came to nothing, but the launch last year of Apple Subscriptions and Google One Pass – both products for the publishing business – attracted quite a lot of interest in the industry. However, although some newspapers conducted trials, there have been no notable success stories. This might be because transaction costs, of which more later, make the use of apps prohibitively expensive: Apple takes 30% of subscription costs, and Google takes 10%, to cover handling and logistics. There are other limitations as well, including limited opportunities for acquiring customer data collected during the transaction.

Social media makes the running

As in many other areas of commercial activity, it seems that social media is making the running when it comes to micropayments. This is despite the fact that there are similarly high transaction costs. Facebook Credits, which launched just over a year ago, is a virtual currency aimed principally at the games market – another ideal application for small non-cash payments – on which the social media giant takes a 30% transaction fee. Not surprisingly, Facebook has made the currency mandatory for games developers, just one of which – Zynga, creator of Farmville and Cityville – accounted for $445 million of Facebook’s revenue in 2011.

This actually makes Facebook quite vulnerable: it will lose out if there is a fall in the popularity of Zynga’s Facebook games, or if the developer launches popular games exclusively on other platforms. On a more positive note, PayPal recently announced a Facebook application, Send Money that enables Facebook users to send money – including charitable donations - to other users in some 65 countries.

PayPal is, of course, the biggest online payments system, and it is moving into micropayments with a number of social media and smart phone partners. It has a well-established business model, taking a small cut from each transaction, which seems to be well accepted in its marketplace.

A micropayments system for Twitter

Interestingly Facebook seems intent on developing its own payment models, as well as integrating PayPal solutions. Twitter has shown little interest so far, relying on advertising alone for revenue. That makes the recent development of Chirpify – formerly Chirp, and relaunched in February 2012 – very significant, because this is a platform that integrates with PayPal to enable Twitter followers to buy products with a single tweet. The system is simplicity itself, which will appeal to small businesses, individuals and corporations, and does not require any more than a product listing, perhaps with a picture: registered shoppers simply tweet “buy” and it’s done.

Kevin Gralen of ShopTab emphasises the advantages of social media micropayments for businesses starting an e-commerce solution: “A social network provides a very inexpensive way to start-up a commerce solution…in contrast with more traditional methods like a commerce website that may require incremental technology, resource time and expenses.” On the other hand, he acknowledges that: “Payment processing fees [for micropayments] can be a higher percentage of each sale, which impacts profitability.”

The cost of micropayments is one thread, which seems to run through all discussions of the subject. Another is pre-payment: users must pay in advance for something when they usually don’t know what that thing is. Products such as pay-as-you-go mobile phones and London’s Oyster Card are successful partly because users know what the up-front payment is for. Apart from PayPal, more generalised pre-payment systems lack this advantage.

If these two issues – transaction costs and pre-payment – can be effectively addressed, micropayments could be the next big step in the commercialisation of social media, for individuals and businesses as well as for publishing, games and downloads.

To be sure, there is some resistance to be overcome, and it may take considerable financial muscle to achieve the necessary infrastructure. If Google can develop a truly viable and universal micropayments system, it might just provide the impetus to propel Google+ into the dominant position which is the real social-media prize. Meantime, Facebook will push its links with PayPal, and also develop Facebook Credits, to ensure that it maintains its status. As with many other aspects of social media, it’s a case of watch this space.