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Micropayments

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.

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Micropayments

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

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

  3. The Evolution of Transactions • Barter • Currency • Credit • Micropayments

  4. 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

  5. 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

  6. 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

  7. 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

  8. Strategic Partners Merchants Consumers Micropayment Customers

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

  10. 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

  11. Consumers • Micropayments provide potential benefits • Ease of use (one click shopping) • Anonymity • Security

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

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

  14. Positives Consumer privacy Transactions can take place off-line Negatives Merchants do not get consumer information Consumer hardware Service Provider Consumer Merchant Consumer Merchant Service Provider Anonymous Architecture $ z z & z $

  15. Positives Similar to credit cards (lower change barrier) Lower transaction cost Negatives Single point of failure Transactions require Internet connection Consumer Merchant Service Provider Central Server Architecture $ $ & x x

  16. Positives Greater personal security than CSA Negatives Consumer hardware Setup complexity Sacrifice anonymity Service Provider Consumer Merchant Consumer Merchant Service Provider Public Key Architecture $ x z z x & z x $

  17. 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”

  18. 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

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

  20. 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

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

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

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

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