Tuesday, August 17, 2010

Accepting Online Micropayments

PayPal has been making news lately with its announcement of supporting micropayments (generally transactions worth less than USD10). Accepting micropayments is the holy grail for many online services especially social, online games where the amount to be paid for things such as, virtual gifts or avatars, is normally small. Because of the fixed charges imposed by credit card companies and payment gateways, it is not feasible to sell things at PHP100 or less because of the relatively high cost of the fixed charges.

PayPal charges 5% + $0.05 per transaction. Merchants who already have PayPal accounts must open a separate business account for receiving micropayments. You cannot use the same account to accept both normal transactions and micropayment transactions. This service is currently limited to US-to-US, UK-to-UK, Australia-to-Australia, and EU-to-EU.

PayPal basically implemented their solution by extending credits to customers for small amounts. When these small amounts have accumulated to a reasonable amount, then that is the only time PayPal actually charges the buyer for the running balance. PayPal noted that in 2009, USD2 billion out of its total USD71 billion in transaction volume came from small items which would be categorized as micropayments.

Locally, Globe GCash and Smart Money are good alternative for micropayments. Their shortcoming is mainly in the convenience part. How do you load up on your mobile credits in the middle of the night when you are in that crucial stage of needing to buy an online weapon to kill the monster horde?

Bancnet and Megalink provide a good solution. However, their per-transaction fee is also quite high. Bancnet charges a fixed PHP10 per transaction, while Megalink (through The PORT) charges PHP25 per transaction. So if you are buying a PHP5 online pet food for your girlfriend's virtual pet, the gateway charges will end up costing you more than the actual item.

Dragonpay supports micropayments by charging online merchants only 5% of the collected amount. Merchants must choose between this model or the regular charging model when opening an account with us. The micropayment model has an annual maintenance fee of PHP12,000, which is really just PHP1,000 per month. There is no additional payment for the first year aside from the one-time setup fee. Only the online banking and over-the-counter banking payment methods are supported for micropayments. Over-the-counter non-traditional outlets like convenience stores are not supported.

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