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.

How Does Dragonpay Validate Over-the-counter Bank Payments

Even with the prevalence of credit cards among the higher-income-bracket online consumer, over-the-counter bank deposits remain very popular with majority of local e-commerce sites. Almost all resort that I know of, for example, accepts payments for online booking by asking the consumer to deposit to their bank account by physically going to a branch, and then faxing back the deposit slip as proof of payment.

Possible reasons for this include:

1. Not a lot of people have credit cards, and bank deposit is universally available to everyone
2. Admittedly, majority of Filipinos are still wary of putting their credit card info on the Internet
3. There is less risk on the merchant side because money deposited to their account cannot be charged back

While this payment method is sufficient for low-volume transactions, imagine what would happen if hundreds, if not, thousands of customers were to pay you via bank deposits. You will then receive hundreds or thousands of faxes a day and it would be humanly impossible to match the deposit slip with the actual deposit. I do not know of any online banking facility which shows all the details including bank branch and exact time of deposit. So matching is very complicated.

From what I'm told, some banks abroad have the capability to do an HTTP call to your web server every time somebody makes a deposit to your account. This would be a really cool feature. But again, I am not aware of any local bank providing this service. Dragonpay's over-the-counter bank payment actually simulates this effect. It allows e-commerce merchants to get a pseudo or near-real-time HTTP notification when a deposit is made to Dragonpay's account in behalf of the merchant. This allows e-commerce shopping carts to complete the automated payment cycle. A step-by-step guide is provided here to understand the flow of offline payments.

Performing automated matching of bank deposits against offline or "pending" payments, is not a simple task. It involves a lot of programming and a modicum amount of guesswork. Dragonpay tries to find an exact match on the amount. But this is not guaranteed to always match because banks do not normally give change right down to the centavo. So if the online merchant requested for a payment of PHP3,128.64, the consumer will most likely pay either PHP3,128.75 or PHP3,129.00. A certain band or "margin for error" has to be considered.

For banks that do provide deposit branch information, Dragonpay will consider it in order to get a closer match. Dragonpay gets an estimate of the nearest likely time of deposit and uses this to compare against the time provided by the customer. If there is a very high likelihood of a match, given that there are no other similar-looking transactions that can possibly be considered, Dragonpay automatically assumes a match has been made and it will update its status and send the HTTP notification to the merchant.

In the cases wherein the system really cannot determine for sure if a match is present, it will fall back on human judgment to make the matching manually. If even human cannot determine the match by just looking at the records, Dragonpay support will contact the buyer to ask for proof of deposit (ie. fax/scan the deposit slip for manual verification).

Banco de Oro Over-the-Counter Bank Payment

Banco de Oro (BDO) started out as a small commercial bank decades ago. It became a powerhouse when it was acquired by taipan Henry Sy's SM Group (which also owns Chinabank). From one acquisition to the next, BDO quickly grew over a short span of time. But it was perhaps the acquisition of Equitable Banking Network that really catapulted it to the top ranks. Just prior to that, Equitable also acquired PCIBank.

As part of the SM Group, BDO enjoys premium presence at the SM malls. It is the only bank that brags 7-day-a-week banking through its mall outlets. The acquisition of the huge Equitable Card Network also gave rise to BDO Credit Cards, now one of the largest (if not the largest) card issuing and processing network. Mozcom PayEasy works with BDO Credit Cards in partnership with Asiapay to process credit card transactions online.

As of 2Q 2009, BDO is already the number 1 bank in the Philippines in terms of assets at PHP793.5 billion. Likewise, it had the largest Trust Account at PHP415 billion and it was the largest lender with Loans and Receivables at PHP455.5 billion. It was also #1 in deposits at PHP625.2 billion.

In terms of branch network, Ayala Corp.'s flagship Bank of the Philippine Islands (BPI) still leads the pack with 827 branches vs. BDO's 675. As of this writing, BDO already has over 700 branches. BPI also leads in the number of ATM's deployed with 1,573 vs. BDO's 1,299. According to BDO's latest press releases, they plan to open another 30 branches in the next 2 to 3 years. But with the impending acquisition of Export and Industry Bank (ExportBank), that will potentially add another 50 branches to BDO's network.

Customers who make purchases from Dragonpay or PayEasy accredited merchants can pay through any BDO branch even if they do not maintain an account with the bank. They just need to fill-up a deposit slip and validate their payment online. In most cases, validation is not even necessary as Dragonpay's system can automatically detect the deposit and advise the merchant in real-time.