Musings on micropayments

Earlier this week, I was ordering from the corporate meal ordering system Seamless Web, and my order was just slightly over the expense budget. As a result, Seamless Web charged my credit card directly with a tiny transaction to cover the overage. To think of the thousands of such tiny transactions like this carried out all across the web and the inefficiencies they cause (transaction cost, processing costs, records keeping, just to start with), it is incredible that there still is not a universal micro-payments processing platform or standard. The market is still dominated by credit card companies, traditional merchant processing companies, and the few dominant online payment players like PayPal, Billmelater.

Where are the start ups that are pioneering new ways to process large volume of micro-transactions in a way that is most secure and most economical for the vendor and the customers? When are we going to see the “smart” ecommerce system where payment processing is optimized for the type and volume of transactions?

A platform like this will be even more powerful if it can leverages the exponential growth in mobile devices and latch on to these devices to become the standard mobile payment method.

A further step is to democratize the payment market, by allowing anyone to pay anyone via a variety of mediums and devices, regardless of the amount and the method of processing. Just imagine how easy it is would be to split the bill, to contribute to common cause, to share in a gift for friends when we can do it through our mobile phone and do not have to log into proprietary networks and payment systems.

A few start ups are already going in this direction: Zong, Mpayy and Square, a company founded by Twitter co-founder Dorsey.

However, micro-payments and mobile payments is a space fraught with high hopes and big disappointments. Many of the pioneering companies have gone bankrupt or were acquired, after raising capital from hopeful venture capital funds in the late 90s. The end of the first decade of 2000s saw another wave of companies looking for investors, but so far the promise has largely been unfulfilled.

Nevertheless, I am confident that this is a place where growth and innovation will continue strongly in the future. It will continue to attract venture funding, and some companies will soon breakthrough from the pack and give the true power to manage and facilitate micro-transactions to the million of vendors and billions of consumers out there.