- By Karen White

The Internet has paved the way for new industries to evolve online, as people have seen with corporations like AOL, Yahoo, Google and now Facebook that have grown atmospherically in recent years from being mere startups to becoming highly-profitable multibillion-dollar global conglomerates. These successes spurned other major and minor players from getting a piece of the online profit pie by engaging in activities to monetize their websites and earn substantial income.

Such monetizing programs involved three major income streams: a) advertisements through banners or clickable text ads with website content accessible for free, b) sales of both tangible (ex: electronic gadgets) or intangible products (ex: eBooks) which spurned the e-Commerce industry and, c) subscription on a monthly basis for access to information or content offered by the website.

Although such systems offer the potential of earning millions or even billions of dollars as shown by successful online corporations, the same opportunities and circumstances could not be said as true for the diverse business minorities and women led/oriented startups wanting to earn just even a fraction of these profits. A fourth revenue system is needed to cater to these minor players and this can come in the form of the micropayment system using digital money or virtual currencies in exchange for minor items or content offered by these players at very low prices.

The following discusses an overview of micropayment systems and the use of virtual currencies and how business minorities can rise above the challenges and difficulties of these system to make use of this revenue stream to generate substantial income from their products and services.

Definitions: What are Virtual Currencies and Micropayment Systems?

In its most basic sense, the term micropayment refers to low-value payments done through electronic means or transactions, usually ranging from as low as a fraction of a single cent but would not go as high as a few dollars. The micropayment system is the mechanism for which these low-value payment transactions is made possible through software and even hardware implementations.

The instrument or token used in conducting micropayments to facilitate the transfer of products is in the form of electronic or digital money, digital coin or virtual currencies as termed by various industry players engaged in e-Commerce or micropayments. Digital money is any monetary value stored in an electronic or technical device such a debit/ATM card or on a prepaid virtual account and is used as the means of payment without the need to involve bank account transactions. Digital money is encoded and encrypted based on the protocol used by the micropayment system before exchange is made from one party to another, from the buyer to the seller.

The Benefits of Micropayment Systems for Diverse Small Business Minorities

The pace of e-Commerce has increased tremendously over the years as more and more businesses and consumers conduct ever increasing volumes of product buying and selling on the Internet. These transactions are mostly done using credit cards, debit cards, checking counts or other financial arrangements intended for Internet purchases. The problem however, is that the use of these financial instruments would be impractical for use with low level payments as required by business minorities and startup online entrepreneurs.

This is where micropayment systems come in. These systems make it possible for such low level payments to be conducted without the need for excessive and often costly charges required by credit cards of other financial instruments – which could probably cost more than the value of the product being sold! Micropayments provide a convenient alternative to conventional cash payments which would do well to support budding startups by business or cultural minorities, women entrepreneurs, or anyone trying to make a potential living from the Internet.

Challenges, Issues and Pitfalls with Micropayment Systems

As expressed explicitly by industry experts, the growth of e-Commerce was only made possible with the emergence and development of effective and efficient electronic payment systems. Although e-Commerce systems proved established and stable with the variety of credit cards, debit cards and other e-Commerce devices available, the same could not be said true for existing micropayment systems.

For one, most of these systems are provided by companies acting as intermediary between transacting parties however, certain challenges, issues and pitfalls of micropayment systems in the past have resulted in failure or the companies offering these services shutting down. Except for Paypal, Alertpay and other micropayment system providers, other players in the past like BitPass, Cybercoin, Digicash, FirstVirtual, Internet Dollar, Pay2See and many other providers eventually closed shop seeing minimal or little profit in continuing to engage in the micropayment business.

There were several reasons why this is so. First is the difficulty of establishing a cost-effect payment scheme that will cover administrative transaction costs. Other reasons include the need by buyers to maintain the anonymity and security virtues people get with conventional cash, which could not be said true with existing micropayment systems which are mostly account based.

Another thing is the security filters that make payments through these systems quite a hassle, as people would prefer them to be quick and easy such as payments with a single click or even using thumbprint swipe on computer terminals. Lastly, people are still reluctant to pay for items offered by these micro businesses even if they would only cost less than a dollar – if the buyers have the option to just move to another website where they could get a similar item or content for free.

Success Stories: The Proliferation of Micropayment Systems in the Asian Arena

While the micropayment system may not have taken off as expected in America, the reverse can be held true in the Asian context, particularly in the gaming and virtual worlds in social networking sites like Facebook that has become a craze in Asian markets such as Japan, Korea and China. What made these programs different from their western counterparts, which charges monthly subscription fees to allow access to multiplayer games, is that these games are offered free of charge with no monthly subscription fees collected from the users.

However, opportunities for micropayment options proliferated with other elements associated with these games and virtual worlds. These includes custom avatars, tools, upgrades, and other tweaks that users craze about which they can avail of by shelling out a few yen or yuan through the micropayment systems. These arrangements have attracted an army of users going gaga over these virtual worlds, but what makes it more exciting is that these virtual worlds drew in a host of female players – a coveted demographic that western counterparts have been attracting for several years.

The Micropayment System from a Technological and Financial Standpoint

The micropayment system is basically a subset of e-Commerce systems. However, to make it effective it does not necessarily have to inherit all of the structure and systems used in established e-Commerce channels like credit cards, security filters and other elements that make it such a hassle for small scale buyers to avail of these products and services – even if they cost a minute amount.

The following are some of the characteristics that micropayment systems (and the IT infrastructure that supports this) should embrace to make it an acceptable mainstream channel for doing business in the Internet.

• Payment units should be arbitrary and not fixed for smaller payment size intervals and ensuring that the cost of transaction is lower than the price of the product being sold
• Electronic cash should have no expiration
• Micropayments should be portable and independent of the method of transportation and not controlled by physical interfaces – making them free from taxes
• These systems should have capabilities to do transactions offline, without forcing users to contact provider hotlines every time they make any transactions
• Virtual cash from micropayment systems should be transferable without the need for pre-registration, much similar to peer-to-peer transactions using conventional cash
• These systems should cover multiple currencies and have auto conversion facilities
• There should be facilities for the cancellation of the transaction as agreed to and executed by the involved parties
• Security systems should include: integrity of the transaction data from being copied; payment protocols able to confirm authenticity of at least one of the parties; non-repudiation for all parties; transactions cannot be observed by other parties not involved; and anonymity

Taking the Next Step: Opportunities for Business Minorities Using Micropayment Systems

In America and other developed western economies, the prospects offered by micropayment systems may not be a lucrative option for most, which could spawn for them a whole load of profitable income. For the most part, the revenues they receive from micropayment facilities used in subscription, downloads, and access to content may be sufficient only to pay for their publication costs and bandwidth requirements that goes with an increased subscription base.

However, the same outlook may not be applicable in the Asian context and for the millions of new and upcoming entrepreneurs the world over. The few dollar earnings that can be generated by their micropayment sites, which could be looked down as insubstantial by western standards, would definitely make a difference in the lives of diverse business minorities, women entrepreneurs and other people worldwide looking for self-employment opportunities. As the worlds reel from the backlash of the global financial crisis, the world will see the renewed emergence and eventual growth of sites offering micropayment options for their products and services.

However, these entrepreneurs and business minorities should be able to prepare for the challenges that micropayment systems using virtual currencies present. For one thing, they would be competing with other established sites offering free content and earning solely from advertising space and channels. These entrepreneurs and business minorities should focus on their products themselves making them into something that subscribers would really want and would be willing to throw in a dollar or two in order to get access or a copy. It is but logical as everyone wants to get value for their money, no matter how small the virtual currency is – and this can be provided by micropayment sites.

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