To understand ‘Micropayment’ is to understand the technology connected to it. Technology is constantly improving, affecting every aspect of our lives. One of the biggest challenges in life is simplifying our finances and the best way to do this is via Fintech (financial technology)- a developing area that brings together the best financial products worldwide at the lowest possible price. A crucial part of this is the processing of very small fees that cannot be handled by traditional credit card companies.
This has energized micropayment systems and the whole infrastructure connected with it. While earlier sending small amounts of money was seen as costly, because you still had to pay transaction fees, there were some indicators that micropayments could work:
The popularity of mobile devices
Access to financial services was limited by a lack of technology and the appropriate devices. As a result many transactions were completed on a cash only basis when they occurred outside of the normal banking system. However, the huge popularity of mobile services created an opportunity to provide financial services over its wireless network. Research showed a significant and growing market demand that was particularly important for all GSM (Eng. Global System for Mobile Communications) players. This demand intimated that it was technically feasible and profitable to deploy financial services over mobile networks. The big picture showed that mCommerce might fill a major service gap in developing countries that is critical to their social and economic evolution. Practice shows that the range of features accessible in particular environments can be applied elsewhere if the target markets are similar. With only minor variations from the main stream, the features of all systems need to include:
- Over-the-air prepaid top-ups using the cash already in the account (like ‘blik).
- The ability to transfer any amount of money between users’ accounts.
- Provision for cash deposits and withdrawals.
- The ability for a third party to make deposits into a customer account (employer, family member or a microfinance organization).
- The ability to charge for bill payments.
- The ability to make retail purchases at selected economic outlets.
- The ability to transfer airtime credits between users.
Since all the above points are now achievable, micropayment has recently been reconsidered as a viable technology, largely due to the development of cellular networks. The main reason for this is not technological but more down to simple economics. Independent online service providers receive much revenue from mobile users. Mobile networks often charge users for admission to low-cost services on a fixed network. Alongside this many applications require a solution for the commissions placed on small transactions containing mass data storage and message exchange.
Insomuch as micropayment systems are designed to purchase exceptionally low-cost items, it is crucial that the value of each individual process remains very small.
Ad blockers plague
As ad blockers have gained popularity there has been renewed interest in micropayments. Originally the main focus in design was on content but emerging technologies using block chain have created amazing opportunities for artists, journalists, etc., as the content no longer has to be ad-friendly. Micropayment has allowed the author to be in absolute control of content distribution and its economic worth. Simply put micropayments drive browsers, empowering creators and the audience that follows them.
Closer examination reveals that when ads are kept out of the way, micropayments allow the author to more easily control their own income. They help reveal the true value of content which assists in ascertaining the authors’ economic sustainability. It is expected that micropayments will continue to evolve just as it did from paid for ads into its current form.
Technicalities – the protocol
As was previously established, the main issue with low-value transactions has been that processing and transaction fees diminish the final settlement amount. Payment processors place additional costs for a multiplicity of reasons including infrastructure costs, administrative costs, and paid mechanisms for fraud prevention and dispute resolution. In the past two decades much research has been undertaken on using digital communications and cryptography to reduce or erase these costs. For banking facilities these fees ideally need to be down to the fraction-of-a-cent range.
It can be expected that content servers for the global information infrastructure will soon operate billions of these low value transactions that are computationally complex. Whilst costly cryptographic protocols are now impractical and obsolete the micro-payment process can be bootstrapped with already well-known payment protocols for larger amounts, but does not depend on them for each micro-transaction. Special attention is given to its integration into IBM’s Internet Keyed Payment Systems (iKP) at its most basic level.
The product itself allows for the possibility of a payment protocol in wireless networks. The protocol usually assumes two techniques of transaction execution:
- In on-line mode with the participation of a trusted website – for macropayments,
- In off-line mode using electronic money, mainly for small value transactions – for micropayments.
The main purpose is to predict scenarios of various events and transactions in the protocol – and to be able to analyze any part of it. Paramount within this are the aspects of payment security such as asymmetric cryptography techniques, public key infrastructures and many more. Needless to say that for the evaluation of any protocol, performance must perfectly blend with the criteria specific to the wireless environment.
In summary micropayment platform schemes that are dedicated for processing small transactions work in two main ways.One is that a seller or service provider establishes an account with a third-party micropayment provider who accumulates, stores and distributes the monies accrued. Both seller and user/buyer are required to establish an account with the same micropayment provider for easier and safer implementation. The provider manages a digital wallet where all the payments are stored until they get to to a larger amount and can then be sent to the recipient.As an example let’s say a site called ‘The Freelance’ is a market workplace for freelancers to connect with companies to develop small projects. A company hires a developer from ‘The Freelance’ to make few changes on their website for $1/hr. If the developer works on it for 8 hours, the task giver – the company – pays ‘The Freelance’. In this case ‘The Freelance’ collects all the fees. It also stores the remainder in a developers’ digital wallet. If a developer is good and garners many fees, ‘The Freelance’ accumulates IOUs to the point where the wallet contains a significant sum, say $500, which is then sufficient to be withdrawn. ‘The Freelance’ then pays the developer directly into his account.
The second is that micropayment systems can operate as a system for prepaid transactions. A user/buyer makes use of a micropayment processor account by depositing in advance a certain amount of money in it. As long as the seller (the other side of the primary transaction) uses the same account provider everything works smoothly as the user’s account with the provider is easily debited for the amount of the purchase. Simply put the payment is made by using a micropayment processing account. Let’s illustrate this with the most common example: PayPal. PayPal is a very popular micropayment provider who has its own requirements for micropayments regarding the maximum amount of the transaction. According to PayPal a micropayment transaction is less than $10. So let’s imagine that a PayPal user decides to deposit $200 in their account. From that point user can become a buyer by purchasing an item for $5 from a webstore. The purchase price is debited from the PayPal account and used to cover the payment. On completion the balance in the buyers’ PayPal account will be $195 minus PayPal’s fees for micropayment transactions, the webstore’s balance account is plus $5, and PayPal gains the provision fee.
In all these scenarios, commercial organizations have much more to gain by addressing the problem of fiscal cash transactions by micropayments. Cash is not only more difficult to use, but you waste a lot of time moving it outside the banking sector.
In the 21st century no country exists beyond the scope of the banking sector and so for their own economic progress they should be encouraged to move away from cash. The extra motivation here is that the resulting low cost solutions and mechanisms that work in these environments can then be efficiently applied in all types of developed economies.
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