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The Big Story of Micropayments

For those of you who remember Tom Selleck (of Magnum, P.I.) will remember the beautiful ads of the future that were done by AT&T in Tom Selleck’s voice. The ads essentially touched upon technologies of the future and how AT&T will bring such technological advances to you. They aired all over the United States in theaters during the early 1990s.

The reason I mention these ads is because of the way things were going to be. AT&T predicted (correctly), in the 1990s, what the near future would look like. Turns out, almost everything predicted in those ads is available today.

Pundits in the money space have been making predictions of sorts for a while now too. The global economy, the global marketplace, the unified currency (okay, that is a terrible idea), the crowd-sourced model, digital value transfers, the ability to pay anyone, anywhere (getting there), etc.

With the advancement in payments today, we have come a long, long way from the early days of the Sumerian coins. However, we need to pause and look around, for there is an economy we are mostly ignoring: The economy of micropayments.

Pennies Galore

Millions (if not maybe billions) of pennies are scattered all over the globe. In glass jars, in between seats on the couch, drawers, glove compartments, toolboxes, etc. Just imagine for a moment, if these pennies were put to work again; circulating in the economy rather than being parked somewhere.

Because our banking and payment system is limited to 2 decimal places, we cannot (even if we wanted to), pay someone 1/1000th of a US Dollar.

We just cannot.

In fact if I wanted to pay someone 1/3rd of a penny, I cannot. Our banking and payment forefathers never could see the need for having a system that would extend many places to the right of the decimal place. The worldview has always been of growth, the increase in value of the currency note, etc.

Micropayments — The Undiscovered Continent

Why? Is there even a need for doing micropayments? Well for starters, micropayments are the undiscovered continent. Because they were undiscovered, their usage and place in society was not known to us (not to mention, technology, especially the internet is primarily going to be responsible for the micropayment economy). If micropayments become a reality (which they will), suddenly, we will have a very large ecosystem of payments.

Imagine a world that doesn’t know anything about making payments under $10. Just think about it: If you took away from society all payments under $10 what effect would it have on the economy? Think and appreciate for a moment how sub $10 payments touch each and every one of us in society. It would be taking a huge chunk of our economy and daily trade away.

So now imagine, a world which doesn’t have sub $10 payments and then suddenly it discovers them. Payments from 1 cent all the way to $10 can be made in this new economy. Think about the first couple of years, not enough traction, not enough takers, and then slowly the idea envelopes society. Payment behavior changes, more and more small change transactions come into play. Fast forward in time, and you cannot fathom a society where sub $10 payments wouldn’t exist. No matter which country or economy you think about. This is exactly how micropayments will pan out.

They would be a termed a novelty at best when they come out. Slowly, but surely the size of the micropayments economy will grow, transitioning from a hobbyist payment system to one where banks and other financial institutions start looking at it seriously. Who knows, one day micropayments may even be quoted as part of an economy’s measure.

There are literally 1000s of articles on micropayments. One can almost trace the start of micropayments to the world of gaming, where small credits are transferred between gamers as a method of tipping the hat and saying thank you. The real turn-around in micropayments (in my opinion) came from the virtual world of Second Life.

Linden Dollars (the currency of choice in Second Life) is the de facto method of payment. Wander through the portals in SL and you will see tipping jars and hats all over the place.

Extrapolate this method of tipping (small amounts) to the digitally connected world today and a lot can happen. The use cases are almost endless. Tipping people for their helpful recipes online, to the blog articles helping you solve a problem, to search engine results, to millions of people who answer questions on the Internet, to bloggers who put out valuable content everyday, the possibilities are endless.

Once the bitcoin economy really takes off, micropayments will be the norm. Because 1 Bitcoin is equal to a 100 Million Satoshis (or cents), paying someone $0.00001 is very much possible.

Micropayments don’t necessarily have to be $0.00001, they can be 10 cents, 18 cents, $1.50, 1/10th of a cent. It’s all about putting those pennies to work in our digital economy.

Imagine if every ‘Like’ on Facebook earned you a cent. Or every ‘upvote’ you received on Quora got you 2 cents. Or every time you saw a video you liked on YouTube earned the publisher 5 cents. All these examples are what micropayments are all about. It is not just restricted to tipping. The use cases for micropayments will present themselves as the concept catches on. It would be fair to say, the most valuable (read: largest) use case of micropayment might be one that we have not even thought of today.

Just how large could the micropayments industry be? Depending on how you model it, and the numbers of years you take into consideration for maturity, the numbers can be anywhere from US$ 3 Billion to US$ 30 Billion a year. In some optimistic model, projected over a 15-year period, the industry could blossom to US$ 150–180 Billion a year mark.

All said and done, what now remains to be seen are the startups that will start practicing in this space and how the concept itself will be accepted amongst the users.

Whichever way you look at it, you can be sure of exciting days ahead.

 

 

 

Comments: (2)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 November, 2015, 20:041 like 1 like

I know timing plays an important role but micropayments was tried by many websites 6-7 years ago and abandoned soon thereafter. Turned out - at least then - that there was a huge gap between people who said they'd pay and those who actually hit the micropay button when they saw it. I'd written about this 6 years ago in my blog post titled Micropayments – Saviors or Enablers? (Hyperlink removed to comply with Finextra's Community Rules but this post will appear at the top of Google SERP if you search by its title).

A Finextra member
A Finextra member 11 November, 2015, 20:071 like 1 like

I'll check it out.

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This post is from a series of posts in the group:

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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