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Micropayments: The final frontier

Micropayments: The final frontier

Source: James C McGrath, Federal Reserve Bank of Philadelphia

James C McGrath of the Federal Reserve Bank of Philadelphia examines trends in micropayments and concludes that critical mass is in sight.

Small payments of less than $5 have resisted the wave of electronification that has swept consumer payments in recent years. However, a number of innovations — both new technologies and new ways of doing business — have done much to make such electronic “micropayments” less expensive and more convenient. Now, having proven themselves in several online markets, micropayments are poised to make inroads at the physical point of sale.

This paper looks at some of the success stories (and failures), both in the US and abroad, to identify possible conditions for success and to gauge the outlook for the future. It finds that industry structure, the coordination of standards, and customer preferences and experiences have all influenced the development of these products.

While different markets around the world have supported different types of solutions, the successful products have delivered clear utility to the consumer, concludes McGrath, along with compelling economics for the different parties in the value chain.

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