J. P. Morgan Chase & Co.'s merchant processing joint venture with First Data Corp. has entered into a marketing agreement with a vendor of software that aggregates low-value Internet transactions to make them cheaper.
The aim is to encourage the use of cards for such micropayments, which are typically defined as $5 or less.
The software firm is Peppercoin Inc. of Waltham, Mass. The processing venture, Chase Merchant Services LLC of Coral Springs, Fla., will recommend Peppercoin's products to customers, and Peppercoin will recommend its partner's services.
The agreement was entered into late last year and announced Monday.
Mark Friedman, Peppercoin's president, said Chase Merchant Services considers micropayments "an important growth area" and entered the agreement because its merchants had been asking for a better solution.
So far the deal has brought Peppercoin no customers, though, Mr. Friedman said. This month Peppercoin representatives will meet the Chase Merchant Services sales team to teach them about the software, he said.
Merchants have complained that credit card fees - a flat base charge of several cents plus a percentage of the transaction price - are too steep for micropayment sales. For payments of less than $1, the fees can eat up a quarter of the price.
Most micropayments made on the Internet are for digital products - songs, cell-phone ring tones, and games - that can be delivered online. Online sales of under-$5 items that must be shipped are less common.
Ed Kountz, a senior analyst at TowerGroup Inc., the Needham, Mass., market research unit of MasterCard International, said the agreement is a significant endorsement of Peppercoin and its method of making online micropayments less costly.
Peppercoin's software aggregates several small payments - for purchases made over the Internet and other ways - into one that incurs just one interchange fee. Some of the merchants most successful at selling low-priced products online use this technique - notably Apple Computer Inc., which sells songs for 99 cents through iTunes, its digital music brand. (Apple is not a Peppercoin customer.)
Merchants have also taken other approaches, such as asking customers to prepay for a larger block of content or to pay a periodic fee for a subscription. One of Apple's musical competitors, Roxio Inc.'s Napster unit, sells songs individually and also sells access to them by subscription.
Another option is using less-expensive payment methods. For example, Apple accepts payment through PayPal Inc., the San Jose payments subsidiary of eBay Inc. PayPal has reduced the transaction fee for digital music vendors but says it has no plans to do so for others.
Mr. Kountz, the TowerGroup analyst, said that though PayPal is better known and has an established network of users, restricting its micropayment strategy to music is a "much more limited approach" than that of Peppercoin, "which is out there signing deals."
Peppercoin's Mr. Friedman said, "It's absolutely critical that software companies and payment service companies provide flexible tools for merchants," rather than impose a business model on them.
Mr. Kountz said Peppercoin and Chase Merchant Services need to go beyond having a referral agreement to actually doing some cross-selling.
