The Montreal company UpClick Ltd. said it has developed a processing system that lets online merchants avoid paying transaction fees for sales of less than $40.

UpClick says it can offer the free processing by encouraging merchants to offer products and services from other merchants at checkout.

For larger purchases, the merchants pay 6.9% of the amount that exceeds $40. Merchants that use UpClick would share in revenue when another UpClick merchant's product is sold through their checkout process.

Daniel Assouline, UpClick's co-founder and chief executive, said Tuesday that it is focused on downloadable goods, because the products can be delivered digitally.

"We're going to put some pressure on to that whole industry and that whole space," Assouline said. He described digital goods as "a market that was large enough" for his company to make a living. In contrast, serving merchants that sell tangible products would mean competing with the likes of Amazon.com Inc., Google Inc. and eBay Inc.'s PayPal Inc., he said.

The free processing will likely be a big draw to merchants, Assouline said, but he expects clients to stay with his company because of the revenue-sharing system.

Aaron McPherson, a research manager for payments at Financial Insights Inc., a Framingham, Mass., unit of International Data Group Inc., said some card issuers are also considering revenue-sharing programs designed to encourage merchants to increase their card transaction volume.

However, he also said UpClick may find it difficult to encourage merchants to include its name on their checkout pages. "Merchants jealously guard their checkout pages."

Another issue UpClick faces is that its free processing offer may not hold as much appeal as it thinks, and the company would be better off stressing its revenue-sharing system, McPherson said.

"I don't think the merchants care much about the processing costs. … Merchants are not averse to paying for credit card processing," since it brings in more sales, he said. However, they dislike that their fees fund reward programs that benefit other merchants.

UpClick has "a good concept," he said. "It's certainly original, but it's also pretty specialized in terms of who it will appeal to."