This could be a big year for micropayments.
A number of factors have hampered growth in such transactions, generally described as those worth less than $10. The cost to merchants of accepting electronic payments led them to discourage customers from using credit or debit cards for small transactions, often by imposing minimum transaction amounts in violation of card network rules.
Another factor has been consumer reluctance or inability to use mobile phones (which some companies bill directly) for payments.
But the networks are pushing use of their cards for small transactions, and merchants are finding it harder to resist the pressure.
Also, the ubiquity of mobile phones and the increasing popularity of smart phones that provide Web access have prompted various companies to invest in initiatives that let consumers use mobile devices for small payments. The ongoing drive to put near-field-communication-enabled handsets into the hands of consumers for contactless transactions likely will lead to more micropayments via mobile phones.
"For 2010," micropayments "is a really big growth area," said Beth Robertson, director of payments research at Javelin Strategy and Research in Pleasanton, Calif.
Consumers have more low-priced goods and services to buy, especially from online merchants, Robertson said. A prime example is Apple Inc.'s iTunes Store, where consumers can use preregistered payment cards to buy individual songs that often cost less than a dollar.
The iTunes service has "started to familiarize many consumers" with the concept of card-enabled micropayments, Robertson said.
The rise of online, multiplayer video games is another "very hot area" for micropayments, Robertson said. Media, dating sites and other online subscriptions offer additional opportunities.
Vending machines also seem a natural place for the card industry to capture micropayments, and perhaps eventually NFC-enabled mobile phones will help propel that market.
"There are a number of trials currently being tested with vending machines that accept debit or credit card payments," including efforts in Austria, Belgium and Switzerland, said Juergen Goebel, the director of global product marketing for "unattended" payments at the payment terminal vendor Hypercom Corp. Still, "the current merchant or transaction costs for debit and credit cards are too high for [vending machine] operators," he said.
The card networks, meanwhile, seem in no hurry to create a lower interchange classification for micropayments.
Joshua Peirez, MasterCard Inc.'s group executive for innovative platforms, said the fact that "more and more merchants [are] beginning to take" cards for small payments "tells you they see the value" in accepting plastic for these transactions. (Visa Inc. executives declined to comment for this story.)
MasterCard is in the "first phase" of a pilot test of a mobile phone micropayment service, Peirez said. The MoneySend service works with any mobile phone, but MasterCard hopes to release an application designed for iPhones, he said.
"The product enables anyone with a U.S. phone number and mobile phone" to send funds from one MasterCard account to another, he said. Consumers can use the service for a variety of payments, such as paying a nanny or a piano teacher or to initiate a purchase on Craigslist, Peirez said.
Fees to use the service range from 29 cents (for funds transfers of up to $50) to $2.95 for funds transfers of $200 to $500. After registering, consumers, who must know the mobile phone number of the recipient, use a three-line text message to initiate payment, Peirez said. Consumers register for the service by visiting a MasterCard Web site. Consumers who want to use the service must have a real or "virtual" prepaid card, in which an account number is issued but no card.
"Our goal is to get [the process] under two minutes," Peirez said. "Now it is nine minutes."
Total System Services Inc. also plans to use mobile phones in micropayments, said Ashim Banerjee, the chief information officer of its merchant processing business. TSYS handles roughly 5 billion transactions a year, about 20% of which are payments of no more than $10. The average transaction is around $80. "We want to wade deeper into" micropayments, Banerjee said.
To do so, TSYS plans to unveil a service late in the first quarter that would allow micropayments through smart phones that have a downloaded payment application. The service would let users transfer noncash currency such as card loyalty points "or other unconventional sources of funding" yet to be announced to other consumers or to merchants who agree to accept them, Banerjee said.
"Issuers of points are very keen that you use your points," he said. "They are not interested in letting points last."
In promoting the service TSYS will focus "on smaller cities, primarily college towns [with] a few thousand merchants," Banerjee said. Ideally, the service would enroll 80% of the merchants in a given location, he said. Merchants would need to upgrade their payment terminals with new software but would not need to buy new readers, eliminating an additional cost that could slow efforts to bring more noncash payments to vending machines.
Facebook Inc. last year began testing a virtual-currency payment system for customized online greeting cards and prepaid gift cards.
The social networking Web site's users may purchase products from GroupCard, a unit of Interactive Gift Corp., by selecting the "Pay with Facebook" option within Facebook's site. Users can buy a GroupCard product using Facebook credits, worth 10 cents each, with a credit card in Facebook's online gift shop. Facebook declined repeated requests to comment for this story.
