Merchants selling digital content likely grimace at the thought of a consumer making a 99-cent purchase using a credit card because of the fees involved with that transaction.
Online-payment provider Mazooma believes it has the answer for such merchants with micropay-in-a-box, which it will feature in a partnership announced July 20 with Discover Financial Services.
Micropay-in-a-box enables consumers to make online purchases of digital content of $20 or less by using account access through their online-banking service to pay. The service is available to Discover’s direct merchants using the Centinel Universal Merchant Platform through CardinalCommerce Corp.
Wilson Lee, Mazooma president, believes the consumer and merchant will find the process so simple that it will become a viable option quickly.
A consumer purchasing content from the checkout page of a Discover Financial merchant would see an “Online Banking” option noting “Powered by Mazooma.” When choosing that option for the first time, the user would register with Mazooma, create and confirm a password, and choose his online-banking service to transfer the payment to the merchant, Lee says.
Merchants using Centinel require no software implementation other than placing the Mazooma payment button on their checkout page to support the option.
There would be no changes to existing settlement and reporting from Discover. The Mazooma name would appear for the transaction on a Discover customer’s bill under a category of alternative payments, Lee says.
Discover merchants will receive a higher profit margin by taking credit card use out of the equation with Mazooma’s micropay-in-a-box, Lee contends.
Merchants offering digital content, such as from Apple Inc. iTunes, typically hold off settling a transaction for several days when a consumer makes a single purchase in hopes they could bundle them later with more transactions from the individual to reduce their interchange and processing costs, Lee explains.
“With micro-pay-in-a-box, consumers can buy the song the way they want,” and the payment settles immediately, Lee says.
Moreover, when customers use a credit card for a purchase as low as 99 cents for digital content, merchants have to pay the music publisher and cover their own internal operating costs, leaving them with as little as 30 cents profit. Interchange and processing fees could absorb another 20 cents, leaving the merchant with 10 cents, Lee suggests.
Each Mazooma transaction would cost the merchant 6 cents, allowing that same merchant to make 24 cents, or a 140% profit improvement on the product, Lee says.
One industry analyst suggests it is too soon to ascertain the types of problems the system could encounter but finds the Mazooma-Discover partnership to be a “unique arrangement.”
“The card-not-present transactions have been a key challenge facing the industry because of legitimate fraud concerns,” says Scott Strumello of Auriemma Consulting, a credit card and payments industry research group out of New York City and London. “I see this as facilitating a role because the merchants get a better price while enabling the kind of transactions that consumers in 2011 are demanding.”
However, “I’m not sure the credit card companies or the banks will be crazy about it,” he says. “A key moving forward is whether they can convince another card network’s digital merchants to join in because its success will be contingent with mass adoption.”
Mazooma, which was launched in 2009 and has offices in Miami, New York, Chicago and Toronto, is able to link with 75% of all consumer bank accounts in the United States, which eases consumer concern about having to set up another account during the transaction process. If the customer pays bills through his online-banking service, he will be able to use Mazooma, a press release from Mazooma states.
A 2010 survey by Javelin Research found that 54% of U.S. consumers use alternative payment methods when shopping online, but only 35% of merchants accept them. Discover is looking to close that gap with the Mazooma partnership, the card brand noted in a press release.
“With Mazooma’s micropay-in-a-box [service], Discover merchants selling digital content can enjoy instant, online payments as well as ease of implementation, less technical resources and consolidated settlement and reporting,” Farhan Ahmad, Discover general manager of prepaid and director of emerging payments, said in the release. “At Discover, we aim to provide our merchants with more payment choices, and we believe the relationship with Mazooma will do just that.”
Discover executives were not immediately available for an interview.
The agreement with Mazooma marks an ongoing process by Riverwoods, Ill.-based Discover to offer more payment choices to consumers who do not own credit cards or prefer not to use them with online purchases. Discover announced a similar agreement in the first quarter when it partnered with eBillMe, enabling consumers to pay with cash online (
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