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Quantities of Micropayments

How to make a micropayments system actually work profitably
  [vote for,

There is a kind of "holy grail" in the world of Internet sales, because many vendors want to be able to sell individual things (like accessing a copyrighted Web page) for a fraction of a cent each, but all the in-place financial systems, for handling transactions, are too expensive to let it happen. That is, the cost of processing a single microtransaction far exceeds the amount of the transaction.

So, here's how I think the problem can be bypassed.

We start with an appropriate money-handling company, which in this Idea I will simply call the "Internet Bank", or "IB" for short. It needs to have an appropriate association with a normal bank, but all it really needs is a single ordinary bank account with that bank.

You might not know this, but a bank is mostly just a bunch of records associated with a single big pile of money. "Your" money in the bank is just a line of data stored in a computer or record-book somewhere. This means the IB can do the same thing; its record system can keep track of millions of accounts, while all the actual money is lumped together in that single regular-bank account.

Next, potential IB customers are invited to deposit funds in an IB account. They are specifically invited to deposit funds of a magnitude which is most beneficial to them, with respect to between-bank funds transfers. In this case the funds would be transferred from their personal account in whatever-ordinary-bank to the IB bank-account in the IB's ordinary bank.

Remember that the fees for that type of between-bank transfer is the primary problem facing any micropayment system. But here, note that a plain ordinary 1-dollar Money Order can typically be the only fee charged, when transferring up to $500. Think about that the next time you pay PayPal a significant percentage, to buy something!

So, with a lot of people and vendors having IB accounts, and also having money in those accounts, now they use the IB to make micropayments (or even other-size payments) to each other. The IB simply moves data from one IB account to another, and the cost of doing that is rather trivial. Indeed, the IB should not need to charge ANY transaction fee for ANY microtransaction; it can get all its earnings from the interest paid on all the money it has assembled into that ordinary-bank account!

The only time the IB needs to charge a transaction fee is when someone (usually a vendor) wants to move money from their IB account to their own personal/company ordinary-bank account. (Note that the ordinary-bank is paid the transfer fee, when money is sent to the IB account; the IB simply uses this transaction fee to do the same, to transfer money out of its ordinary-bank account.) Again, the Idea here is to maximize the quantity/fee ratio, so if $1 can transfer $500 between ordinary banks, as with a Money Order, then the fee would be $1 and $500 would be transferred.

It might be noted that the main reason a vendor would want to withdraw money from the IB is to pay its own bills. But what if the recipients of those bills also had IB accounts? Then even this transaction fee could be avoided! Heh, the only thing keeping me from talking about World Domination is that this Idea would then receive a "Let's All" MFD!

So, the Main Drawback to this Idea is that anyone wanting to move money between an IB account and a regular-bank account would need to move a fairly significant amount of money. This is what helps ensure the IB account in the ordinary bank always has a decent amount of interest-earning funds in it. This leads to another Drawback, since the IB would not be paying interest on all the money deposited, so that would be a disincentive with respect to depositing significant amounts.

Not to mention that buyers might not have that significant amount of disposable cash on hand (but if they did, they would be preparing for making lots and lots of micropayments to lots of different vendors!). And vendors might have to wait for such an amount to accumulate (via lots and lots of micro-receipts), before they could withdraw it.

Unless they wanted to pay the equivalent of a higher fee/quantity ratio, for making smaller transfers, of course. But then, they might as well keep using PayPal....

Vernon, Dec 28 2011

PayPal transaction fees https://www.paypal....eiving-fees-outside
Obviously no good for micropayments! [Vernon, Dec 28 2011]

Partly Baked Now! https://www.dwolla.com
This outfit is doing the put-all-money-into-1-ordinary-bank-account thing, and as a result, is offering NO fees for any transactions of $10 or less, and a fee of only 25 cents for any larger transaction. [Vernon, Jan 13 2014]


       There's not much "juice" gained. It would seem that inequity in transaction costs would drive markets to a higher level of activity if participants gain more from an additional sale, while in a low transaction fee environment one might expect either a. lower payouts as a way to raise juice, or b. lower barriers to entry by inferior competitors.
reensure, Dec 29 2011


       But I think the greater social benefit of NOT having a practical micropayment system far outweighs the potential benefit of having one.   

       The psychology of 'free' is very different than the psychology of 'low cost' and proliferation of micropayments would really have chilling effects on the free flow of information (and the willingness of people to explore).   

       I personally do not want to see a web littered with spammy 'click the paid link to continue' sites, or the App-store-ification of web content.   

       I remain neutral on the idea on principle.
cowtamer, Dec 30 2011


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