In the online world, you must have come across some book, application, or tune that you like. But the owner requires you to pay a certain amount to use it and you’ve made the payment for it. Marketers call it micropayment in the e-commerce world. A micropayment is a minimum amount that you have to pay to use the product/service.
Micropayments play a very significant role for day to day operations of the businesses. Today we’ll discuss micropayments, its history, types, examples, and how it works.
What is Micropayment?
In simple words, Micropayment is small financial transaction that a customer makes usually online. It doesn’t matter however small the amount may be in cents, micropayment is the amount you pay online to get the product/service.
The product/service could be a music tune, application, or a book that you want access to it. It is getting very common nowadays. Some people even make the transaction to get the product delivered to them. They use different methods of payments to complete the process.
History of Micropayment
Ted Nelson first used the term micropayment long before the invention of the internet and WWW (World Wide Web). Initially, people used the terms for low-cost copyrights holders. After the invention of the internet, many people use a micropayment system to sell their content online. It was an alternative source of earning other than advertisements. W3C, IBM, and Compaq decided to set some standard protocol for the micropayments in the late 90s but left the efforts later on.
How Micropayment Model Works
Ecommerce retail stores and online businesses have designed a special system to carry out various e-commerce transactions smoothly. Credit card companies don’t follow that system. It’s because the micropayment system follows a specific scheme system, where the buyer and seller have to be there.
The buyer and seller both have their accounts in the system. The service provider would monitor the whole process. He’ll start by receiving the payment from the buyer and then distributing it to the third-party sellers.
The seller would include an encoded link on the home page during the transaction. When an interested buyer comes across the page and starts the transaction, then the payment would go to an internet wallet and stay there. The service provider would access the wallet and send it to the concerned parties.
The transaction system of micropayment works very well for multiple sellers if there’s a one-time payment. It’s because the seller accounts of different businesses work the same way. That’s why people prefer the micropayment service to complete the process.
Some experts have predicted after analyzing the standard system of micropayment that sports sites, media sites, content creators, apps, and music downloads, and other platforms would always prefer and use the pay-per-use method of online transactions. The system of micropayment is going to be very famous among e-commerce businesses and online retail stores in the upcoming years.
Importance of the Micropayment Model
A micropayment is gaining attraction again because it allows people to make a transaction even less than a dollar. The business model of micropayment has become more important than ever for maintaining a sustainable source of income in the digital world. Here are some of the reasons why the micropayment system is more important in the digital age;
You must have come across a situation while surfing online that when you have found a worth reading content. The website asks you to subscribe to the platform to access the content. You end up leaving the platform because you aren’t a frequent reader.
The Micropayment system provides the website owners and customers an additional option in this regard. In the abovementioned scenario, you can provide a list of options/choices to the reader that here’s how the reader should proceed. Instead of telling the customers that they should either subscribe to the platform or leave.
Ads are the main source of income for bloggers and website owners. But with the rise of features like ad blockers pose a great threat to the revenue stream of bloggers and web owners. Micropayment provides an additional option to the content creators. They can charge a small amount in cents from all the users by leveraging the micropayment system.
The Micropayment system is a very good business strategy. It provides you an option to think outside the box and focus on sources of income. Like ads, micropayment, subscription, and native ads, instead of just relying only on the ads. That’s why they say that you shouldn’t put all of your arsenals in one place. When you follow the diverse strategy, then you’ll succeed and have more sources of income.
Types of Micropayment
The micropayment system has different types and some of the main types are as follows;
As the name implies the prepay model means that customers/users have to make the payment before getting access to content. Online games, newspapers, and social media platforms use this model, where the platform provides a set of instructions to the users plus the payment method. You can send a gift card to the users who are unable to pay. The disadvantage is that the customers have to make the payment before getting access to the content.
The post-pay model means that the customers have to make the payment after getting an excess. Online music platforms follow this model, where the user listens to the music. If the user likes it, then he’ll buy the downloading permission. Many businesses follow both approaches, prepay and post-pay at the same.
Online publishing businesses follow the collaborative approach, where they leave a link to more than one website. The collaborative model is a very good option for the small publisher, it’s because not all the publishers have a plethora of viewers to the platforms to support the micropayment system. The good thing about this platform is that various publishing platforms can work collectively and work from it.
A Pay-as-you-go type of micropayment system allows users to pay whatever they like. It’s not a good approach from the business point of view. The good thing about the collaborative system is that it’s a very supportive model for the users.
Examples of Micropayment System
Upwork is a very famous online platform for freelancers. The platform brings the freelancer closer to the recruiter by matching the skill set of the freelancer with the job description of the client. For instance, a firm wants to hire a writer for $5 an hour, and the work would help the client to find the most suitable candidate.
If the freelancer completes the work in 5 hours, Upwork would receive $25 from the client and create a digital wallet on behalf of the freelancer. The freelancer can withdraw money anytime he likes, or he can keep saving it in the digital wallet by earning more and withdraw it later on.
Some famous platforms use the micropayment system where you have to pay some cents to read the article and the newspaper. You can read it uninterruptedly.
The art community raises funds on behalf of the artist by adding a pay button. Everyone pays a small amount to support the artist.
After studying the micropayment system, we have realized that this payment system has a great scope in the prevailing digital world. Soon many businesses and companies would follow the micropayment system to raise funds for the community and other charities.