Canada’s Paystone Looks for a Payoff in ‘Compelling’ Content

While the burgeoning digital song market has focused attention on the potential for micropayments in the U.S., a Canadian processor has signed about 1,000 online merchants, the most recent of which is Puretracks, Canada's first and largest purveyor of digital songs. Vancouver-based Paystone Technologies Corp., which was founded in 2001, announced earlier this month it would process payments for Puretracks, which sells downloads ranging from 99 cents a song to $7.99 for an album. With a catalog of more than 300,000 songs, the online merchant is a major coup for Paystone. “Puretracks is a big deal for us,” says Al Thompson, president of Paystone. Now Paystone is looking for more merchants selling digital goods that will attract users of the company's system, which relies on prepaid accounts funded by online banking payments rather than credit cards. “What drives utilization is content,” says Thompson. “We're expecting Puretracks' content to be very compelling, similar to iTunes.” Apple Computer Inc.'s iTunes online music service, which has stunned industry observers with its rapid success, will sell about $150 million worth of music this year, experts forecast. Merchants pay Paystone 5% plus 10 cents for each transaction under $5, and 3% plus 30 cents for each one over $5. Under Paystone's current model, introduced a year ago, the company holds down costs by avoiding credit cards, which it relied on in its first two years, as do many micropayments processors, to fund and replenish accounts. Instead, users fund their Paystone accounts via an online bill-payment service, designating Paystone as the payee. Or they can send in a check. The average payment is $20. Thompson, who won't say how many accounts Paystone has, concedes that while avoiding cards cuts out interchange fees and the cost and hassles of chargebacks, it has also limited Paystone's growth. As a result, he says, the company keeps an eye not only on credit cards but also the automated clearinghouse. “I'd be kidding if I didn't say we weren't always watching the [funding] issue,” he says. “We're watching it very closely. The more options the better, but the cost and fraud potential [of cards] can be awkward.” For now, Paystone is concentrating on finding a broad array of Internet merchants offering what it sees as compelling content, such as songs and games, at micropayment levels?typically $5 and under. Currently, Thompson says, only about 10% of the company's merchants are actively accepting payment through Paystone. He wants to change that and kickstart growth with more signings like Puretracks. “We need accounts like that,” he says. “We need to spread it out to games and publishing.” He's encouraged by the surge in adoption of digital music, but figures it will take time for Paystone and other micropayments processors to exploit the nascent trend toward the broader market for digital content. “There's a change going on out there, but it's not happening over night,” he says. “You need staying power.”