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Competition in the nascent market for micropayments, or transactions of $5 or less, is about to become even more heated. A 10-year-old maker of e-commerce systems for retailers says it is 30 to 45 days away from introducing a micropayments product that will be tied to prepaid consumer accounts and priced below rates other entrants are charging online merchants. Lewisville, Texas-based Mer-Tec Inc. is promoting the new system among merchants now and says it plans to have 10 or more “major merchants” of digital content signed up within a year. The new system will also integrate rights-management software from Microsoft Corp. and other companies to help control the distribution of digital goods. Mer-Tec, which in 1996 helped Tower Records become one of the first brick-and-mortar retailers to go live on the Internet with an e-commerce site, is putting the finishing touches on its product, called SecureCastle, that promises to allow sellers of sub-$5 goods to market their wares online without seeing transaction fees eat up their profits. Pricing to merchants isn't final yet, but James McIntosh, president and founder of Mer-Tec and a veteran of the transaction-software industry, says it will be highly competitive. “Transactions have always been fairly expensive,” he says. “The Internet has changed all that. We can deliver transactions for fractions of a penny. There's no excuse for expensive transactions in a micropayments environment.” Several startups have emerged in the past year with commercial micropayments solutions designed and priced to allow merchants to avoid all-consuming credit card interchange rates. But McIntosh says SecureCastle will undercut even these processors. “We'll be priced very aggressively,” he says. “Our competitors won't be happy.” He mentions PayPal Inc. as well as Peppercoin Inc. and BitPass Inc. by name as potential competitors. San Jose, Calif.-based PayPal, part of eBay Inc., launched in 1998, but Waltham, Mass.-based Peppercoin and BitPass, Palo Alto, Calif., went live with commercial services only within the past eight months. PayPal introduced a new, tiered pricing structure this month (Digital Transactions News, June 17) with pricing of 1.9% plus 30 cents per transaction at its lowest. Peppercoin, which relies on transaction aggregation rather than prepaid accounts, charges 7% to 10%, depending on volume. BitPass charges 15% for payments under $5, and 5% plus 50 cents for those over $5. With SecureCastle, consumers will establish and fund accounts with Mer-Tec that will behave much like checking accounts, meaning they can put in and withdraw money at any time. If they fund the accounts through a credit card, Mer-Tec will stand in as the merchant, passing on credit card fees to consumers. To buy through SecureCastle, consumers will be directed via a log-in window to a site set up by Mer-Tec, securecastle.com, where they will receive a temporary account number, which they will use on the merchant's checkout page, along with a personal identification number. Mer-Tec authenticates the PIN, the temporary number, and funds availability before allowing the transaction to proceed. To manage the distribution of digital content like songs and movies, Mer-Tec is incorporating digital-rights management software like Windows Media Player from Microsoft. McIntosh says Mer-Tec is already making a big push for SecureCastle among online retailers, though he won't project transaction volumes. “We have an active sales effort going on,” he says, targeting the “major content providers.” Since Mer-Tec must also attract consumers to make the system attractive to merchants, the company is also planning promotional giveaways to build up the account base. “We're well aware of the chicken-and-egg syndrome,” says McIntosh, referring to the problem payments systems face in attracting consumers to be appealing to merchants while also building up a merchant base to drive consumer usage. One idea to attract consumers, McIntosh says, is to set up a new site that will allow consumers to sell used goods, such as electronics devices, and use the proceeds to fund their accounts. Mer-Tec is concentrating on online retailers for now but doesn't rule out moving it to the physical point of sale later on. Also, Mer-Tec plans to license the system to merchants that want to run their own micropayments system and maintain the prepaid accounts. Says McIntosh: “Our goal is to get volume and be a pure, transactional [fee-based] system.”
