Micropayments Could Hit 10% of All POS Transactions

Transactions amounting to $10 or less could potentially amount to at least 10% of all point-of-sale payment transactions processed annually in North America, a bonanza of transaction volume that goes a long way toward explaining why giant card companies and small startup processors alike are chasing the so-called micropayments market. The estimate for potential market size for micropayments comes from Mercator Advisory Group Inc., a recently established research firm in Shrewsbury, Mass. Throw in the burgeoning volume of online transactions, and the market potential becomes even bigger, the firm says. “It's a phenomenal amount,” says Nick Holland, director of emerging technologies research at Mercator. “And it's not really being tapped.” With 58 billion consumer-based electronic transactions having been processed in 2002, Mercator's estimate would indicate that the micropayments market could reach 6 billion transactions, and that doesn't allow for conversion of cash and check payments. But realizing this potential will take time. Because of transaction fees, online micropayments will explode only after the market decides upon a workable model for either aggregating small payments or allowing users to access a prepaid account. And at the point of sale, while American Express Co. and MasterCard are both experimenting with new contactless systems involving keyfobs and cell phones for high-throughput applications, the market will develop only when merchants are convinced they can process enough incremental small-value transactions to justify their transaction costs. Says Holland: “The people who have to be convinced to buy into this technology are the merchants. Without them it just falls to pieces.”