PayPal Moves into Micropayments with New Cut-Rate Pricing

Having gotten its feet wet with song downloads, PayPal Inc. is marching full-bore into micropayments. The San Jose, Calif.-based payments processor announced today new, cut-rate merchant pricing on transactions under $2 for digital content, which the company defines as video games, online greeting cards, news articles, and mobile-phone content such as ring tones, as well as music. “We're really excited about the potential for digital content,” says a PayPal spokeswoman, who adds the company will not project volume potential in the micropayments market. She says “a lot of merchants” have said they will begin selling content under the new pricing scheme, adding at least some of these unnamed sellers will be announced soon. The new fee, 5% plus a nickel per transaction, means a 99-cent download will cost sellers a dime, well under standard credit card pricing, which could run to 30 cents or more. Paypal's new price–which undercuts the processor's standard pricing of 1.9% plus 30 cents up to 2.9% plus 30 cents–also places the unit of online auction giant eBay Inc. in the mainstream of micropayments pricing from processing startups such as BitPass Inc. and Peppercoin Inc. The new fee supersedes special pricing PayPal introduced in December 2003 just for song downloads (Digital Transactions News, Dec. 8, 2003). That fee, 2.5% plus 9 cents, allowed the company to tie into what was emerging as a hot product category, and it followed up late in 2004 with deals with Apple Computer Corp.'s iTunes Music Store and Napster to handle payments for their downloads. But at the same time it shied away from the broader micropayments market until now. PayPal is betting most consumers prefer to buy content from Web sites on a pay-as-you-go, rather than on a prepaid or subscription, basis. “We've seen that's what consumers prefer,” says the spokeswoman. “Consumers want to buy what they see there on the site rather than commit dollars [to subscriptions or prepayments].” It's also hoping the move into micropayments will entice existing PayPal accountholders to buy more?something the company has seen in its iTunes experience?and attract more consumers to the brand.