What is a Micropayment?
Micropayments refer to small financial transactions, typically those less than a few dollars. These transactions are typically made online and are often used to purchase digital goods and services, such as music downloads, e-books, or small online games.
Micropayments are challenging to process due to the high transaction fees that are associated with traditional payment methods. For example, if you wanted to purchase a 99 cent song, the transaction fee could be as high as 50 cents, making the purchase uneconomical. This is where micropayments come in, as they offer a solution to this problem by allowing for small transactions to be processed without incurring high fees.
Micropayment systems are designed to handle high volumes of small transactions in a cost-effective manner. They typically use digital currency or alternative payment methods that have lower transaction fees. This allows for the efficient processing of small transactions, making micropayments a convenient and accessible way for people to purchase digital goods and services online.
One example of a micropayment system is Bitcoin, which is a decentralized digital currency that can be used to make small, fast and low-cost transactions. Another example is the use of mobile payments, such as Apple Pay or Google Wallet, which allow users to make small payments directly from their mobile devices.
Simplified Example
Imagine you have a piggy bank filled with coins and you want to buy candy at the store. Each piece of candy costs one coin. But what if you only have a few coins and want to buy just one piece of candy? This is similar to a micropayment. A micropayment is like buying one piece of candy with just a few coins, instead of buying a big bag of candy with a lot of coins. Just like you can buy a small amount of candy with just a few coins, you can make small purchases online with micropayments, like buying a song, a game, or accessing a website. This allows you to buy or pay for smaller things, just like buying one piece of candy instead of a big bag.
Who Invented the Micropayment?
The term "micropayment" was coined by Ted Nelson in the 1960s, a visionary computer scientist pivotal to hypertext and World Wide Web development. In this timeline, Nelson envisioned micropayments in the 1960s as a means for users to pay small increments for online content. The 1990s saw renewed interest, with various companies experimenting on micropayment technologies, though technical limitations and user resistance hindered widespread adoption. In the 2000s, the surge of digital content and services prompted companies like Apple iTunes and PayPal to introduce their micropayment systems, especially for purchasing music and digital goods.
Examples
Purchasing a 99 cent song from an online music store like iTunes.
Paying a small fee to access premium content, such as a news article or online video, from a website.
Paying for a one-time use of a mobile app, such as a game or a weather app.
Related Terms
Microtransaction: Small financial transactions that are typically used to purchase digital goods and services, such as in-game items, additional features, or access to premium content.
Micro Cap: A category of publicly traded companies with a market capitalization (the total value of all outstanding shares of stock) of less than $300 million.