Plugable Branded Micropayments for the Social Web Application Developer
First lets start with the definition of a micropayment. A micropayment as defined today for the most part is a payment that is too small to be affordably processed by a payment gateway. An example would be a $1 payment that for most part comes with a 20 cent fee on top. When the seller has to pay the fee that represents a 20% cut into revenue. You can easily see how this can add up very quickly in today’s viral Internet (the focus of this post).
Imagine if YouTube wanted to charge you 2 cents to view todays top video(2/6/2008). With 79,758 views at 2 cents per view and a 20 cent fee for the transaction, YouTube could receive $1,595 in payments and end up paying $15,951 in fees. So, the way around that obviously for YouTube is to use a payment gateway that allows the user to make deposits into an account and simply deduct from your balance over time.
So, you aren’t YouTube owned by Google and don’t have your very own payment gateway called Google Checkout? Then what is the lone ranger web application developer to do?
Use A Branded Micropayment Gateway
Content is king, usability is queen and when it comes to users handing over their credit card online the right payment gateway is God. The last thing you want your user to do on the checkout page is question the legitimacy of who they are giving their credit card to.
There are many payment gateways out there, OK tons. But, most are either laying wrapping up one of the branded gateways into their own and adding more fees on the top or more often simply have no brand recognition amongst your user base.
Branded Payment Gateways
Like I said there are many, but I, and most likely you if you are reading this need one that has an API of some sort, and, a simple and quick process for your users. Also, the most important thing for payments less than or equal to $1 is that the fees are as low as you can possibly get.
All of the following assume a “business account” vs. a “personal account” as well as a transaction between 5 cents and $1.
PayPal
PayPal is obviously leader of the pack in brand recognition, but, their fees are atrocious and their audience isn’t necessarily micropayments. For both PayPal to PayPal as well as Credit Card to PayPal payments a simple $1 transaction will cost you 33 cents.
Now, I should simply be done with talking about PayPal in the context of this post, but, if you are fine with that 33cent fee, then right now it’s your best option due to them being the long time leader in this space as well as the sheer number of your customers that are likely to have a PayPal account.
Google Checkout
Same story as PayPal with a difference in fees of 1 cent on a $1 transaction. Also, while Google has a trusting brand for your users it’s adoption is not as wide spread as PayPal.
Amazon FPS (Flexible Payment System)
The clear winner here and the largest brand bar none for your customers. While in a limited beta that I am part of I must say PayPal’s and Google’s API don’t even come close to the functionality you can build into your apps. I wont elaborate on that here but, most importantly is their 10cent fee on a $1 transaction. While 10% is a lot, it’s half of Google and PayPal’s fees and something I can live with and the end user trust is already established.
I highly recommend any social web application developer who wants to integrate micropayments to implement Amazon’s FPS. If you want a simple “buy now” button or something a tad more flexible it’s a breeze, and if you need a flexible two way interface into their gateway that’s where it really shines.
This has the potential to be bigger than all other payment gateways. Imagine a teenagers parents give them their allowance on Friday and instead of cash, they transfer from their Facebook Wallet to their kids Facebook Wallet. Now, Facebook Wallet is just a fictitious name as I don’t have any worthy details about this other than their beta invite. But, they have a growing brand and a large user base.
Beta Sign Up (I will update this post when more info is available)
In Summary
As long as Facebook watches their privacy stance (beacon anyone?) the end user trust will be there, in the mean time (tonight) I’m implementing Amazon FPS into my Facebook application Utmost Kudos. Also, with the adoption of Open Social by the recently launched MySpace API you can bank on Facebook’s payment gateway using Open Social as well. The PayPal of social networks will be owned by Facebook, and it will happen in 2008. Well, that’s just my 2 cents anyway.
Foreman · February 6th, 2008 at 9:54 pm #
Very nice summary. Considering that Facebook is planning to double the size of their workforce next year, they are going to have to expand into the new areas — one of which will probably (and logically) be micropayment processing.
And I welcome alternatives to PayPal. I would love to never have to use PayPal for anything ever again.
Marc · February 7th, 2008 at 7:33 pm #
Thanks for the feedback Foreman. It would be nice to be a fly on the wall at Facebook.
Ron Wolf · February 8th, 2008 at 11:59 am #
I agree, micro-payments are essential. I wouldn’t even count PayPal in this category, PayPal txns are expensive AND high-friction.
Check out Steve Case’s Revolution Money Exchange FB App.
http://www.facebook.com/apps/application.php?id=15341040332
I’m in no way connected, and not shilling for my own self in any way either, but also take note of their pay for referral and sign-up bonus. Seems that they are serious about this.
OK, one more thing, be very careful with their referral page, it puts Firefox into an error loop.
Marc · February 8th, 2008 at 1:01 pm #
For the most part I included PayPal becuase of their brand, and the fact that you can use them for $1 payments, even if it isnt the best idea to do so.
Money Exchange lacks the brand recognition that I outline, so right there they arent much use for me. And, no capabilities to accept credit card payments for those that dont have a Money Exchange account and no API that I can see.
What I do like is their fees. If they dont have a limit on account to account payments then their fees in that category beat out everyone I listed on this poat.
Fees - https://www.revolutionmoneyexchange.com/website/fee_schedule.aspx
Homepage - https://www.revolutionmoneyexchange.com
Ron Wolf · February 8th, 2008 at 1:15 pm #
I see. You’re looking for a current solution and I’m talking about potential. I got on that tack following your comments on what FB needs. That was the context for Money Exchange. I’m not sure if there is anything that really does the micro-payments thing well. I’ll take a look at Amazon tho and appreciate the analysis. 10% is a lot, but its may not be too much.
Have you considered an internal economy? Points convertible to cash for instance? Gamers understand points.
Marc · February 8th, 2008 at 2:23 pm #
Ya, the 10% can hurt indeed, I’m verious curious to see what Facebook’s fee’s will look like.
Yes, a points system can work. However, I use the term “game” in a broader sense. For example, digital assets that can be purchased and accumulated. The accumulation of those gifts combined with say a leveling system at various increments that then supplement those gifts with a reward of some sort.
So in the context of gifts, the target audience would not be your average gamer who can relate to a points for cash economy and therefore one would need to accept a more formal form of payment.