Micropayments Rise Again

Event Summary

eCharge, whose previous initiative was a service that would allow consumers to charge purchases to their phone bill, will announce a new charging and billing system that is completely Internet based. The eCharge system will allow consumers to sign up, get real-time approval and buy immediately. Other features allow the creation of sub-accounts with spending limits for individual family members. A consumer can use eCharge on any website that had signed up with the company. Users can view their account statements online and even pay online. Online merchants will pay less per transaction than they do to traditional credit card processors.

Market Impact

According to George Fleming, co-founder of eCharge, "The use of VISA and MasterCard online will become obsolete because their old technology, high-cost infrastructure and lack of agility clash with the philosophy of the Internet." eCharge clearly believes that it has found the Holy Grail of Internet payments. Their current offering, "eCharge MY PHONE," has found its niche with a variety of websites, most recently MSN, but has hardly become ubiquitous. CyberCash, probably the best-known entrant in this arena, recently abandoned its CyberCoin offering for micropayments, although it does have other offerings on the web. DigiCash, the first entrant, recently declared bankruptcy.

As with "eCharge MY PHONE" there's no reason to assume that eCharge won't find its own niche. There should be a way to simplify buying - Jupiter Communications claims that 27% of online transactions are abandoned because the process is too complex - and lower fees to merchants will be welcome. But there are three important considerations to take into account. One is that there's no dearth of competitors. Second is that the major credit card companies and their close allies the banks will certainly respond. But the most important issue is discovering what's going to succeed with consumers. This is the salient issue and affects every player from merchants to banks.

Recent studies only confirm the conventional wisdom that security and privacy are more important than complexity in keeping many potential consumers from making purchases online. While word of mouth and familiarity are likely to erode consumer concerns, a major turnaround on security issues by the unconvinced will require a massive PR campaign. Such a campaign is most likely to come from credit card companies and banks, and smaller players like eCharge will probably benefit but won't get brand recognition. (Interestingly, Intel has just announced that sites carrying its advertising will have to disclose to consumers what personal details are collected online.) Privacy issues revolve around whether consumers are willing to trust websites to protect their personal data and to refrain from selling it. Here eCharge and similar vendors have a chance to stand out, because consumers need only trust them, as opposed to each site where they do business. eCharge would be wise to emphasize their privacy advantage to consumers: It's early consumer acceptance rather than lower merchant fees that will extend their reach.