New research from TowerGroup finds that several positive trends are now beginning to converge, spurring both the use of and demand for microtransaction engines. While demand is still concentrated in a few hot areas of content development, it is laying the foundation for more rapid and tangible growth. "As technology has advanced so have customer expectations and networks, and these factors are setting the stage for expanded micropayments growth across the mobile, Internet and physical channels," said Ed Kountz, senior analyst in the Emerging Technology Solutions practice at TowerGroup and author of the research. "By 2009, TowerGroup expects the total market for Internet and mobile micropayments in the U.S. to increase 23 percent (compound annual growth rate) to $11.5 billion in revenues, up from just over $2 billion in 2003."
Highlights of the research include: Micropayments span several different markets across three individual delivery channels: mobile; Internet; and point-of-sale. However the chief micropayments market today is electronic payments for digital content. This market is seeking cost-effective solutions for timely and low-risk processing of high-volume, time-sensitive transactions.
At present, the total market for micropayments remains small in comparison to the multi-trillion-dollar consumer payments market. In 2003, the total value of Internet micropayment transactions in the U.S. was $1.9 billion -- driven primarily by media and Internet publishing services, and digital music (e.g., iTunes), and other audio services. Mobile micropayments sales in the U.S. (such as for content like ringtones) accounted for $0.15 billion in 2003.
Despite emerging demand, micropayments today are still characterized by a large number of competing transaction types. Fee models for processing micropayments include: direct-to-bill (mainly seen in mobile telecom); merchant aggregation (where small charges are grouped and submitted as a single transaction); prepaid accounts (pre-funded by a customer); and direct transfer (where a user's bank or other account is directly accessed to pull necessary funds). Each of these face the current incumbent in digital content distribution: the flat-fee subscription model.
Kountz noted that over the next five years, "Direct-to-bill will continue to proliferate in the mobile space, aggregation-based solutions will gain traction for some types of Internet content, and prepaid will round out the payment options across other mobile and e-content environments. Financial institutions should begin considering how these changes will impact their payment businesses, and determine how to build out alternative payment services as extensions of existing products for certain emerging groups," he said.
Two new TowerGroup research reports -- Electronic Micropayments: Market Development, Issues, and the Potential Impact on FSIs, and Making Sense from Cents: Trends in the Rebirth of Electronic Micropayments are available for purchase from TowerGroup.
