The Evolution and Future of Micropayments April 6, 2006

Micropayments are a $354 billion industry. And according to analysts, it?s only just begun its hypergrowth phase.

Our experienced Executive Panel will analyze and comment on the evolution of micropayments. The HBSTech perspective will be to analyze the value chain, the impact on new business models and evolving technologies.

In 2005, consumers generated $354 billion in transactions under $1. These transactions, if processed by traditional credit card companies, would typically cost a merchant 25 cents plus 2% of the transaction. On a one dollar transaction, a merchant would be left with only 70 cents. According to a recent research study by the Tower Group, the total US micropayments industry will increase from $2 billion in 2004 to over $15 billion in 2008

New models of processing micropayments are emerging, and can be categorized into the following models:

* Direct to Bill - payments are billed monthly to a consumer?s bill, used primarily in mobile telecom. Cell providers have been somewhat reluctant to adopt this model because of fraud, disputed transactions and back-end payments.
* Merchant Aggregation ? small charges are grouped together and submitted as a single transaction.
* Prepaid Accounts ? accounts which are pre-funded by a customer.
* Direct Transfer ? a user?s bank or other account is directly accessed to pull the necessary funds.
* Subscription Model ? users are charged a monthly or annual fee for unlimited or limited access to products. Conversion rates on this model are low given the uncertainty of customer usage.

A key growth area for micropayments is in mobile commerce. In the past, mobile content grew at a slow pace due to outdated billing systems and a lack of payment standards, which made security and payment authorization a challenge. Additionally few cellular operators have built the back office and billing infrastructure to capture this revenue, reconcile it, and handle the settlement process.

Another key challenge for micropayments is that consumers continue to expect internet content to be free of charge and particularly do not want to pay for incremental content. The change in telephone rates from pennies-per-minute to flat rate pricing demonstrates this trend. Younger consumers who may not necessarily have a credit or debit card have increasingly driven the growth of smaller purchases, particularly via the internet and through cell phones.

Brian Jaffe, a fifteen year veteran of the financial services industry, is the Producer and Moderator for this event. Brian (HBS 1988) is currently the SVP Sales and Marketing for Suni Medical Imaging. The esteemed panel includes Executives from:

* Paypal
* Visa
* Bitpass

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