Wednesday, September 13, 2000

By: Steve Outing

A Credit Card Solution For Low-cost Content Sales

by Steve Outing, Wednesday, Sept. 13, 2000

Internet payments for goods and services are predominantly made by

consumers using credit cards. Despite growth in alternative online

payment systems, over 90% of Internet purchases still are made with

credit cards, according to the industry newsletter Credit Card


But credit cards (if you’ll pardon the crudity) suck when it comes to

selling digital content that has a low price tag. A fairly typical

charge to a merchant is 3% of the transaction price, plus a

per-transaction fee of 35 cents (in U.S. currency). So, if a publisher

wishes to charge a consumer 50 cents for an article, that means 36.5

cents of that 50 cents goes to the credit card processor.

While credit card processors have yet to ease up on their

per-transaction fees, entrepreneurs are figuring out how to get around

the oppressive rates and enable content publishers to sell their wares

at lower prices.

Work-around scheme

A new entrant in this space debuted this week, and in theory its

approach looks promising. takes the

approach of allowing consumers to use their existing credit cards to buy

low-cost digital content or services. It acts as an intermediary between

the consumer and merchant, aggregating credit card purchases and

submitting them to the credit card companies as a way to circumvent the

card issuers’ high per-item fees.

MicroCreditCard charges merchants and publishers a fee of 8% of the

sales price plus 8 cents per transaction, for all sales under $8. So, as

an example, a news site that wanted to sell downloadable archived

articles for 50 cents and allow users to pay using their existing credit

cards would pay 12 cents in fees – instead of the 36.5 cents using

a conventional credit card company. A $1 article price would mean 16

cents in fees using MicroCreditCard, vs. 38 cents. Prices down to 10

cents are possible with MicroCreditCard, but that would mean the

merchant keeps only 1.2 cents of each sale.

(Merchants can of course shop around and get slightly better deals from

credit card processors. For one of my Web ventures, I use a ‘discount’

service that charges 28 cents per item, plus just over 2%, plus a

monthly administrative fee. Internet merchants get charged the same rate

as mail-order and telephone-order merchants, which is higher than what

in-person retailers and restaurants are charged by the credit card

companies. The rationale is that online merchants don’t actually see

customer credit cards, while physical retailers do.)

Increase the item price up to $8, however, and MicroCreditCard’s scheme

is worse than the typical credit card processor’s rate structure. An

item at that price would result in 72 cents in fees with

MicroCreditCard, vs. 59 cents with the card companies.

Pay cash for gum

According to chief operating officer and co-founder

Justin Kayatin, the idea behind the company is to enable smaller

transactions that are not currently feasible using credit cards. Just as

many retailers won’t let you charge a 25-cent stick of gum (because the

transaction fee would be more than 25 cents), many digital publishers

don’t offer low-priced content or services because they wouldn’t make

enough money from card users.

The company does this by aggregating a consumer’s purchases on

participating Web sites. So if a Web user bought 10 25-cent articles

over the course of a month, he would see a $2.50 single-line charge on

his next credit card statement. If a user bought only a single 25-cent

article in an entire month, he would be billed $1 at the end of the

month by MicroCreditCard, but that would include a 75-cent credit.

Part of the MicroCreditCard scheme is similar to that of 2-year-old Qpass, the current leader in handling

transactions for digital publishers. Both companies operate a central

service that enables Web users to sign up once, get assigned a personal

code, then be able to purchase items at any Web site that uses Qpass or

MicroCreditCard. Users who buy from multiple sites see a single line

item on their credit card statements. To see what items you bought in

the last month, you’d visit the Qpass or MicroCreditCard sites to see

purchase details. (Your credit card company won’t have that


Kayatin explains that when users wish to make a credit card purchase

from a participating site, their information gets

redirected to his company’s server, which verifies the consumer’s card

and instructs the merchant to release the digital content or service.

Qpass operates similarly.


MicroCreditCard’s system holds the potential of changing how publishers

approach digital content sales. What it might do (and I hope this is the

case) is spur publishers to lower the price of some of their digital

content, and start charging for some high-value content that previously

has been given away free.

For instance, newspaper companies typically charge from $1 to $3 per

article for downloads from their Web archives. Kayatin says, and I

agree, that 50 cents, or even 25 cents, is a more rationale price that

will result in much higher usage of paid article archives. (The average

consumer often will balk at paying $2 or $3 for a single article, when

the printed newspaper it originally was published in cost only 25 or 50

cents on the newsstand.) With a low-enough transaction fee structure, a

news site can let customers buy articles with their credit cards.

The notion of charging small amounts for new types of content (or

content that previously has been offered free) is what’s most intriguing

about low-fee credit card payments. Kayatin says he’s been in talks with

a sports content site that wants to charge Web users a small amount per

minute to view a NASCAR race from a camera mounted inside a racecar.

That’s the kind of content that probably wouldn’t sell at all unless

it’s very low cost.

E-book authors who want to sell their content for small amounts are

another interesting market. Kayatin says author Stephen King, who

has been selling installments of his e-novel The Plant for $1 and

asking for voluntary payment, would be an ideal candidate for using

credit card payments.

MicroCreditCard executives view digital content as a primary market for

their technology, but the company is so new that it has not yet lined up

publisher partners. Kayatin explains that the earliest beta customers

have been application service providers (ASPs), which can sell single

uses of their services instead of just a monthly usage fee.

‘But I think the content industry is going to get a windfall from this

technology,’ he says, including when purchasable content is available on

wireless devices like PDAs and next-generation mobile phones. The

technology also should also be interesting to the digital music



Seattle-based Qpass is probably MicroCreditCard’s principal competitor

when it comes to targeting small transactions in the publishing space.

Qpass already has relationships with 22 major publishers, including

The Wall Street Journal, The New York Times,

Forbes, and Morningstar, to sell their content. Qpass claims to

have 350,000 registered users, who put their credit cards on file with

Qpass (just as with MicroCreditCard).

Qpass handles digital content sales from low to high prices, according

to Therese Wells, the company’s director of marketing. It sells

reports from Forbes for over $1,000 on the high end, down to 25

cents for a digital music track downloaded from Artist Direct. Qpass

negotiates its rates individually, but the current range is from 5% to

40% of the transaction price, with lower prices having higher

transaction fees.

The companies are taking slightly different approaches, with Qpass

emphasizing its ‘complete suite’ of services where it handles all facets

of the online transaction, authentication, and post-sale customer

service. MicroCreditCard, on the other hand, does not have a customer

service component and pushes responsibility for chargebacks to the

merchant/publisher. MicroCreditCard also has no set-up fee and its

technology can be implemented in a few hours, says Kayatin, so it’s an

appropriate digital content commerce solution for ‘mom and pop’

publishers, while Qpass caters more to bigger publishers.

MicroCreditCard is joining a crowded field of online payment systems.

Incorporated in May 1999, the Arlington, Va.-based company was founded

by Kayatin and CEO Chris Williams, who both hail from the

consulting industry (KPMG and Booz Allen and Hamilton). The company

found seed money last spring and is heading into its first round of

institutional investment.

It’s still too early to pick up the buzz on the company. It’s yet to

make the rounds to showcase its technology to Internet analysts.

Forrester Research analyst James Punishill, who tracks the

microtransactions and e-commerce space, hadn’t heard of MicroCreditCard,

but says of the company’s claims, ‘If indeed they can fulfill on their

promise of making micropayments down to 10 cents profitable, that would

be a pretty cool thing.’

However, its model is a new type of payment system where consumers have

to get yet another password and account, ‘and that’s a little

problematic,’ Punishill says. The ideal, of course, would be allowing a

consumer to purchase low-cost digital content for, say, 10 cents with

her existing credit card without need of going through another party

like MicroCreditCard or Qpass – and have processing costs be

structured so as to allow the merchant/publisher a profit. But that

would appear to be years away. Third-party credit card transaction

aggregators meanwhile appear to be the answer.

MicroCreditCard at least gets us a bit closer to true microtransactions

for digital content. But while making pricing as low as 10 cents while

using a consumer’s comfortable credit card is great, it’s not the

microtransactions ‘ideal’ where charges down to a penny are possible. Of

course, there’s debate about whether charging a penny for something

would ever be desirable, even if it became possible.

Letters, letters, letters

In a recent

column, as a follow-up item to an earlier column about e-rights, I

published the comments of two publishers who wrote in to explain why

they don’t feel it’s necessary to give freelance writers additional

compensation for digital rights. I received quite a few letters from

writers wanting to challenge the publishers’ view.

Especially incendiary to those who wrote to me was Pierre

Little’s comment: ‘I would be happy to share successes with

freelancers if they would be happy to share in the risks. This I think

is where the answer lies.’

Here are some of the letters I received on this topic:

Writers no different than

landlords Internet must not

be used to rob freelancers The kids might work cheap Pierre Little cracks me up Will publishers share my risk?

Pretending there are no

profits But what of revenue


Other recent columns

In case you missed recent Stop The Presses!, here are links to

the last few columns: What’s Wrong With Newspaper Discussion Boards, Wednesday,

September 6 The Interactive Newspaper Columnist, Wednesday, August 30

Writers vs. Newspaper in San Diego, Wednesday, August 23

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Got a tip? Let me know about it If you have a newsworthy item

about the online news/interactive news media business, please send me a


This column is written by Steve Outing for Editor & Publisher Online.

Tips, letters and feedback can be sent to Steve at

(c) Copyright 2000, Editor & Publisher

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