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.
A new entrant in this space debuted this week, and in theory its
approach looks promising. MicroCreditCard.com 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 MicroCreditCard.com 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 MicroCreditCard.com 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
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
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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This column is written by Steve Outing for Editor & Publisher Online.
Tips, letters and feedback can be sent to Steve at
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