Electronic Currency

Major E-micropayment Vendors
The various commercial e-micropayment technologies are similar in many respects but differ in others.

• Firstgate Internet
Firstgate works with about 3,000 providers of articles, information, games, and other content and has 2.5 million customers, mostly in Europe. For security, Firstgate uses passwords and secure sockets layer (SSL) encryption and also records the IP addresses of buyers' machines for reference in case problems occur. The company charges content providers an up-front fee—which varies based on the complexity of the project—for set-up, integration, and consulting. Firstgate then tailors its systems with business rules for each participating merchant. The company bills buyers' credit cards, debit cards, or phone accounts, once they have accrued a few dollars in charges. North American customers can buy material via a charge to their bank accounts. Firstgate aggregates consumer micropurchases across merchants to enable a single processing of multiple transactions, explained Chief Operating Officer Ed Burrell. "This reduces processing costs, per-purchase credit card fees, and administration," he explained. Firstgate then remits money to merchants via checks or bank transfers.

• PayLoadz
PayLoadz works with about 1,000 merchants and generates about $3 million per year in revenue, explained founder and lead developer Shannon Sofield. Rather than having prepaid accounts with PayLoadz, users pay sellers directly through PayPal, which also verifies that the buyers have enough money in their accounts to make the purchase. Merchants pay PayLoadz a flat monthly fee based on their sales levels, rather than a percentage of each transaction. PayLoadz delivers files via a secure server to the customer using PayPal's Instant Payment Notification system, which lets vendors integrate PayPal with their back-end operations. Buyers never see a PayLoadz interface. The PayLoadz system consists of an application server that hosts the Web site and handles transaction processing, a file storage and delivery server, and a database server. Separating the components into servers tuned for specific roles improves performance and reliability, Sofield said. For security, PayLoadz uses SSL with 128-bit RC4 encryption.

• Paystone Technologies
Customers in North America, Australia, New Zealand, and parts of Europe can access Web content after setting up prepaid Paystone accounts by mailing funds directly to the company using their bank's bill payment service or by depositing cash at any Bank of America branch. Merchants that sell content via Paystone create links to the e-micropayment system. Customers follow the links, enter their Paystone password, and are redirected back to the content they want to purchase. For security, Paystone uses 128-bit SSL encryption.

• Peppercoin
Massachusetts Institute of Technology cryptography expert Ron Rivest and fellow MIT computer scientist Silvio Micali founded Peppercoin. Buyers at participating Web sites who want to use Peppercoin see the e-micropayment technology's interface, which looks like a common credit card interface, noted Bob Nix, the company's vice president of engineering. The application's new version, Peppercoin 2.0, doesn't require pre-enrollment or predeposit of funds. Consumers just enter their credit or debit card information with the merchant online as usual, and Peppercoin processes the transaction. The company uses RSA BSAFE software to provide encryption and digital signing capabilities for the security of a buyer's information and the transaction's integrity. Digital signatures can authenticate a message's sender's identity and verify that no one has altered the original content. To reduce overhead on small transactions, Peppercoin uses an online self-service customer-service module.

Macrochallenges for E-micropayments

E-micropayment technology faces a number of obstacles to success. For example, said the University of Minnesota's Odlyzko, although e-micropayment technologies may be reliable, they run on the Internet, PCs, and browsers, which are not always dependable.

• Economic factors

E-micropayment products deal in very small transactions and thus potentially yield low profit margins, noted PayLoadz's Sofield. Therefore, it may not prove to be economical for many companies to invest in and distribute the expensive e-commerce systems only to get thin profits dependent on high transaction volumes that might not materialize. Also, Odlyzko said, content providers eventually may find that they can economically and successfully sell small items bundled into larger packages on their own, thereby eliminating the need for third-party e-micropayment technology.

• Insufficient demand

Perhaps the key marketplace challenge for e-micropayment vendors is making content providers aware of their applications and selling them on the idea that their services are effective and worth paying for. Currently, said Strategy Analytics' Patel, many merchants are not interested in using e-micropayment technology until they see one or two products prove themselves over time as being reliable and attractive to buyers. Also, digital content is scattered all over the Internet. There are relatively few sites where potential buyers can see large amounts of digital content grouped together. This makes it less convenient to buy the material, thereby reducing the number of online micropurchases and thus the demand for e-micropayment software.