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Micropayments: the final frontier for electronic consumer payments

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  • James C. McGrath

Abstract

Small payments of less than $5 have resisted the wave of electronification that has swept consumer payments in recent years. However, a number of innovations — both new technologies and new ways of doing business — have done much to make such electronic “micropayments” less expensive and more convenient. Now, having proven themselves in several online markets, micropayments are poised to make inroads at the physical point of sale. This paper looks at some of the success stories (and failures), both in the U.S. and abroad, to identify possible conditions for success and to gauge the outlook for the future. It finds that industry structure, the coordination of standards, and customer preferences and experiences have all influenced the development of these products. While different markets around the world have supported different types of solutions, the successful products have delivered clear utility to the consumer, along with compelling economics for the different parties in the value chain. With critical mass in sight, the future looks promising.

Suggested Citation

  • James C. McGrath, 2006. "Micropayments: the final frontier for electronic consumer payments," Payment Cards Center Discussion Paper 06-04, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpdp:06-04
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    File URL: http://www.phil.frb.org/pcc/papers/2006/D2006JuneMicropaymentsCover.pdf
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    Cited by:

    1. Cronin, David & McGuinness, Anne, 2010. "Retail Payment Practices. How They Have Evolved in Recent Times and Where They Might Be Going," Quarterly Bulletin Articles, Central Bank of Ireland, pages 56-82, April.

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    Keywords

    Electronic funds transfers;

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