PayPal to introduce cheaper micropayment service

paypal_logo With the rising popularity of digital music, popularized by the 99 cents per song iTunes store, videos, ebooks and cheap iPhone apps the micropayment market is fast growing. But the high transaction fees on credit cards reduces the profit share of merchants in such micro transaction, so much that many web merchants are reluctant to accept credit cards. In order to tap into this growing market and at the same time offer a cheaper payment model, PayPal wants to launch a platform where there will be cheaper fees for transactions under $10.

Under the new platform, PayPal will let companies accumulate micropayments until a certain volume is reached, at which point PayPal will charge merchants a single processing fee.

PayPal’s current standard fee for processing a transaction is about 3 percent of the transaction plus a flat rate of 30 cents. For purchases less than $10, it charges 5 percent plus 5 cents.

That means when a consumer buys a 99-cent song online, the merchant would pay PayPal about 10 cents, or 10 percent of the transaction. Under the aggregation model, PayPal wouldn’t charge the merchant until consumers bought, say, 10 or 20 songs, thereby reducing the percentage of the transaction the merchant is charged.

The company is still working out details on how many goods must be purchased before it charges the merchant and how long it will give the merchant to aggregate purchases before a fee is levied.

The new plan will be rolled out sometime later in 2010.

[via Business Week]

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