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Micropayments On The Rise

  |  October 11, 2004   |  Comments

A resurgence in the growth of non-cash purchases under $5.

The march towards a cashless society continues. Non-cash payments of less than $5, often referred to as micropayments, continues to rise.

A study of 1,112 Americans aged 12 and older, conducted by Peppercoin and Ipsos-Reid, found 17 percent of survey respondents saying they'd use a non-cash form of payment (credit, debit or charge card) for purchases under $5. That percentage, according to the pollster, equates to some 37 million Americans.

The survey also found more than 14 million Americans made digital content purchases in the past year for less than $2. That represents a 350 percent increase over the previous year (2003 -- 4 million; 2004 -- 14 million). Of the 14 million people who purchased items costing under $2, approximately 1.4 million consumers purchased such items from five or more Web sites.

"In the physical world, we were surprised to see how much value and benefit consumers realize from using credit cards. They want to use them for their everyday purchases," Perry Solomon, VP of strategy and co-founder of Peppercoin, told ClickZ Stats. "Specifically, they want to use them for the everyday purchases that they make many times a month, such as for coffee, fast food, vending and parking. This shows that consumers feel comfortable with the speed, convenience and security of electronic payments."

TowerGroup report released in August reported in 2003, the market for micropayments was just over $2 billion. Tower forecast by 2009, the market would grow to $11.5 billion in revenue, a compound annual growth rate (CAGR) of 23 percent.

Internet and Mobile Micropayments
Revenues, US Market (in billions)
Year Internet Mobile
2003 $1.9 $0.15
2004 $2.8 $0.40
2005 $3.7 $0.80
2006 $4.6 $1.70
2007 $5.5 $2.90
2008 $6.10 $4
2009 $6.7 $4.8
Source: TowerGroup estimates

One area in which micropayments are growing is in the US online paid content market. According to a May study comscore conducted for the Online Publishers Association (OPA) entitled "Online Paid Content U.S. Market Spending Report," micropayments grew 34 percent over the previous year. The largest proportion of single purchase revenue for micropayments on a percentage basis was news (43.8 percent), followed by greeting cards (14.5 percent) and games (9.2 percent). The OPA/comscore report notes despite double-digit increase for micropayments, at $12.8 million in revenue, the share is only a 1 percent of total online paid content revenues.

Proportionality of Single Purchase Revenue by
Price Bracket, Year 2003
Purchase $0 to$4.99 $5 to $49.99 $50 or more
Sports 3.8% 81.0% 15.2%
Research 1.0% 69.0% 30.0%
Personal/Dating 4.6% 89.2% 6.2%
Personal Growth 0.7% 65.2% 34.1%
Greeting Cards 14.5% 64.2% 21.4%
General News 43.8% 49.7% 6.5%
Games 9.2% 84.6% 6.2%
Entertainment
Lifestyles
1.6% 94.0% 4.4%
Credit Help 1.1% 95.6% 3.3%
Community-Made
Directories
0.2% 55.2% 44.6%
Business Content
Investment
1.8% 54.6% 43.6%
Source: Online Publishers Association (OPA)

"On the digital side, we expect, as do the industry analysts, that more and more consumers will buy low-priced content online, with music continuing to lead the way," Peppercoin's Solomon said. "We do, however, expect significant growth in the games and video markets as more and more content providers look to develop pay-per-use/pay-per-view offerings to meet consumers' preferences for flexibility and choice."

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