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Beverley Forner [1]
Managing Director, Thiri Pty Ltd
The electronic marketplace is developing as a significant component of Australia's economy. Part of this trend is the rapid emergence of a variety of payment services and the evolution of money into electronic form. More and more consumers are replacing cash or cheque payments with electronic forms of payment. For example Australia's business to consumer e-commerce revenues in 2001 totalled more than US$2.5 billion. We also know that an estimated 52 percent of Australian households are online. This proportion has more than doubled since November 1999 when only 25 percent of all households were connected to the Internet. Another interesting figure is the increase in the use of Internet banking for example we know that in the three months to September 2000 the number of Internet banking users in Australia increased from 1.37 million to 1.75 million and now stands at more than 4 million.[2] This represents a significant proportion of consumers in Australia already using e-commerce, and these figures are continuing to grow.
Today I will present some of the emerging models for online payment services. I will also show how these models apply to buying and selling items of very small value (micropayments) that enable 'pay-per-view'. In such a rapidly changing environment we need to be aware of how these developments will open opportunities for the information services industry and how these changes will affect the end user or consumer of information.
Before we assess the range of payment services for 'pay-per-view', I would like to first look back on some of the factors that have deterred the developments for selling information online. The two key problems have been:
The first challenge for information providers is the cost of providing information online and collecting payment for that information. The cost of collecting payments of small value can be greater than the return from the sale. The challenge for payment providers has also been to make payment transactions secure for both the payee and recipient, and to transact both information and funds in real time from supplier to purchaser.
The other enduring concern for information providers has been how to ensure that the purchaser of information or digital goods does not resell copies or that consumers will not redistribute information free of cost to other consumers and deprive the supplier of revenue.
Several solutions have emerged to address these problems. While there may not yet be a solution that adequately protects property rights (although I will suggest that solving the payment collection problem might also contribute a solution to the property rights issue), making payments online has become increasingly more accessible and convenient for both the consumer and supplier. The problem for both information suppliers and purchasers is now one of selecting an appropriate service for enabling electronic commerce for 'pay-per-view'.
Our search across the information services industry delivering 'pay-per-view' has revealed that most information providers are selling information as a package through a subscription basis. The subscription provides the consumer with access to a range of information for a fee over a set time period.
The subscription approach can be structured in several ways. For example to read The Australian Financial Review (AFR) online you need to purchase a subscription. The minimum cost is a monthly subscription for $53.00 which you purchase online by credit card. While the AFR provides some online content free, most of the feature articles or archived content is locked and only available to subscribers through an access login and password (http://afr.com).
The New York Times also uses a combination of free and locked content ((http://www.nytimes.com), they offer free access to online content from seven days of publication. Access after seven days is charged. You can make a purchase of a single article for US$2.95 or you can buy in bulk for a reduced fee (for example, a pack of 25 articles can be purchased for US$25.95 but must be used within a time limit of six months).
While both AFR and the New York Times are providing a 'pay-per-view' service to their customers, it comes at a premium cost to both the consumer and the supplier. Firstly, the collection of small payments through credit cards is not cost-effective. Even the transaction fee alone can exceed any profit from the sale, before other costs (infrastructure etc) are taken into account. To collect online payment by credit card, an average business will pay a standard transaction fee plus a percentage of the purchase price. The smaller the business the higher the percentage likely to be charged to them as merchant fees by the card issuing companies. Online transactions are charged at a higher rate, with the claim that this premium covers the risk of fraud. This is can be as high as seven percent. Credit cards cannot be efficient for items under $10.00 and are the most costly payment instrument available other than cheques.
Secondly, the consumer may be forced to have a relationship with more than one information provider and purchase costly subscriptions for content that they may not use. Most consumers cannot afford to pay for all the Internet services they are likely to benefit from. As Jakob Nielsen explains, subscriptions are also a bad idea because they violate a fundamental web principle: freedom of movement and discovery.[3]
Subscription models also kill links and undermine the usefulness of search engines. These are the two main ways that users explore the Internet. Nielsen sees that micropayments are the answer as they increase the discoverability and usability of information. Micropayments provide revenue to websites but don't interfere with the freedom of linking and navigating across the Internet.
Micropayments are small payments ranging from a few cents to about ten dollars. By reducing the cost of collecting small payments, payment service providers will open the development of the 'pay-per-view' market. This will allow consumers to access a wealth of information for a small cost and allow suppliers to profitably distribute information. With an effective micropayment service a consumer could purchase a single item for a small fee with the additional benefit of purchasing from a range of information suppliers.
Leaving aside the issue of the development of 'pay-per-view' infrastructures (portals or websites) on the supplier side, there are several issues that payments service providers (whose service needs to be embedded in the supplier's website) need to solve to make micropayments for content a reality for both suppliers and purchasers.
There have been several payment service providers delivering micropayments capabilities online. Many have exited the market because they have failed to understand the commercial requirements of both consumers and suppliers.[4] Not only does the online payment service need to be cost-effective it also needs to be secure, user-friendly, flexible and convenient.
There are three main concerns about security for both consumers and suppliers. These are privacy of the consumer, safety of the payment transaction and trustworthiness of the supplier. Both consumer and supplier need to be assured that the payment service provider adequately manages these issues.
Consumers want a simple to use and access payment system. They don't want to download software or purchase identification certificates. It needs to work as simply as a credit card transaction to purchase online with an easy one-click purchase and no forms to complete.
The payment service needs to provide flexibility for making and receiving payments without having to use an intermediary to convert the value of the payment. Funds in the system must be reusable so payments can be made to different providers as well providing access to funds not in use. The system needs to have the flexibility to access existing payment mechanisms like your Internet bank account.
Online payment services need to provide the same level of convenience as cash and credit cards. That is they need to provide a quick and easy payment service that can accommodate the anonymity of cash payments but include a tracking and receipting service.
There are some additional concerns for suppliers of information. Suppliers will want to ensure that the payment service will integrate with their backend and accounting systems. Suppliers are also concerned with supplying a payment mechanism to their customers that their customers will find acceptable - so they are not forced into using a system they are uncomfortable with. Consumers are unlikely to want to set up numerous different accounts for the various different services that they might require. Consumers are also unlikely to want to place their money in an electronic wallet service with a supplier that ties up their money for use with one supplier only.
It was the awareness of the potential for micropayments and 'pay-per-view' that my company set about solving the online payments problem for small value items about three years ago.
PAYbySNAP is a payment service that Thiri Pty Ltd has developed (wholly invested in by private individuals) it has a micropayment capability that addresses the requirements of both consumers and suppliers.
Used as a 'pay-per-view' service, a consumer can log in to a suppliers' website select and purchase an article. The article is delivered immediately online following payment. Furthermore the payment is transacted immediately between the consumer and the supplier.
SNAP provides a cost-effective service for 'pay-per-view' to both consumers and suppliers because PAYbySNAP is a web-based payment service that can be accessed through a browser. Different interfaces for consumer payments can also be created, for example consumers will be able to make payments by mobile phone.
From the end consumer's point of view, SNAP operates as an Internet deposit account that allows you to purchase items of any value online. You can open a SNAP account online and bring money into the account through Internet banking or through BPay. Money in the account can be used to purchase items from any of the suppliers that use SNAP. With SNAP, purchasing and selling online can be conducted without using credit cards. It can be appealing to some consumers to pay online without revealing their credit card numbers and other personal information.
PAYbySNAP also provides security by using a secure scripting language as well as encrypting all transmission data. SNAP uses the same transmission process as major financial institutions to ensure that data is delivered safely across the Internet.
Transaction costs to suppliers using the system are low - there is no fee to consumers purchasing with SNAP or paying a bill. A small fee is applied to a transaction when a supplier is paid. Suppliers are charged a maximum fee of 50c per transaction. For transactions below $25.00 the transaction fee is 2 per cent of the amount of money paid. SNAP can profitably enable transactions from as low as two cents. Compared to credit cards, the SNAP fee structure offers a clear advantage for processing small transactions.
Suppliers can open an account with SNAP and set themselves up using the online guide. The process is fairly straightforward and there are templates and graphics which fast tracks implementation.
The PAYbySNAP service supports a range of pricing models for different products or customers, such as 'pay-per-view' and macrobilling. Macrobilling through PAYbySNAP provides an alternative payment model to charging per article through 'pay-per-view'. The macrobilling capability allows suppliers to offer their customers the option of accumulating small charges into one fee. This allows the consumer a 'pay later' option. Charges would accumulate on the customer's monthly bill in the same way that call charges are managed by telephone companies. Small sums are aggregated into a larger sum that can then be billed to the individual and remitted to the supplier. PAYbySNAP clears each transaction and credits it immediately to the supplier. All payments are recorded in SNAP through an account statement. The macrobilling capability also means that the supplier can use SNAP to replace their current 'pay in advance' subscription model, while concurrently opening up other options for particular customers or for particular classes of content.
Suppliers using a system such as SNAP can take advantage of reduced overhead costs for processing transactions. Low value transactions can be provided cost-effectively to customers. In addition, this is the only online payment service that offers both the collection of micropayments in real-time with the immediate delivery of information.
The flexibility of SNAP ensures that it is not just a payment service for micropayments, this technology can be used with other business models. PAYbySNAP's technology has been piloted with businesses in Canberra and has been used for payments and bill presentment by:
My company is currently working with some national organisations, to explore the online delivery of racing guides and mobile phone applications. RMIT publishing are investigating how they could use PAYbySNAP as a method of collecting payments for pay by click and public subscriptions as well as payments for physical goods shipped through the mail.
Protecting property rights has been a critical concern for the music industry, which has continued to lose significant revenue through music 'piracy'. Most of us are aware that you can make a perfect copy of music for less than $1.00 per disc.
Most recently a coalition representing Australia's copyright holders has requested an interesting amendment to the Copyright Act. The coalition wants to place a levy on the price of blank CDs, DVDs, computer disks, audio cassettes and video tapes. This recognises that many Australian consumers copy music CDs, TV shows and movies.[5] Homeowners would pay for copyright royalty at the time that they purchase the blank media device. However, while the royalty fee could return minimal revenue to the music industry, it may do nothing to combat music piracy. The movie industry is also facing a similar threat with the introduction of DVD recorders.
A smarter development in the music industry is the emergence of an online music library. In some business models consumers can purchase monthly subscriptions to access the library. For example, Emusic.com (http://www.emusic.com) allows subscribers to pay a monthly subscription fee of between US$10 to US$15 per month duration of the subscription. The subscription allows the consumer to download music from the library of over 200 000 titles, and play the music without using an expiry date. The service provides additional value to the subscriber as they can mix their own CD with the variety of music available through the library.
Online video content providers have addressed this issue by using streaming video. The 'streaming' format allows video to be pushed to a user 'frame by frame', rather than as a complete video file. This means that the viewer cannot copy the video file or republish, or distribute it to their friends.
My point here is that deterrents introduced to protect copyright and reduce content piracy also deter the consumer's access to information, usually making the process of accessing content more expensive or more complicated. It seems that a more sensible business model could be to enhance the value of the service delivered to the consumer by the supplier of the music. The emusic site shows us that you can free up the availability of content for users and provide them with additional value for a low cost. However, the emusic site is still following the subscription payment model and locking their customers into payment for three months.
A debit based micropayment service such as the SNAP system if tightly integrated into a supplier's site, could be considerably more effective in revenue terms than the proposed levy solution.
The Internet is becoming monstrously large with more and more information added daily. The abundance of information online doesn't improve the quality of information available. Free content models are serving to clutter useful information and proliferate not-so-useful content. We know that consumers are increasingly open to pay for the content they require if they are assured that it is what they need and can trust its quality and the supplier.
Our approach to micropayments opens new business opportunities for both information providers and library services by enabling 'pay-per-view'. The SNAP 'pay-per-view' service offers an efficient payment service that can manage very small payments for information. This means that content can be sold and distributed to a diverse range of users online and is not reliant on a subscription model to return revenue. The 'pay-per-view' service provides benefits to both the supplier and consumer of information. For example, it opens geographic boundaries and new markets for libraries and information providers as well as increasing access hours for consumers.
To those who believe that all content should be free, I would argue that 'pay-per-view' can return a viable revenue stream to both information providers and library services which can be re-invested into a better infrastructure for the delivery of quality information, and delivering a better service to the consumer of information. The value provided to consumers is that they can find, retrieve and access an article for a small cost online and be confident that the article is from a trusted source.
Access to information is a quality service currently provided through library services. Library services have the potential to reform the use of the Internet to access information and provide a more enjoyable experience for the consumer of information. That is make searching for an article, retrieving and reading and referencing the material a more accessible and even enjoyable experience.
Expenditure currently invested in technology to deter piracy of information and protect copyright may now be better invested in services to address user convenience and access to information. Reducing delivery costs improves access costs for the end consumer.
The full potential of micropayment payment services for 'pay-per-view' has not yet been fully realised by many information suppliers. Trends in this area indicate that consumers are now willing to pay for information online.
However micropayment systems require critical mass to succeed. Consumers are reluctant to use a payment system that is not well known and suppliers are reluctant to use a payment system without customers. New breakthroughs in the technology with payment services like PAYbySNAP provide an opportunity to turn this around. In the changing marketplace a sustainable payment service is one that can gain critical mass by meeting both consumer and supplier requirements and providing simplicity of service that appeals to a mass market.
The consumer will ultimately determine the choice of payment service. The supplier may choose a range of payment options that provide convenience to their customers but also offer a good business choice for the supplier. The barrier of high transaction fees has previously held back information suppliers from offering content for sale on the Internet.
Another deterrent for information suppliers and consumers to make better use of the electronic marketplace has been the slow delivery of information across home modems to personal computers. This too is rapidly changing as home computers have higher processing capability and many home users are connecting to broadband services.
All these developments point to the inevitability of a highly competitive electronic market place for information providers. We may start to see the emergence of digital content supermarkets and portals that not only accommodate a range of information suppliers but also facilitate many payment services with the potential to cross beyond geographic regions.
The clear advantage for suppliers using a micropayment system like SNAP is that they can offer information for sale online and collect micropayments in real-time - and make a profit. They don't need to establish an identity for their customers when purchasing or maintain bills and invoices for them - all this is managed electronically by the payment service provider. Consumers can make their purchases with SNAP as simply as they manage cash - electronic cash.
In preparation for this paper, Thiri commissioned specific research into the opportunities that a web-based micropayment service could provide to libraries in Australia. The following opportunities were identified as potential business developments:
I have tried to cover the opportunities and impact of micropayments systems on Australian information providers. This impact is potentially huge, and the news is mainly good. The creation of systems such as PAYbySNAP, and the other competing products that will emerge or adapt is likely to have an extremely positive effect on information services and products. These emerging payments services could open up new and more flexible ways to pay, revenue streams that can be re-invested if this is the preferred position, better delivery infrastructure, and better quality access to content from trusted sources for consumers. The biggest challenges will be to achieve critical mass of customers prepared to use the new payment methods, and to persuade suppliers that the problem of royalties can be attacked in a different way.
Buck S. Peter, 'From electronic money to electronic cash: payment on the Net', Logistics Information Management, Vol 10, No 6 1997.
Davidson, John, 'Levy to fight CD pirates', The Financial Review, 9 January 2003.
Hurwicz, Michael, 'The Return of Micropayments', Web Techniques, 2001
Johnson, Toby, 'Small is the new big', Communications International , May 2001.
National Office for the Information Economy, The Current State of Play, Australia's Scorecard, April 2002. www.noie.gov.au
Nielsen, Jakob, 'User Payments: Predications for 2001 Revisited', 2001 http://www.useit.com/alertbox/20011223.html
Solomon, Melissa, 'Micropayments', Computerworld, May 2000.
StorageTek, Micro-payments: Making Net Profit: A StorageTek Perspective, http://www.micorp-payments.net
[1] Beverley Forner is Managing Director of innovative technology company Thiri Pty Ltd based in Canberra. Thiri is the developer of PAYbySNAP, a secure online payment system (http://www.paybysnap.com). PAYbySNAP enables new 'pay-per-view' business opportunities for library services and information providers. Beverley has a background in information services through senior positions in Commonwealth, ACT and NSW Governments. She has led major projects on data directories, development of metadata standards, and sharing of utilities' information. In her most recent executive role Beverley had responsibility for nine businesses, including libraries, information and IT management and e-services delivery. Beverley is also a solicitor and commercial mediator.
[2] National Office for the Information Economy, The Current State of Play, Australia's Scorecard, April 2002. http://www.noie.gov.au
[3] Jakob Nielsen, 'User Payments: Predications for 2001 Revisited', 2001 http://www.useit.com/alertbox/20011223.html
[4] Beenz, CyberCash, Cybercent, Cybercoin, Digicash, eCharge, FirstVirtual, Flooz, and MicroMint. Of these, only CyberCash and eCharge even have a Web site anymore. And in the case of CyberCash, it's mainly to announce the company's acquisition by VeriSign. Other players that have been around for awhile, but have little visible market traction in the US, include CyberChange (Cardis), eCash, Internet Dollar, MilliCent, Pay2See (MicroMint), and Trivnet. (Hurwicz, 2001)
[5] John Davidson, 'Levy to fight CD pirates', The Financial Review, 9 January 2003.