The promise of fast, seamless micropayments (by micro I mean <$1) has been circling around the web for a while now. The original HTTP status codes, created over 30 years ago, even contain a „placeholder” for such a system, which is still reserved for future use:
The HTTP 402 Payment Required is a nonstandard client error status response code that is reserved for future use.
With the advent of Bitcoin, related arbitrage opportunities, and attention economy problems, cryptocurrency experts have renewed interest in providing micropayments solutions.
But I am not convinced this is a problem worth solving.
The administrative cost of accepting payments
Accepting payments and donations has their administrative cost. Taxes, fulfillment, answering support questions, upkeep of the payment system – most of this stuff can be automated, but you are never able to get rid of these pesky details.
Of course, the answer is easy – just make it up with higher volume!
But there is a catch-22. With more volume, there is more upkeep, more treadmill, more support, and bigger risk that you will run into a problematic customer. This constant administrative cost is a reason why every Credit Card processor charges a roughly similar rate for processing payments. They have overhead too.
2.9% + 30c of the fixed cost.Dire reality of Paypal, Stripe and other processors
The cognitive cost of the purchase
Each payment has not only a material cost but also a cognitive cost. While you are purchasing something, you not only whip out your hard-earned cash, but you also have to make a purchase decision.
- Is this really worth paying for?
- From the myriad options available, is this one the best?
- How much did I spend already this week?
All these decisions go through the customer’s head each time they are trying to buy something on the web (and IRL). That means, that each customer can only make so many purchases, regardless of their price.
While customer pays a higher price, you benefit. If they pay a high cognitive cost, everybody loses.
Subscriptions and bundles
Bundles and Subscriptions are both ways of addressing this issue.
- The purchase decision is made only once. In case of a bundle, its spread over items and in case of a subscription – over time.
- The administrative cost for the seller is also more manageable. It’s one customer instead of many, one fulfillment and one line item in a tax sheet.
That is why you are witnessing an explosion of subscription services – Spotify, Disney+, Netflix… Even Apple is moving to Apple TV+ because iTunes pay-for-a-single-episode model didn’t work out.
Micropayments are never taking off.
There are a million exciting technical ways of making micropayments work. Cryptocurrencies, in particular, are a favorite tool of those working on technical details.
The problem is human nature (and isn’t it always?). By putting the value of 50c on something, you are signaling that this is what it’s worth. Higher price means higher perceived value, and as recounted by Robert Cialdini, raising prices can, surprisingly, bring more customers.
Micropayments are a favorite excuse of non-customers. If you have something worth paying for, it will be worth paying more than $1. People not willing to shell out a $5 will find an excuse not to shell out 50c either. You don’t want these people as your customers. Pricing psychology and market economics are against < $1 transactions, and maybe that is why there is not a single successful micropayment startup.
Provide real value, raise your prices, and start solving $300 problems instead of 30c problems. Better yet – start a subscription!
In the words of Patrick McKenzie:
And if you came here from Hacker News, you might like another one of my articles: