8Conclusion
Micropayments are believed to have the potential to grow significantly over the next few years, particularly in the context of IoT.
Thus far, micropayment applications for online content have consistently failed to succeed owing to a lack of user-friendly front-end solutions and cost-efficient payment systems to process them; however, some market-led initiatives are continuing in this domain. Successful micropayment systems and solutions will not only minimise transaction costs, but make such transactions a common, established practice. In terms of technology, it is worth noting that most recent initiatives have used DLT, although there does not seem to be any reason not to rely on instant payment technology (complemented as needed by end-user solutions and application programming interfaces).
However, all of those DLT-based initiatives are still in the investigation phase and have yet to prove their economic viability also for micropayments between IoT devices. DLT-based micropayments are still not part of our daily life and may not be widely adopted until more convincing business cases appear. And even then, success is not guaranteed, given all of the obstacles that they might face.
While current analysis and exchanges with market players do not highlight any major issues with micropayments, it is quite likely that new micropayment models will emerge in the future, affecting the European payment market. The Eurosystem will continue to monitor developments in this regard and act as a catalyst, seeking to promote safety and efficiency in the field of retail payments and fostering the implementation of innovative and efficient pan-European payments.
Acknowledgements
The content of the note was prepared by Andreja Birsa Writzl, with additional contributions from the
Payments Policy Working Group, chaired by Dirk Schrade, Market Infrastructure and Payments Committee, chaired by Ulrich Bindseil, as well as from Karine Themejian, Iddo de Jong and Claudine O’Connor.
© European Central Bank, 2023
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PDF ISBN 978-92-899-6148-6, doi:10.2866/07262 QB-07-23-220-EN-N
[1] On 6 December 2022 the ECB had an exchange on the topic of micropayments with representatives of six European market stakeholders and 15 members of the European System of Central Banks. That dialogue covered the potential impact of micropayments on the payment landscape, innovation trends relevant to micropayments, economic viability, and social aspects of micropayments.
[2] In Europe, PayPal defines micropayments as payments between €0.01 and €5; in the United States, it defines them as payments with a value below USD 10; in the United Kingdom, it defines them as payments of less than L5.
[3] The Oxford Dictionary of the Internet defines a micropayment as a monetary transaction that is so small that it is not economically feasible to process it using conventional means such as bank clearing”.
[4] See Böhle, Knud (2002), ‘’The innovation dynamics of internet payment systems development”, Report Nr. 63, Institute for Prospective Technological Studies.
[5] The company MPulse has a one-off SMS payment solution that allows customers to pay for digital products and services via a single SMS (i.e. via a mobile subscription).
[6]Internet of Things (IoT) market size, share & COVID-19 impact analysis.
[7]IoT in 2023 and beyond.
[8] Regulation No 975/98 establishes that there are eight denominations of euro coin ranging from €0.01 to €2.
[9] E-money is broadly defined as an electronic store of monetary value held on a technical device that can be widely used for making payments to entities other than the issuer. The device acts as a pre-paid bearer instrument and does not necessarily involve bank accounts in transactions. See: Electronic Money.
[10] For domestic micropayment transactions, PayPal charges 10.0% + €0.10; for a normal transaction, a merchant with a monthly income of less than €2,000 is charged 2.49% + €0.35.
[11] The European Commission published a legislative proposal for a Regulation amending Regulations (EU) No 260/2012 and (EU) 2021/1230 as regards instant credit transfers in euro in October 2022, requiring that payment service providers that offer regular SEPA credit transfers offer also SEPA instant credit transfers to their customers.
[12] The European Commission proposal for a Regulation amending Regulations (EU) No 260/2012 and (EU) 2021/1230 as regards instant credit transfers in euro requires that the charges for SEPA instant credit transfers are equal or lower than the charges for SEPA credit transfers.
[13] While Visa has a capacity to process about 65,000 transaction messages per second and PayPal can process around 200 transactions, Bitcoin’s capacity is only 7 transactions per second and Ethereum’s is about 20 transactions per second.
[14] There are various possible models here, and some of these IoT payment transactions will not necessarily be characterised as micropayments.
[15] In IOTA, every participant that wants to conduct a transaction has to actively participate in the network by approving two previous transactions. Thus, there is no need for miners to verify blocks and no need for fees to be paid to miners.
[16] See Governance in systems based on distributed ledger technology (DLT): a comparative study”.
[17] Wholesale CBDC refers to the settlement of interbank transfers and related wholesale transactions in central bank reserves.
[18] See The technology of retail central bank digital currency”.
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