Solving the Problem of Micropayments
Monty Solomon
Solving the problem of micropayments
By Hiawatha Bray, Globe Staff, 2/17/2003
MIT professor Ron Rivest has come up with a new way to throw away money
on the Internet. With luck, it'll make him a fortune. Rivest is one of
the three people who devised the encryption system that allows us to
transmit our credit-card information safely over the Internet. The
company that grew out of this work, Bedford-based RSA Security Inc., is
one of the leaders in the field. He's a fellow of the American Academy
of Arts and Sciences and the Association of Computing Machinery. Put it
this way: Rivest knows what he's doing. So what's all this about
throwing away money?
Actually, it's a fascinating proposal for solving one of the toughest
-- and smallest -- problems of Internet commerce. It's easy to buy a
$20 CD online, or a $100 hard drive or a $20,000 car. But how do you
buy something online when it only costs a buck or two?
This is what's called a micropayment, and it turns out to be remarkably
difficult to do. Entrepreneurs have been banging their heads against
this problem for the past half-decade or more, and with good reason.
There are lots of desirable digital products that might sell like
popcorn if there were a practical way to pay for them. Music, for
instance. Some subscription services will let you download tunes at 50
cents apiece, but you have to pay a subscription fee as well. We're
still waiting for a service that lets anybody drop by at any time, and
purchase a single song.
This is because it costs so much to process a single financial
transaction. Most Internet shopping happens with a credit card. The
merchant selling the goods must pay a transaction fee to the credit
card issuer. This usually amounts to a few percent of the sale price,
plus a flat fee of 25 cents or so.
But this flat fee is the same no matter the size of the purchase. When
the merchant is selling Tom Clancy novels at $30 apiece, the fee
doesn't matter. If it's an MP3 of the latest single from Sheryl Crow,
that fee will eat up all the seller's profits, maybe even put him in
the red.
''You can't do small payments with credit cards,'' said Rivest. ''From
the merchant's point of view, you probably can't do under $5 and make a
profit.''
What's needed is a method that slashes the cost of the transaction.
Enter Rivest, his colleague and fellow computer scientist Silvio
Micali, and their new company, Peppercoin Inc., which plans to solve
the problem with doses of encryption and statistics.
http://www.boston.com/dailyglobe2/048/business/Solving_the_problem_of_micropayments+.shtml