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FINANCIAL INSTITUTIONS

Capturing the micropayments opportunity

www.comm.ae , 9 February
Francesco Burelli, principal of Value Partners in London and Zoran Vasiljev, managing
director of Value Partners (MEA), offer their insight into the opportunities that exist in the
mobile payments sphere.
Zoran Vasiljev, managing director of Value Partners (MEA)
Comm: Value Partners has recently completed a report on
Micropayments an emerging area of opportunity and
challenge at the crossover of the media, telecommunications
and payments industries. What are some of the key learnings
coming out of report?
ZV: Digital media distributors are seeking new ways to
monetise their content offerings. The growth in penetration of
high-speed fixed and mobile Internet has created new
distribution channels and an opportunity for content distributors
to sell to new, larger audiences to offset falling advertising
revenues. For the majority of content distributors, subscriptionbased business models remain the most appealing. However, not all types of consumers are
willing to enter into such regular financial commitments and can therefore only be monetised
through individual transactions of small value.
FB: The report analyses opportunities at the interface between retail payments, media and
telecom. As digital media becomes increasingly central to the way information and services
are delivered, the need to facilitate high volume small monetary value payments increases.
There is a growing need for low cost payment services that operate in real-time, with a
secure and simple user interface. They must of course meet accounting needs and
compliance requirements. New payment models range from virtual currencies for social
networks or gaming communities; payment aggregators; prepaid services or stored value
wallets, and payment aggregators; to the service extension of established payment
infrastructures.
Comm: Could you qualify what is a micropayment?
FB: Micropayments is a term that identifies transactions of low value; however the exact
definition varies considerably by audience. For the purposes of our report, a micropayment is
defined as an online or mobile, real-time or deferred, financial transaction below 5 (US$),
which initiates the instantaneous delivery of a digital good. They can be used to charge
customers on a purchase-by-purchase basis for a range of digital goods, including access to
news content, online music, TV shows and films.
Comm: What drives the micropayments opportunity?
ZV: The key driver of micropayments is the shift towards the monetisation of digital content
and the emergence of new media business models. As media profit margins are squeezed
by dwindling advertising revenues, digital content purchases to digital music downloads.
Currently, payments for these services are accepted by incumbent payment infrastructures
(e.g. direct debit and card payments) and a number of emerging payments business models
(e-wallets and payment aggregators). However, the demand is yet to be met by the silver

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bullet of a universal micropayment solution. No solution has yet managed to combine the
critical elements of low cost, high speed and an excellent user-experience together with
compliance with regulation and the flexibility to support multiple distribution business models
throughout the breadth of the media, technology and telco industries.
FB: Value Partners believes that the micropayments solutions landscape will remain
relatively fragmented for the foreseeable future. As consumer demand and digital media
distribution increase, micropayment use will grow, but it is unlikely that a single solution will
cater to all types of content and parties involved.
Through research and client experience, Value Partners has identified and presented in its
report a number of critical success factors that any successful micropayments solution will
have to exhibit to successfully compete for a piece of this growing opportunity.
Those providers with exclusive or unique content will be better positioned to introduce a paywall to their content and dictate the payment solution used, while providers of more generic,
easily substitutable content should be prepared to evaluate and embrace a number of
different solutions simultaneously to drive consumer spend, often on an impulse basis. In
either case, while the lack of a single, universal micropayment silver bullet will not prevent
content providers from successfully monetising their offering, it will increase the complexity of
the challenge ahead.
Francesco Burelli, principal of Value Partners in London
Comm: In your report you mentioned that the micropayments
evolution has been enabled by three, mutually reinforcing
trends. Could you detail these trends?
FB: You are correct First of all the distribution of digital
content requires the ability to deliver it through high-speed
connections. This with the growth of e-commerce has created
an environment in which it is customary to purchase online. The
growth of social networks and online gaming communities have
led to the establishment of business models based on virtual
goods. Internet wallets and some large scale aggregators have
then enabled the establishment of early paidfor models. These
inter-dependable three factors have led to an environment in which micropayment enabled
business models can grow and prosper.
Comm: What can be concluded from the report?
ZV: Based on our experience, our projects and our research in the payments, media and
telecom industries across the globe, Value Partners has reached a number of conclusions:
1) There is today no single answer to the desire for a universal micropayments solution, and
moreover the aspiration to a silver bullet solution is currently unrealistic. Different types of
media, supplied to different types of consumer through different business models can be
addressed by different micropayments solutions.
providers have sought to convert their free readership base into fee-paying customers. The
demand for an effective micropayments solution originates from a range of online industries,
from video on demand through in-game
2) Whatever solution is chosen, it remains true that the user experience reigns supreme
except for monopoly suppliers of digital goods and services. A convenient, seamless user

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experience will not only increase conversion rates of interested consumers but will facilitate
impulse purchases. If costs can be minimised, compliance is addressed and fraud risks
managed, then convenient solutions will gather critical mass and enable profitable
transactions at low purchase costs.
3) The evolution of micropayment demand and commercial solution is still at an early stage
of development.
Value Partners expects considerable activity in the space over the next five years leading to
a short-term fragmentation of offerings that will be tempered in the long term by their
economic viability and user preferences.