PayPal cashes in on micropayments

PayPal will charge retailers a five per cent handling charge and five cents per item

PayPal, the online payments system owned by eBay, is to start processing micropayments. The system is designed for purchases under $2, such as for mobile ring-tones and computer games. 

Although retailers will pay a five per cent handling charge and five cents per item, PayPal believes this still represents savings of 40 to 60 per cent compared to the industry's current average of two per cent plus 20 to 30 cents per transaction.

"The consumer response to à la carte pricing for music downloads has clearly shown that customers want to be able to pay as they go," said Peter Ashley, director of PayPal's micropayments business.

"With our new pricing tier for digital goods, merchants can affordably provide customers with the opportunity to purchase the content they want without the need to sign up for subscriptions or pre-payments."

Micropayment handling is seen as key to the development of e-commerce. Larger banks and financial houses have traditionally steered clear of small-charge buying due to low margins, but PayPal's lower operational costs and economies of scale could make the plan a success.