REPORT

In collaboration with

Copyright Value Partners S.p.A. All rights reserved

Capturing the Micropayments Opportunity

Capturing the Micropayments Opportunity - a report published

by Value Partners Greencoat House, Francis Street, London SW1P 1DH, UK
January 2011

Francesco Burelli, Kim Chua, Henry Alty, Charlie Morris,

Michael Rothkopf, Maximilian Rofagha and Davide Tesoro Tess,
Rachel Healy, Daniele Schneeberg
Edited by Tina Guiducci
Special thanks to clients and industry executives who have made
themselves available for interviews

This report is published by Value Partners Management Consulting Limited

If you would like an electronic copy please write to:
micropayments@valuepartners.com

For more information on the issues raised in this report please contact:
francesco.burelli@valuepartners.com
henry.alty@valuepartners.com
chris.cowan@valuepartners.com

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REPORT

Table of Contents
Foreword by the Lord Mayor of London
Foreword by the Welsh Assembly Government
Foreword by VRL Financial News

5
6
7

1 Executive summary
2 What are micropayments and why is interest in them growing?
2.1 What is a micropayment?
2.2 Where do micropayments sit in the payments landscape?
2.3 What drives the micropayments opportunity?
2.4 How big is the micropayments opportunity?
3 Micropayments: where are we now?
3.1 Payment cards and payment service providers
3.2 eWallets/eMoney
3.3 Aggregators, virtual payment interfaces, online payment transfers
and P2P internet payment service providers
3.4 Telecoms and ISP billing systems
4 Value Partners view on the future of micropayments
5 Conclusions

8
9

17

24
25

REPORT

Foreword by the Lord Mayor of London

I am delighted to be able to provide a foreword to this report.As Lord Mayor of
the City of London, I support and promote the UKs financial services industry
at home and abroad.
The City has alwaysbeen at the forefront of innovation.This report focuses attention on a challenging and important area where innovation is required:micropayments, where small sums are at stake and transaction costs cantake up
a major proportion of the value of the transaction.This isof increasing importance to the media, broadcasting, telecom and onlinebusiness.
This is an area where new and better solutions are needed. This report, developed in collaboration between the Welsh Assembly Government, VRL Financial News and Value Partners sets out what is needed and signals the way
forward, especially for private equity and investment banking, which take a
particular interest in these new technologies. It is an important contribution
to an important debate.

Alderman Michael Bear

The Rt Hon the Lord Mayor of London

Capturing the Micropayments Opportunity

Foreword by the Welsh Assembly Government

Innovation is a key driver in ensuring competitive advantage in financial & professional services. The
Welsh Assembly Government is keen to support new business thinking and to partner in the production and delivery of this important research document.
The Welsh Assembly Government is committed to supporting ambitious businesses seeking to achieve
new ways of working, profitable growth, continuing success and a secure future. We work with businesses looking to establish operations in a new location as well as businesses already established in Wales.
We aim to support every stage of business development from start-up to multinationals.
Wales has announced a new direction of travel for economic development: the Economic Renewal Programme. Economic Renewal recognises Financial & Professional Services in Wales as a key business development sector, which will continue to benefit from the highest levels of targeted financial and business support.
For businesses in our key sectors, there is an outstanding package of targeted support, including skills
development and training (such as leadership and management skills), exceptional technology & innovation support, property services and academic collaboration opportunities.
Our new economic development approach also targets our resources in a way that will benefit all businesses in Wales. Our focus is on investing in infrastructure, research & development (R&D) and improving the conditions within which businesses operate.
For example, Economic Renewal has a commitment for every business in Wales to have access to next
generation broadband by the middle of 2016, with a target of access speeds of 100Mbps or more by 2020.
We want to create in Wales an environment which is great for business and a fantastic place to live.

Tony Godfrey
Head of Financial & Business Services
Inward Investment
Welsh Assembly Government

REPORT

Foreword by VRL Financial News

VRL Financial News Cards International and Electronic Payments International titles have been analysing,
researching and monitoring the payments industry for over 25 years. Particularly in recent years, we have
seen consumers purchasing habits changing at an incredible rate. Over the past 15 years or so the internet and the mobile telecom channels have dramatically changed the way people find and share information. The way people pay for goods and services is changing in much the same way. Over the last few
years, that change has been evolutionary, but now we are seeing convergence between the telecommunications and payments technology sectors that will dramatic increase the pace of that change. Growth
in the functionality of mobile and computers and the increase in data delivery capacity are creating a
convergence between the telecom and media industries, enabling new business models and the need for
support of a new type of transaction.
There is undeniably a gap in the market for a micropayments mechanism that allows the sale of single
items e.g. newspaper articles or music files with the ability to support individual transactions to complement subscription-based business models. This is the killer app the payments, media and telecom
industries are looking for. And this report contains essential research to aid its development.
A number of companies have identified the need to a certain degree, and provide solutions that function
reasonably well. However, the micropayments demand and supply sides are still hugely fragmented and
no product has yet achieved widespread acceptance among online merchants or consumers.
There are undoubtedly enormous opportunities for companies positioned to develop technology around
the processing of micropayments, and the innovations we are likely to see in this area in the near future
have the potential to change the payments landscape and influence the way in which the payments sector will be operating in the future as commerce and consumers become more digitalised.

James Ratcliff
Group Editor Cards & Payments
VRL Financial News

Capturing the Micropayments Opportunity

1 Executive summary
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, subscription-based business models remain the most appealing.
However, not all types of consumers are willing to enter into such regular financial commitments and
are therefore only monetisable through individual transactions of small value. These transactions, or
micropayments, are typically of 5.00 or under (equivalent to approximately 4.50 GBP () and 6.50 USD
($) in value).
Value Partners estimates the European micropayments market is currently worth 6bn, and is set to
grow to over 15bn by 2015. This corresponds to a 15% compounded annual growth rate over the next
four years; a rate that is unique to micropayments and unparalleled in most other industries, channels,
or payment types.
The demand for an effective micropayments solution originates from a range of online industries, from
video on demand through in-game purchases to digital music downloads. Currently, payments for these
services are accepted by incumbent payment infrastructures (e.g. direct debit, card payments, etc.) and
a number of emerging payments business models (e.g. eWallets, payment aggregators, etc.). However,
the demand is yet to be met by the silver 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.
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 here 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.
Overall, the evolution of micropayment demand and commercial solutions is still at an early stage of
development. Those providers with exclusive or unique content will be better positioned to own the
financial relationship 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. 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.

If you would like to read the whole document please write to micropayments@valuepartners.com