piatkow - 8:51 am on Oct 9, 2010 (gmt 0)

I have seen two models for micropayments in the real world.
1. User pays the fee - I can pay for parking with my phone but have to pay the processing fee - I just keep a bag of small change in the glove box instead.
2. User deposits money with the service provider from which the micropayments are deducted and is topped up when used. Many transport operators use this option for paying fares by smart card.

The only way micropayments can be cost effective on line is for user and merchant to have accounts with the same processor. Either the merchant insists that customers have an account with a particular processor and risk complaints or end up with accounts with every player in the market. The big players of course will be able to take small, but not micro, amounts on deposit (pay five pounds which runs down at, say, a penny a page)