Micropayment

November 21, 2023 - Around 2 mins mins to read

Understanding Micropayments

Micropayments are small online transactions, often involving amounts less than a cent or even less than $1.00, depending on the payment system. They are commonly used for immediate online distribution of royalties, gratuities, pay-per-click advertising, freelance jobs, and cryptocurrency transactions.

The term “micropayment” was coined by Ted Nelson, a technology futurist and philosopher, in the 1960s. Nelson’s vision was to enable users to pay for online content with individual copyrights, even in amounts as small as a ten-thousandth of a penny. This concept revolutionized online payments and facilitated the development of low-cost networks.

There are several platforms available for micropayments, each with its own unique functionality. One common approach involves sellers or payment providers creating accounts with third-party micropayment providers. These providers handle the collection, storage, and distribution of payments on behalf of the sellers. The payments are stored in a digital wallet managed by the provider until they reach a certain threshold, at which point they are paid out to the recipient.

Another method involves a prepaid system, where users establish accounts with micropayment processors and deposit a significant amount of money into their accounts. When the user makes a small purchase on an e-commerce platform that uses the same provider, the purchase amount is deducted from the user’s account. In this case, the payment is processed through the user’s micropayment processing account.