According to Gartner, PayPal's move into the micropayment market was a sound business decision, and one that is likely to lead to market domination.

PayPal announced new micropayments processing fees for digital goods. The new pricing will provide merchants with a more affordable way to process payments for low-cost digital content such as video games, online greeting cards, news articles, mobile phone content and digital music. PayPal's micropayments pricing is designed to give customers the convenience of a-la-carte purchases, such as 99-cent downloadable ringtones, without having to sign up for annual subscriptions or pre-funded payment accounts.

An extension of PayPal's existing payment service for digital music providers, PayPal's new micropayments pricing is designed especially for payments less than $2. The new fees will enable merchants to process payments at a rate of 5 percent plus 5 cents per transaction. Because of the reduced fixed fee, merchants can save 40 to 60 percent when processing low-cost payments, compared to the industry's current payment processing rates of approximately 2 percent plus 20 to 30 cents per transaction.

Gartner's analyst, Avivah Litan, also considers that the move of PayPal to micropayments was simply a matter of changing PayPal's pricing model.

The Gartner's recommendations are

Vendors in the micropayment market: Offer value beyond payment processing to compete with PayPal. (For example, a vendor serving the vending machine market could also manage vending machine maintenance and inventory.)

Banks, card issuers and other vendors: Consider reselling PayPal payments to merchant customers, instead of devising ways to compete with PayPal.


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