To have better chances in the growing market sector

Mar 16, 2010 15:37 GMT  ·  By
PayPal will roll out a new micropayment platform to have better chances in the growing market sector
   PayPal will roll out a new micropayment platform to have better chances in the growing market sector

PayPal is starting to feel the 'heat' and realize that it's missing out on the huge opportunity provided by microtransactions especially when it comes to virtual goods. The payment provider owned by eBay is looking to introduce cheaper fees for small transactions in order to spur uptake of its service in the profitable and rapidly growing market. Basically, PayPal will enable vendors to bundle several payments under the $10 mark and just pay a cumulative fee.

The fresh payment plan will be rolled out later this year. Under the new terms, sites or services that implement PayPal will get much better terms than what they've been used to so far. The biggest change is that vendors will be allowed to make a number of transactions with different users until a certain limit, which is yet to be determined, is reached.

Only then will the companies implementing PayPal be charged a single bulk fee, which should be significantly smaller than the one paid for individual transactions. Currently, PayPal takes 5 percent of the transaction amount, as well as a 5 cent fixed fee for transactions below $10. For small purchases, the fees can add up to quite a bit, for example for 99-cent transactions, the fee would be 10 cents. For transactions over $10, PayPal charges a 30-cent fixed fee and 3 percent of the transaction amount.

Under the new pricing scheme, PayPal would take a hit in revenue, but the smaller fees should encourage more companies to implement the payment option on their sites or services that should more than make up for the loss. The move couldn't have come any later as microtransactions are becoming increasingly popular and common online.

This coupled with the big market created for virtual goods, especially in online games, present a very big opportunity for payment service providers. However, many have resorted to implementing virtual currencies as an easier way of handling microtransactions. Facebook has recently introduced PayPal as a payment option of its virtual currency Facebook Credits (via Business Week).