Micropayments: what not to do 101

Ahead of its time or asinine?

Two years ago, Canadian contactless micropayment vendor Dexit was quietly morphed into the point-of-sale company HDX. No-one cared much.

But just a few years before, the tech sector was all abuzz over the possibility of paying for small-ticket items under $20 with its small RFID-enabled fob that could be pressed to a reader to pay, and then refilled at a bank for a couple of bucks.

Back in 2003, there were partners on board, including the big banks, who would allow users to refill their cards at their branches, and Telus, who stuck the tags on their phones. By 2004, there were 225 merchants on board, and 25,000 consumers signed up. That year, Bell Canada jumped at offering the service to its enterprise IP network customers; the following year, it announced that it would set up a biometrics-based telephone system to add value to Dexit fobs.

But by 2006, the company had slashed staff and started scaling back its downtown Toronto ops, even though it boasted of 450 merchants and 50,000 customers. The company was now public and hemorrhaging money, according to company founder Renah Persofsky, who now works for the Toronto office of Ubequity Capital.

Eventually, Persofsky stepped down, and Dexit became HDX under the rule of Paul Howell.

Now the Dexit offices are being leased out to save money, and HDX is almost back to profitability, according to Persofsky, who said that she is supportive of the direction of the Dexit brand under the HDX banner. HDX is projecting around $9-million in revenue for 2008, and recently acquired two other companies. But the business is more in general POS technologies, and its Dexit ops are nowhere near its glory days levels. It's left in exactly seven downtown Toronto locations, although there were new roll-outs of the Dexit Payment Solution with the HDX touch screen Point of Sale (POS) solution at Robin's Donuts in Nova Scotia, and the Manufacturers Technology Centre in Ontario in late 2007.

The Chicken and the D-eggs-it

"It was not surprising at all," said Info-Tech Research Group senior research analyst George Goodall.

Micropayment (or stored cash card) services and devices have a long history of failure going back to the late eighties, and unsuccessful attempts like the Visa Cash, Visa SuperSmart, MasterCash, and Mondex cards. "It's a game of scale, of cost structure. You have to scale up quickly," Goodall said. Targeting downtown Toronto for its primary roll-out meant that it was "only a matter of time."

Several people interviewed used the term the-chicken-and-the-egg. Said Goodall: "Without the vendors on board, there's no value for the customers. Without the customers, why would the vendors get involved?"

Probably the best example of a successful micropayment system is The Octopus, the Hong Kong Transit System. It utilizes a contactless stored-cash payment system. But, said Goodall, the key to its success lay in the humongous scale of the endeavour. "It's a massive transit system with huge usage," he said, "So they had a very rapid subscriber base, with almost 80 per cent of the population using it. It's hard to reach that critical mass."

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