Looking for Big Profits in Small Purchases

BOSTON (05/15/2000) - The huge upsurge in e-commerce might lead you to believe that online sales sites are an even match for bricks-and-mortar retailers.

But there's one area where cybershopping lags behind - sales of items that cost only a few dollars, the types of things most people pay for with cash in stores. On the Internet, however, dollar bills are out. Credit cards are the dominant method of payment, and their transaction fees of about 4 percent cut deeply into a merchant's profits on small sales.

San Francisco-based iPIN aims to change that.

The company offers a micropayment plan that relies on existing consumer billing services, such as those from Internet service providers (ISP), wireless service companies and banks, to invoice and collect the fees for small purchases. The company's sweet spot is below the $20 mark, so it has attracted the attention of Web sites offering goods like downloadable music files that sell for 99 cents.

How It Works

Merchants using the iPIN system can choose either a black-box solution that plugs into their existing infrastructure or use the company's software development kit to extend their systems. The connections between iPIN and the clients' accounting systems are made through ISPs. Consumers sign up for a free iPIN account through their provider's automated teller machines and pick a code number to authorize purchases, rather like a personal identification number (PIN). Then, when shopping, they pick the iPIN option from the merchant's list of payment choices. IPIN acts as the clearinghouse, making sure the ISP receives any charges made during the month, which then appear on the consumer's ISP bill as a lump sum. When the bill is paid, iPIN handles the settlement and clearance processes - similar to what Visa and MasterCard vendors do - distributing payments to the merchants involved, with iPIN and the ISP taking a cut off the top.

The Digital Music Co. decided iPIN made sense for its BuyMP3.com music retail site, says Jim Milton, president of the Monmouth Junction, New Jersey-based company. The site's core audience is kids between 14 and 17 years old - people not likely to have credit cards, Milton says. Besides, the site is geared toward impulse buying: "You sample 30 seconds of the song and then purchase it," says Milton. So, a payment system that needed minimal input from the buyer was desirable, he says.

BuyMP3's iPIN system went live last winter. It took two engineers about a week to integrate it into the site's shopping card, according to Milton. He says that in the time iPIN has been running on the site, it has matched the 3-year-old CyberGold payment system in terms of number of transactions. Milton says he expects iPIN's percentage of transactions to increase once more ISPs agree to support the system.

ISP Difficulties

The dearth of ISPs willing to pass iPIN charges on to their customers is one thing holding the company back. The huge national ISPs are notably missing from the company's list of partners. However, a developing relationship with Milpitas, California-based GRIC Communications Inc., which is building a billing system that allows a cooperative partnership of global providers to offer their customers Internet services through one another's networks, bodes well for increasing ISP participation.

Despite the need to increase the company's ISP ranks, Kim Underwood, a research specialist at Gartner Group Inc. subsidiary Datapro in Delran, New Jersey, says iPIN has a viable system. Its primary selling point for merchants is the ability to enter the e-commerce market quickly and avoid spending hundreds of thousands of dollars for a billing infrastructure. Also, the company has operations in Europe and will do the necessary currency conversions to make international sales possible.

But Underwood says the newness of the market leaves many questions. Will the registration process be a stumbling block for customers? How will iPIN handle the fraud issue? ISP customers can't be rated like credit-card applicants, and Internet fraud will likely accelerate as e-commerce grows, she says. The company also needs to figure out how to handle nonpayment and disputes between merchants and shopper, adds Underwood.

Johnson is a Computerworld contributor in Seattle.iPINLocation: 577 Second Street, Suite 200, San Francisco, Calif. 94611Telephone: (415) 547-2700Web: www.ipin.comThe technology: Internet micropaymentsWhy it's worth watching: Appends charges to existing customer bills, like ISP fees and wireless phone billsCompany officers: -Jim Justice, founder and chief adviser-Bradley Rode, CEO-Alexandre Gonthier, chief technology officer and vice president of product developmentEmployees: 50; increasing 100 percent per yearMilestones: - 1998: Founded- Fall 1999: Global payment system debutedBurn money: Accel Partners, Sutter Hill Ventures, Gil Amelio, Geneva Venture PartnersProducts: E-Content Payment SystemCustomers: EMusic.com Inc., ArtistDirect Inc., The Orchard LLC, Mjuice.com, The Digital Music Co.

Partners: FlashNet Communications, GRIC Communications Inc., AT&T Corp.

Red flags for IT: - Few ISPs and other billing services have signed on. Plus, marketing efforts are split between ISPs and merchants.- There's a four-year history of consumers snubbing micropayment schemes.- Is anyone besides music sites interested?

Micropayment Field Growing

The micropayment market could be lucrative in the future, attracting companies willing to struggle to produce a viable technology. Datapro's Kimberly Underwood has identified a range of competitors to iPIN:



New York


Charges end up on a consumer's credit card. The registration process requires downloading a thin client and filling out information on which card to use.

When a purchase is made, the downloaded applet requests the goods and authorizes payments. 1ClickCharge is aimed primarily at content providers who charge for information.


CyberGold Inc.

Oakland, Calif.


Consumers fund their CyberGold accounts by responding to advertisements by CyberGold's partners. Shopping at participating merchants also earns a rebate.

The credits can be spent on goods, transferred to a bank account or credited to a charge card. CyberGold also lets people donate their credits to charity.eCasheCash Technologies Inc.

Bothell, Wash.


ECash software relies on digital signatures and public key encryption for authentication and security. Launched worldwide in February, eCash boasts a partnership with Deutsche 24, a bank in Germany. Unlike iPIN, banks handle the settlement process.eChargePhoneeCharge Corp.



Lets consumers add charges to their phone bills, similar to the 900-number model. Used primarily for subscription services. Requires customers to download software to receive encrypted data and initiate charges. It's limited to systems that can make phone calls to the eCharge server. An eChargeNet product for Internet shopping is in the works.

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