How to make a micro-payment business work online
Posted by: Curtis Stevens on November 18th, 2009

Micro payments are becoming big business for online merchants.  Simply take a look at what Apple has done with MP3 downloads for a dollar.  When a merchant sells something and is only charging a dollar, there is very little wiggle room to cover your expenses.  One big expense can be the credit card processing fees.  A buck isn’t much to work with.  Even if you are dealing with Interchange only, you are looking at a minimum of 10 to 16 cents per transaction plus 2 to 3% of the transaction, which the % doesn’t amount to more than 3 pennies.

When getting a merchant account, the per transaction fee would be most important.  You will incur a transaction fee from them plus the gateway service, which I assume you will be using to collect the credit card data through a web site.  The hard cost per transaction with most gateways is 5 cents.  You are now looking at a transaction fee from your merchant provider.  They must cover their costs from the processor and have a little left over for their own profit.  Because technology keeps improving and overall costs continues to go down, processor’s fees for authorization and settlement have continued to decline over the years.  It is very well possible to get a transaction fee of 10 cents or less including AVS.  Depending upon your volume, it could be several pennies less.  One thing a merchant can do to help alleviate this expense is to have the customer prepay for so many units, downloads or whatever it is you are selling.  For example, if you are selling MP3 downloads, then sell them in groups of 25 for $25 instead of 25 individual $1 transactions.

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