The so-called micropayments market has been one of the most hyped non-issues of the Internet era. First, it's not a monumental problem; there are many workarounds available, such as ACH processing, monthly billing, and so on. Second, the market, by definition, is not huge. Even a billion 99-cent downloads generates just $100 million in interchange revenue at PayPal's new prices (see below).
Nevertheless, it's good to see solutions evolve. Today's PayPal announcement should help continue that natural progression. Ebay's online payment arm announced that it wil provide a micropayment option priced at 5 cents per transaction plus 5% of the transaction amount. That means a dime in interchage for a 99-cent song compared to closer to $0.25 to $0.30 under industry standard pricing today.
It won't change the world, but as they say, every penny counts.
--JB