I recently came across Marc Andreessen’s article from 2014 on Bitcoin (BTC). In many ways, it is visionary (no surprise). I have been in the industry for four years now, with most of my focus being on the social impact of blockchain. It is astonishing to me that in 2014, before there was any institutional presence in Bitcoin — or, indeed, a popular understanding of this new technology — Andreessen was able to outline its potential economic and social impact for the future.
Nearly eight years after he inked his words, I would like to address one of the topics from his article: micropayments. I will explore how blockchain could help transform micropayments and thus enable not only the monetization of certain aspects of businesses that are in need of a solution but also could assist society’s most vulnerable.
Micropayments are not a new concept. Since the mid-1990s, micropayments have experienced various degrees of popularity. By definition, micropayments are transactions with a value smaller than a certain threshold. Importantly, below that threshold, the transaction fee incurred becomes a significant portion of the total transaction value and, consequently, not economical. Another important aspect is that due to the minuscule monetary amounts, micropayments refer only to digital transactions of non-tangible goods. Any additional cost of handling and shipping might mean a hundredfold increase of the original transaction value, making it utterly irrelevant.
Credit card companies offer merchants various types of price plans for the fees they charge. These plans usually comprise a lump sum charged per transaction and a percentage charged out of it. Not surprisingly, this information is not openly available from the card companies themselves, rather it’s published by others who compare these rates as a service for merchants. Within that context, let us examine what fee a merchant would be charged for a micropayment.
We assume the following:
● The lowest fee we uncovered was 1.29% of the transaction value, and no lump sum fee was charged.
● Since the smallest building block of (most) fiat currencies is 1/100 of the whole — i.e., $0.01 — this would be the minimum fee the credit card company charges, regardless of if it is higher than 1.29%.
Charting the proportion of the transaction fee as a function of the transaction value, we get the chart below. For example, a $0.01 transaction incurs a fee of 100%, while the fee on a $0.10 transaction is “only” 10%. Naturally, this goes to show the irrationality of carrying out micropayment transactions under these payment platforms.