How micropayments can power the future of the Nigerian economy
An important aspect of micropayments is the fact that their definition varies from person to person. Micropayments are generally considered financial transactions involving very small sums of money. Globally, micropayments refer to transactions of less than 12 USD. According to techtarget.com, a micropayment is an e-commerce transaction that involves a very small sum of money in exchange for something available online, such as downloading an app, service, or web-based content.
Micropayments are too small to be feasible to process through the traditional credit/debit card system. IBM’s Amir Herzberg relates that “micropayments are for anything too cheap to pay with a credit card.”
The main challenge facing the viable application of micropayments is the need to keep the processing costs of individual transactions low, which is not practical when transactions are carried out with very small sums of money, typical of the nature of the system. of micropayments. Various attempts have been made to make such systems financially viable for providers, such as the telephone billing model used by companies such as Zong and Boku. Bill to phone ensures that consumers can charge low value transactions to their mobile phone and are sent a transaction code by SMS to complete the transaction. However, the exchange formula that exists between micropayment platform providers and mobile network operators (MNOs) does not greatly favor the providers, this has been the key reason for the slow adoption globally.
To a large extent, micropayments have been used for online transactions in the social community space on websites like Facebook, where users can purchase virtual items in games like mobwars, premier football, and Farmville, to name a few. Their foray into print media for pay-per-view content has been very discouraging, with users simply navigating to another website where they can get the content for free.
Micropayments have had their share of standardization attempts, most notably the W3C (World Wide Web Consortium) Fee Micropayments specification that includes common markup for micropayment fee payment links, as well as a description of a wallet controller. that attends all the requests of the service by fee. However, as providers implement disparate proprietary micropayment infrastructure, this has prevented adoption of the W3C specification.
As an emerging area, it has undergone a metamorphosis that was clearly described by Robert Parhonyi of the University of Twente in the Netherlands in his article “Second Generation Micropayment Systems: Lessons Learned”. He predicted that the market for low-value products such as online music and video, and the role of micropayment systems in selling such products, is expected to grow substantially. He classified micropayments into 2 generations with the first generation appearing around 1994, with systems like Millicent, eCash and cybercoin failing to gain market share and slowly disappearing in the late 1990s. The second generation appeared around 1999 -2000 and is still operational.
He believes that most of the causes of failure have been accounted for in the second generation and have a much better chance of succeeding largely due to the way the Micropayment System Operators (MPSO) have implemented the technical features and not techniques of micropayment systems such as the use of platforms based on tokens or accounts as a means of exchanging value, Ease of use, Anonymity, scalability, Validation, security, interoperability, trust, coverage, privacy, prepaid or postpaid and the range of multi-currency support. Some of the second generation micropayment systems include minitix, Bitpass, Wallie, PaySafe Card, WebCent, MicroMoney, and SoftPay.
In Nigeria, online payment has been affected by several cases of fraud, especially with the use of debit cards. Consumers are no longer comfortable with that means of payment and often wonder if it is worth exposing private information to consume transactions on the web for low value transactions. Some people argue that billing for small portions of a product or service reduces the need for security. In this context, security is defined here as the ratio of the cost of security to the protected value of the transaction. The security challenges above call for a new channel for consuming low-value transactions that is radical and innovative enough to provide musicians with a platform to sell their music, software developers their small apps, photographers their images, and more. all other content providers a medium that is fast, convenient and easy to use without the restrictions of traditional payment systems.
The earning potential is huge as it covers both the banked and unbanked population. The majority of income is expected to come from the unbanked, according to EFINA, there are over 64 million Nigerian adults who have never been banked, and the private sector understands that the Nigerian microfinance industry, estimated at NGN 900 million, is profitable . Unbanked money in circulation is estimated at NGN 1.2 trillion in May 2009, this figure is growing and would serve to strengthen the financial system if platforms such as micropayments are used as a tool to channel that money into the conventional economy.