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Much has been made about the market for micropayments over the years, but for the most part, billing for small transactions remains a challenge for online merchants, especially small and mid-size publishers who sell content and virtual goods.

PayPal, however, hopes to provide some relief later this year with a new offering that makes it easier for online merchants to process micropayments cost-effectively.

BusinessWeek details how the new offering will work:

PayPal will let companies accumulate so-called micropayments until a certain volume is reached, at which point PayPal will charge merchants a single processing fee, Francesco Rovetta, director of the San Jose, California-based company’s mobile unit, said in an interview. The new plan will be rolled out later this year, he said.

As BusinessWeek notes, a sale of a 99-cent song via PayPal would currently cost a merchant approximately 10 cents. That's hardly economical, and if PayPal wants to take a leading position in a digital goods market estimated to be worth $30bn, it will need to come up with a better solution.

Allowing merchants to aggregate a certain number of payments before processing fees are incurred seems like a sensible approach, but I also think it's worth considering that payment processing is just one of the challenges online merchants face in building viable businesses based on micropayments. After all, it's not enough to have a cost-effective means to process micropayments; consumers need to be comfortable making them.

Last year, a paidContent:UK/Harris Interactive poll found that over half of British consumers were more interested in paying for a subscription on their favorite news site than in paying for individual articles piecemeal. So even if PayPal and other payment providers create new offerings for micropayments, merchants should evaluate their business models carefully as the ability to cost-effectively process micropayments won't necessarily mean that micropayments are the way to go.

Photo credit: stevendepolo via Flickr.

Patricio Robles

Published 16 March, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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