New Ledgers, New Business Models And New Opportunities In Micropayments

If I had a penny for every time someone asked me about micropayments…

This time last year I wrote here in Forbes that I thought we were heading up to “peak subscription” and that the economy was long overdue a friction-free micropayments infrastructure to deliver a different kind of internet, one based on content not advertising. Now I read in The Atlantic that we have reached peak subscription and that it may be that the average household is about to snap and start the cancellations.

Well, it seems to be that not only have we made our way up to Peak Subscription but we are already tobogganing down the other side. The latest figures from the UK indicate that around 1.5 million streaming accounts (such as Disney Plus, Netflix NFLX and Apple TV Plus) were closed off in the first quarter. Yes, almost two-thirds of households have a least one of these services (a small decline from last year). But it seems that a great many people (including me, by the way) are beginning to wonder if they really need Netflix and Prime or Disney and Apple.

(Another well-known subscription service, albeit in a different sector, Spotify has stock at an all time low, despite growing its subscriber baseto an all time high of 182 million. Frankly, paying a few quid a month for all of the music in the world seems like good value to me, but it seems the markets are concerned about slowing growth in the numbers of subscribers.)

Perhaps it is time look at micropayments again, because it is not only streaming subscriptions that are under pressure. I have just cancelled annual subscriptions to a couple of apps that I don’t really use and a couple of online news subscriptions will go soon. And I really don’t want to pay $49/year for that text formatting app that I used twice, so there are some opportunity costs to think about here as well.

Now, let’s be clear. Subscriptions are not going to go away and in some sectors there is a continuing shift from products and services to subscription bundles. Apple, for example, is shifting to subscription models to sell both phones and services, and I am sure others will follow. But the general point holds: whether in the universe to the metaverse, the idea that subscriptions are the way forward for streaming, software and services is being challenged.

Tractionless

After I wrote that article, I received a great many messages from startups around the world working this space, so clearly I am not the only person who thinks the time is right for change. Of course, there are already various pilots and trials underway, and frankly not all of them are successful, even the well-funded ones. Mitsubishi UFJ recently shut down its blockchain-based Global Open Network Japan (GO-NET Japan) which was developed as a joint venture with Akamai with the Internet of Things (IoT) in mind, enabling pay-per-use, micropayments and new kinds of payment transactions in that space. MUFG say the closure is because of the “recent hard business environment” for payments but I have a suspicion that a blockchain may not be the best solution to these kinds of problems. (For one thing, it is difficult to use a blockchain in the IoT environment where connectivity may be intermittent.)

I think it is fair to say that we have yet to see the killer alternative to Visa V or Mastercard MA in the sub-£5 range. So does this mean that micropayments are doomed? Well, let us think about how a micropayments could work as a viable alternative to subscriptions.

There are currently two options: pay-before services where the customer loads money into some sort of wallet that can make instant, no-risk payments to content creators and pay-later services that accumulate micropayments to the point where it becomes economic to obtain the funds for distribution. It might not be cost effective to charge ten cents to a credit card, but if you can manage the risk reasonably well (ie, if you know the reputation of the parties) then you might allow the ten cents to stack up to ten dollars and then charge a credit card and distribute the funds.

If, however, there was a low-cost, low-overhead alternative to the existing payment infrastructure that could be used to send small amount instantly and without credit risk, then surely there is a third pay-as-you-go option that might be more attractive.

Wot, No Blockchain?

Pay-as-you-go is where the early hopes for cryptocurrency were focused but remain unfulfilled. While the Bitcoin BTC blockchain (to pick the obvious example) is not suited to one cent payments, there remains the potential to exploit other developments in shared ledger technology. Martin Klein and Christian Stummer wrote a nice paper setting this out last year. In “Feeless Micropayments as Drivers for New Business Models“, they point out that cryptocurrency transactions without fees will give rise to new business models based on transactions that might be for fractions of a cent.

Using the examples of the consumer models discussed above and the further example of “prosumers” who might be willing to sell self-generated data (eg, data generated through their smart meters), they make the point that these applications demand a different kind of infrastructure.

What new shared ledger approaches might have much lower transaction costs? There are some “layer 2” developments in progress (such as the Lightning Network) but the authors point to other promising approaches to feeless micropayments are not based on a blockchain at all but on a directed acyclic graph (DAG DAG ). These are ledgers such as NANO and IOT IOT A that do not depend on mining and consume very little energy. While not technically free, the transactions costs are negligible (ie, comparable to sending an email).

Action Stations

The direction outlined above is already being explored. A good example of the consumer model is Dropp, a micropayment platform built to offer pay-per-use or usage-based pricing to the digital market. Their platform is built on the Hedera Hashgraph HBAR network, a fast shared ledger designed to support a digital ecosystem, and it facilitates payments in USD, HBAR AR (Hedera’s native cryptocurrency) and soon in USDC USDC (a USD stablecoin).

Earlier this year, they began working with SubscribeStar (a platform for musicians, virtual artists, and educators), Inara.World (which enables authors to get paid directly for every page stream of their eBooks and for readers to discover eBooks by paying for one page at a time) and Chillfiltr (a content creator platform that shines a light on independent music, prose and poetry from around the world). These are interesting examples of different types of content and I’m curious to see how the experiment evolves because as Sushil Prabhu (the Dropp CEO and Founder) told me, these kinds of merchants “deserve a simple, straightforward way to make money in the constantly changing digital world” and he is surely right.

(Te applications of micropayments go far beyond buying online media though. Take a look at what is going on in Scotland, where consumers are taking part in the Deposit Return Scheme (DRS) pilot. They first download the Recycle Glasgow app that enables them to scan the barcode on single-use plastic bottles and receive around 25 cents in a refund for every bottle they return to a smart recycling bin or a participating convenience store across the city.)

To see how the other example, the prosumer model, might develop, take a look at Helium HELIUM . Helium, which has just raised $200m on a $1.2 billion valuation, is a shared ledger network that leverages a decentralised global network of “hotspots”. These are devices that double as network miners and wireless access points to Internet of Things (IoT) connectivity. Hotspots can be deployed by anyone and enable individuals to earn Helium’s cryptocurrency coins in exchange for providing devices with connectivity. The idea is allow wireless infrastructure to scale rapidly and a low cost when compared to “traditional” wireless networks such as 5G.

(For the technical Helium Network uses Proof of Coverage, PoC, that rewards users for verifying coverage, thus proving location and network connectivity. This is built on top of the Helium Consensus Protocol, which incorporates the HoneyBadgerBFT multi-party computation consensus protocol.)

The examples of both Dropp and Helium seem to indicate that there is real innovation in micropayment business models around shared ledgers and tokens, way out beyond the Bitcoin blockchain, cryptocurrency speculation and NFT madness.

Source: Forbes