What are micropayments, and why are they attracting a lot of recent industry attention? Tim Siglin, Founding Executive Director, Help Me Stream Research Foundation, and Contributing Editor, Streaming Media, sits down with Sushil Prabhu, Co-Founder & CEO, Dropp Micropayments, to discuss this alternative and very adaptable payment method in this interview from Streaming Media East 2023.
Prabhu introduces himself and says that Dropp is a company that makes “small payments viable.”
“And why micropayments?” Siglin asks.
Prabhu says that while there has been incredible innovation in the digital space over the last 20 years, especially in new and improved ways to watch streaming video, not much has changed in how payments are digitally processed. “There really is a need for small value purchases,” he says. “Right now, you can go out and buy a can of soda for a dollar, but you can’t do the same thing on the internet because it’s offered as a bundle package.” He emphasizes a significant need in the media space for users to make small value purchases.
Where Are Micropayment Systems Most Needed?
“Is the micropayment model targeted toward emerging markets or first-world markets? Where do you see the balance there?” Siglin asks.
Prabhu says that he sees the development of micropayment systems as a global need. A credit or debit card is required for nearly every global digital transaction, and with that comes transaction fees. “Merchants can’t really offer you small values because it’s expensive,” he says. He highlights that streaming services have exploded since the pandemic from the original core platforms, such as Netflix and Hulu, to around 2000 services. “So there is an actual need because there is so much going on right now in the industry, and it’s going to just keep going on,” he says. “People are a little tired of subscriptions. You can only subscribe so much. [So] there’s a need worldwide to build a cost-effective platform.”
Siglin notes that the issue is even more pronounced in the United States, whereas there are more opportunities for micropayments in other markets. “In some [countries], you can attach a micropayment to your cellular bill for the month,” he says. “And in others, you go buy a top-up card and get more data. In the States, it’s always been sort of weird…I pay Verizon, my phone bill, but I can’t add a micropayment onto my Verizon bill. Any sense as to why we’ve gone that direction in the States, and how does Dropp solve that?”
Prabhu agrees that the infrastructure for micropayments is better developed in other countries but that the process of credit card purchasing in the U.S. is so well established and generally trusted that it has become popular to the point where consumers may not even be considering alternatives to the point where even a can of soda may be purchased using a card. But Siglin points out that in many in-person merchant transactions, a minimum transaction amount (such as $5) remains due to the transaction fees imposed on the merchant.
Prabhu says, “Whenever it comes to small payments and new payment technologies, people haven’t really thought through that we don’t have cost-effective payment [methods]. 50% of the consumer reported payments in the U.S. are under $25, and post-pandemic, or even during the pandemic, 40% of them used credit cards to do small value transactions because people don’t want to carry cash. So what’s happening is people are getting more used to credit cards, and the merchants are making less and less. You could walk into a restaurant right now, have a bill for a hundred dollars, and it’ll say $5 discount if you pay me cash…”
“Just like your doctor,” Siglin says, “If you pay it in cash so they [don’t] have to take it through the insurance.”
How Micropayments Can Help the Creator Economy
“There is an acute need to do micropayments in the U.S.,” Prabhu says. “And that’s why we launched here. But we see the need globally because, here’s my example, there are large companies, Netflix, Hulu, HBO, [but] there are about a thousand other video streaming companies out there who are struggling for the same consumers. There are video bloggers, then there is a creator economy…how can all of them make money just on ads? Because [you] need a million views to make money. I’m not going to subscribe to every video blogger out there. Micropayments can be used for micro-tipping. So if you have thousands of followers, 50 cent tip, and that journalist or publisher can sustain himself.”
“Well, as a matter of fact,” Siglin says, “we just finished up doing the presentation of the research for the State of Streaming Spring 2023. And one of the points that George Bokuchava from Tulix brought up was this model around a number of his companies who have classically had subscriptions, some of it is houses of worship, but some of it is artists who also have a Patreon account…they’re backing off of the subscription [model]. They’re putting a QR code in the corner to say, ‘Please donate, or please pay me.’ That sort of falls very nicely with what you’re talking about as well, that micro-tipping concept.”
How Dropp Merges Banking Technologies With Distributed Ledger Technologies
“We merge two technologies,” Prabhu says. “We use banking technology, which is very well regulated. Because most people still use fiat currencies. And then we merged it with distributed ledger technology, which gives you the cryptography, the security, the privacy, and all of that.” In this way, he says, Dropp has created a hybrid system. He further explains how Dropp is present on user interfaces. “So you could be on a desktop, and you would see a little blue drop on a content [page] saying ‘It could be this actual episode right here,’ and you click on it, and you have a little extension on your Chrome browser edge, it pops up. Do you want to pay 10 cents? So it’s not large payments, it’s small payments, but I think this is another leg in the digital economy that we can open up by enabling micropayments.”
“I’ve been in this industry for about 25 years,” Siglin says. “There were a few companies who tried in the early days to do this. PayPal comes to mind, obviously, because PayPal started as an IOU model where it was a non-banking transaction, and of course, they fought the litigation about whether they were a bank or not. But then there were other companies who came along…Apple sort of played in this with iTunes a bit. You put $25 in your account, and then you spent it down, and therefore your transaction fees are lower. The problem with that is you were then stuck with $4.99 in five different accounts because you had to have some minimum in there in the cost to spend. Is your model similar in that somebody has to come along and put, say, $10 in their account so they do not have those Visa transaction fees?”
“To a certain fashion, yes,” Prabhu says. He agrees that the micropayment concept has been around for a long time and has been tried by other companies, “But you need two things for a concept to be popular: one is there should be consumer appetite for something like this. And the second is technology. So now, between what’s happening in the banking technology…you might have heard [that] Clearing House in the U.S. came up with in US came up Real-Time Payments (RTP). So banking technology has also become much more modernized, and it’s getting ready, and so is a distributed ledger of the blockchain technology. So when you combine those, you have something. So I’m saying there’s an appetite, there’s a demand, and then there’s technology. I think this is the right time.”
Learn more about this topic and more at Streaming Media Connect 2023.
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