TY - JOUR

T1 - Analysis of electronic micro-payment market

AU - See-To, Eric W. K.

AU - Jaisingh, Jeevan

AU - Tam, Kar Yan

PY - 2007

Y1 - 2007

N2 - Despite the potential of micro-payment systems very few systems have been successful. Little is known about the reasons behind the successful few and the failures of the majority. Micro-payment markets exhibit two-sided network effects and the underlying dynamics of these markets are not very well understood. Based on a stylized model of a two-sided market, we find that a 'survival mass' of merchants and consumers is required for a micro-payment system to exist and a 'critical mass' for the acceptance levels to take off and remain stable. We also find the non-intuitive result that lowering the consumer-side adoption cost will actually reduce the chances for the micro-payment market to develop. Thus, subsidization alone cannot create a micro-payment market. Anecdotal evidence supports this finding. When subsidization is needed, the consumer side will normally be subsidized. The two-sided market structure makes comparative analysis complex and non-trivial, rendering the implementation of micro-payment systems very difficult as indicated by the mixed results of a number of initiatives worldwide.

AB - Despite the potential of micro-payment systems very few systems have been successful. Little is known about the reasons behind the successful few and the failures of the majority. Micro-payment markets exhibit two-sided network effects and the underlying dynamics of these markets are not very well understood. Based on a stylized model of a two-sided market, we find that a 'survival mass' of merchants and consumers is required for a micro-payment system to exist and a 'critical mass' for the acceptance levels to take off and remain stable. We also find the non-intuitive result that lowering the consumer-side adoption cost will actually reduce the chances for the micro-payment market to develop. Thus, subsidization alone cannot create a micro-payment market. Anecdotal evidence supports this finding. When subsidization is needed, the consumer side will normally be subsidized. The two-sided market structure makes comparative analysis complex and non-trivial, rendering the implementation of micro-payment systems very difficult as indicated by the mixed results of a number of initiatives worldwide.

KW - Network effects

KW - Two-sided market

KW - Micro-payment systems

KW - Smart card technology

KW - electronic cash

KW - Game theory

M3 - Journal article

VL - 8

SP - 63

EP - 83

JO - Journal of Electronic Commerce Research

JF - Journal of Electronic Commerce Research

SN - 1938-9027

IS - 1

ER -