Over at ContentBiz is a nice article on why even virtual goods cause merchant loss when credit card fraud occurs. In a nutshell:
Now, there is a telco lesson in this. Telcos traditionally aggregate billable events at the micropayment level. They have recently been extending this into medium-sized content purchases. In a world where much service is subscription-based all-you-can-eat, is the hundred million dollar telco billing system as much a dinosaur as the switched telephone call?
Well, perhaps not. Because a telco bill is part of a relationship. It's going steady with your girlfriend -- maybe even taking up residence together. This compares to the one-night stand of a credit card, or the sleeping with whores of paper cash. A new level of trust occurs, and friction is taken out of the relationship. You don't need to buy two bottles of wine and a nice meal before consumating a transaction.
You've got something to lose if the relationship fails. You may have to buy a new phone. Re-provision a whole bunch of services. Tell everyone a new phone number.
So small payments for virtual services may still be most efficiently laundered through an intermediary with whom you have a strong relationship. You don't need to ask for ID from each other every time you meet. The social costs of validating the true holder of a credit card number are too high for the economic value of a small transaction.
And above all, every virtual service has to be delivered over a very non-virtual pipe, which is almost universally paid for by the recipient. The access provider is the natural intermediary. Hence I see services like BT Click and Buy as having a bright future, even in an end-to-end world.
Posted by Martin Geddes at 3:20 PMTrackBack URL for this entry:
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