Budgeting What Is a Micropayment? By Cheryl Wagemann Cheryl Wagemann Cheryl Wagemann has been a writer, reporter, and editor for more than seven years. She has written dozens of articles on news, economics, shopping trends, saving money, budgeting, and more. Cheryl has worked for Finder.com, Gannett newspapers, TAPinto, North Jersey Media Group, and other online publications. learn about our editorial policies Updated on December 29, 2021 Reviewed by Somer G. Anderson Reviewed by Somer G. Anderson Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Her expertise covers a wide range of accounting, corporate finance, taxes, lending, and personal finance areas. learn about our financial review board In This Article View All In This Article Definition and Examples of Micropayments How Micropayments Work Micropayment Processors and Prepaid Systems Photo: d3sign / Getty Images Definition A micropayment is a small transaction amount that is usually spent on digital products over the internet. Key Takeaways Micropayments are small payments made over the internet and for digital products.Typically micropayments are used for pay-per-use digital goods like movies, books, songs, but can also be used to verify account identity or for online payment.Micropayments have been proposed as a better way to distribute royalties.Examples of businesses that use micropayments include PayPal, Google Play, and the App Store. Definition and Examples of Micropayments Put simply, a micropayment is a small payment that is usually for a digital product or service. Depending on the payment processor or business, it can be $1, $5, or less than a cent. And although micropayments are often made online for digital content like books and music or cryptocurrency, there are other uses as well. Alternate name: Microtransaction For example, services like Venmo will make micropayments of less than $1 into new user bank accounts to verify ownership. In this case, Venmo simultaneously makes equal withdrawals to negate the transfer, as transfers only serve to verify user identity. Micropayments are also used to distribute royalties, gratuities through online delivery apps like DoorDash, and freelance income through sites like Fiverr and Upwork. Google Ads provides another example of micropayments. Creators who have monetized their content on a Google platform like YouTube can receive payment for ad views and clicks. There is a payment threshold—usually $100—that a creator must reach before payment is issued. Note Until the amount is reached, micropayments in varying amounts are held in a digital wallet within the creator’s Google Ads account. How Micropayments Work Micropayments can work in one of two ways: through a prepaid system or at the point of sale. In a prepaid system, a customer typically pays an initial or recurring fee to a micropayment processor via a bank account that is kept on file in a digital wallet. Then, a la carte purchases are deducted in micro amounts—$1 for an app download, $4.95 for an on-demand movie, for example. One-time micropayments can also be made—such as a food or coffee delivery placed online through an app like DoorDash. But transaction fees often exceed the payments themselves; This is a common criticism of micropayments on the retailer’s side. It’s generally thought that a company’s best financial interest is to bundle services rather than offer products through micropayments. In response, micropayment systems with low transaction costs began to spring up in the 1990s. And since then, fintech products like online payment solutions have come to the forefront in an increasingly digital world. But the term “micropayments” was actually coined in the 1960s by Ted Nelson, an author and technology philosopher, and later fully explored in his 1982 book “Literary Machines” as a way to compensate copyright owners. Micropayments have been considered as a better payment system for royalties. Micropayment Processors and Prepaid Systems Examples of businesses that use micropayments include PayPal, Google Play, and the App Store. In the case of digital app platforms like App Store and Google Play, users create an ID and store payment information within a digital wallet. Users can then make digital purchases like apps or content like music, books, or movies for small amounts like 99 cents. This is sometimes also referred to as a pay-as-you-go model. Other examples include streaming platforms like Spotify, Sirius XM, and Netflix, and cable TV companies. While subscribers will usually pay an access fee, they can purchase single services through micropayments—like a cable TV subscriber purchasing a movie on demand through their TV provider for around $5. Moreover, some micropayment processors, including PayPal, offer a prepaid system, meaning a user loads a linked card or account for credit that can be spent in micropayments. However, transaction fee rates can be steeper on micropayments—though, in some regions, PayPal offers lower transaction rates on micropayments under $12. E-commerce sites can compare from a variety of payment processors to find ones with fees that fit into their budget Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Venmo Help Center. "Verifying Your Bank Account." Accessed Oct. 13, 2021. YouTube Help. "Payment Thresholds." Accessed Oct. 13, 2021. Rafael Pass and Abhi Shelat. "Micropayments for Decentralized Currencies," CCS '15: Proceedings of the 22nd ACM SIGSAC Conference on Computer and Communications Security. Accessed Oct 13, 2021. Andrew Odlyzko. "The Case Against Micropayments," Digital Technology Center, University of Minnesota. Accessed Oct. 13, 2021. Róbert Párhonyi, Lambert J.M. Nieuwenhuis, Aiko Pras. "The Fall and Rise of Micropayment Systems," University of Twente. Accessed Oct. 13, 2021. Josef Kolbitsch and Hermann Maurer. "Transclusions in an HTML-Based Environment," Graz University of Technology, Austria. Accessed Oct. 13, 2021. Frontiers in Blockchain. "Feeless Micropayments as Drivers for New Business Models: Two Exemplary Application Cases." Accessed Oct. 13, 2021. PayPal. "How Do I Add Money to My PayPal Cash Card?" Accessed Oct. 13, 2021. PayPal. "How Can I Update My Payment Preferences for Micropayments?" Accessed Oct. 13, 2021.