Regular Payments In, Tiny Payments Out
The possibility of instant split payments
“Who would want to pay fractions of a penny for something?”
When I mention micro or nanopayments to people, they usually have an awkward moment trying to think of some part of their life where they would use it.
Some believe that humans don’t think in such small numbers, and there aren’t any valuable business models for tiny payments.
Why pay fractions of a penny per page instead of a few bucks for a book? Why pay fractions of a penny per minute watched instead of an unlimited $20/month for Netflix?
There are two main problems with this type of analysis.
It’s stuck in the world of today
It’s focused only on the consumer side
Stuck in today
It’s normal when new tech enters the world to begin by looking at existing businesses and trying to graft it on to them. But in the long run, new tech rarely upgrades existing companies and business models. Instead, it spawns previously unheard of companies that either supplement or subvert the status quo players.
We all pay for books and streaming video in dollars today. That doesn’t mean the most likely application of nanopayments will be these services.
What’s needed is to think about businesses and products that don’t exist at all today but could with nanopayments. That is not an easy task, but part of the goal of this newsletter is to get some ideas stirring!
Consumers aren’t the only side of a transaction
Even if we stick with known business models, and even if consumers don’t end up liking sub-cent purchases, nanopayments represent a massive breakthrough on the back-end.
Take affiliate marketing.
Today, a company can setup an affiliate program and give custom links to affiliates, track if anyone coming through those links becomes a paying customer, and then every day, week, or month, send a payment to the affiliate for the agreed upon commission.
But since services like PayPal, Venmo, Bill.com, ACH, and wire transfer have fees in the several dollar range, and are somewhat slow and costly to use, companies only send affiliate payments when they reach tens of dollars or more.
This means any kind of product or service that doesn’t yield at least several dollars per customer, or such a massive volume of customers that the total is several tens of dollars minimum, affiliates don’t make sense.
But we live in a long-tail, “niche down” economy. What if you value each subscriber to your email newsletter at ten cents? What if you’d be happy to pay 1 cent to anyone who can get people to sign up? What if some of those would-be affiliates have a large enough audience to send you a few hundred subs per week?
In a world without nanopayments, an affiliate program in this scenario wouldn’t really be workable. The economics don’t make the cost of sending the payment worth it.
But with nanopayments, you can setup any kind of affiliate deal you want and let people go out and share your links, instantly earning pennies for each click or conversion.
The company that wants to drive traffic never has to pay tiny amounts. They simply load up a campaign with whatever amount they want up front, and then let all the sharers and affiliates compete to earn tiny payments for each click or action.
I think referrals, affiliates, and other online action based models of product distribution and advertising will be revolutionized with nanopayments. Even traditional digital ads could use them in all kinds of ways (“pay 1 cent to make this add go away”, or, “you earn 1 cent for clicking this ad” or who knows what else).
The main take-away is this: even where the consumer doesn’t want to use tiny payments, the various vendors and partners on the backend may benefit from them tremendously.
PS - Hoping to do a video this week diving deeper into various tiny payment protocols and exploring pros/cons of each.