Bitpass Shuts Down in Move That May Show Limits of Digital Market

In a move that may signal the limited utility of the digital-content market for micropayments processors, San Mateo, Calif-based processor Bitpass Inc. has announced it is shutting down. Users of the service, which allows consumers to pay for content online with prepaid accounts, have until Friday of this week to spend their funds but may not add funds. After Friday, Bitpass will close all buyer accounts and begin refunding unspent funds to accoundholders under an arrangement with Digital River Inc., an Eden Prairie, Minn.-based e-commerce outsourcing company. Bitpass announced its decision to discontinue operations in a terse e-mail it sent last Friday to users. The message, from chief operating officer Matthew Graves, gave no reason for the move beyond attributing it to “circumstances beyond our control.” Graves did not return a call from Digital Transactions News seeking comment. The company, which began commercial operations in December 2003, has more than 500,000 buyer accounts and supports payments for about 4,000 merchants. Its investors include payment processing giant First Data Corp. Only last fall, Bitpass launched a major initiative that created digital wallets in which consumers could store online downloads as well as the payment media they use to fund their accounts (Digital Transactions News, Sept. 26, 2006). Bitpass accounts could be funded with credit cards, PayPal, or via automated clearing house debits. The initiative, called the iMedia Commerce Engine, also allowed merchants to gain more control over subscription management and to gather a wider array of information about customers' transactions. The new platform was also intended to work on handsets. Bitpass had also had some success expanding its reach beyond the small sellers of content it started with. Merchants included TV network ABC Inc., CanWest Global Communications Corp., Walt Disney Co.'s Disney Online, and The E.W. Scripps Co.'s United Media, a comics syndicator. But at the same time, Bitpass's top management said the company would confine itself to processing transactions for digital content, shunning the business model followed by rival micropayments processor Peppercoin Inc. Waltham, Mass.-based Peppercoin, which was launched commercially around the same time as Bitpass, began as a processor for digital downloads but soon moved into processing for small payments in physical venues, such as parking and vending. Bitpass's refusal to branch out beyond online sales may have proven to be its undoing, say some expert observers. “Peppercoin recognized relatively early in their existence that digital content… wasn't going to be a sustainable business model,” says Bruce Cundiff, senior analyst at Javelin Strategy & Research, Pleasanton, Calif., in an e-mail message to Digital Transactions News. “It was a very limiting factor for Bitpass and certainly contributed to their demise.” In part, this has to do with the difficulty of selling, at a profit, processing for transactions valued at 99 cents or less, something Bitpass management may have recognized too late. “I'm sure that Bitpass had visions of an expansion beyond digital purchases/sales, but either wasn't able to expand the business model…or saw it as more of a future aspiration,” notes Cundiff. Bitpass charged merchants a top price of 15% of transaction value, with the percentage declining as sellers used more services.