Peppercoin 3.0 Debuts with Prepaid And Subscription Capabilities

Peppercoin Inc. today unveiled the third version of its processing system for small-value and micropayments transactions and announced a processing deal with First Data Merchant Services, which is expected to offer Peppercoin's gateway to its base of 3.5 million merchants. Peppercoin 3.0, which adds subscription and prepaid payment capability to the pay-as-you-go and post-paid processing service currently available, will become operational during the second quarter, the Waltham, Mass.-based company says, and like the current second version will be available for licensing or on a hosted basis. Although 3-year-old Peppercoin started out with a transaction solution for micropayments on the Internet, it has since extended its gateway's reach to mobile and physical merchants, target segments it now sees as particularly well-served by the added payment types. “This is a huge development for Peppercoin,” says Mark Friedman, a former Lucent Technologies Inc. executive who in December took over as president of the company, which rolled out its first commercial product only 14 months ago. The agreement with First Data is the third Peppercoin has made with acquiring processors in recent months. Last month it cut a similar re-seller arrangement with Chase Merchant Services, and earlier reached an agreement with Moneris Solutions. Friedman says more such deals will be forthcoming this year, though he refuses to reveal current and projected numbers for merchants and transaction volume. “[Acquirers] like us because they're aligning with one vendor that can address all their markets,” he says. Peppercoin charges a flat nickel per transaction on its hosted service, a change from its original pricing of 7% to 10% per transaction. In its reseller agreements, it leaves ultimate merchant pricing up to the processors. Friedman says Peppercoin is continuing direct sales efforts to merchants, and Friedman says two online merchants are close to being switched on. Point of sale clients include North County Vending, a Vista, Calif.-based operator of vending machines, and Reino Parking Systems, a maker of card-accepting parking meters. Like many processors, Friedman cites fast food as a key target segment. One early client, however, has dropped Peppercoin. MusicRebellion Inc., whose Web site sells music downloads, served as an early proving ground for the technology but late last year decided to discontinue the service. Rex Fisher, chief operating officer for the site, says the company couldn't justify the implementation and transaction costs of Peppercoin 2.0. It now sells its sub-$1 songs primarily via prepaid accounts. The problem, say Fisher, lies in the way Peppercoin now “batches” transactions. Beginning with version 2.0, Peppercoin moved away from universal aggregation, which brought together transaction streams from multiple merchants, to what the company calls single-merchant aggregation. Peppercoin concedes the move favors higher-volume merchants. “It is fair to say that for some merchants, the processing efficiencies of single merchant aggregation may not be as powerful as universal aggregation,” the company says in an e-mail responding to questions from Digital Transactions News. “Peppercoin 2.0 and 3.0 provide greatest processing efficiencies to those digital, physical, and mobile merchants with an established base of repeat customers.” Fisher, however, leaves the door open to reversing the decision. “They have a good team,” he says of Peppercoin. Friedman says that with Peppercoin 3.0, the company now offers the only solution that can process prepaid, post-paid (credit card), pay-as-you-go (debit), and subscription payment processing to all manner of merchants. It also offers to tie its service in to merchants' existing loyalty programs. And in recent months, the company became compliant with the data-security requirements of Visa, MasterCard, American Express, and Discover. With the latest version, Friedman says, “We are providing a very powerful platform for merchants and [financial-services institutions] to grow their business, [including] the ability to tailor offers to different segments of the market.” Peppercoin 3.0 follows close on the heels of version 2.0, introduced last summer (Digital Transactions News, June 28, 2004). That version included the processing gateway for micropayments and small-value transactions, which Peppercoin defines as payments under $5 and $20, respectively, plus a Web site merchants could visit for automated administrative and customer-service support. Friedman cites statistics indicating an enormous market opportunity just in the sub-$5 segment. Here, he says, there are 354 billion cash transactions totaling $1.32 billion annually, with major markets including vending, parking, and quick service. As for online micropayments, he cites a September 2004 Ipsos-Insight survey indicating that in the previous year the number of U.S. consumers who had bought content online grew from 4 million to 14 million. Peppercoin's core technology relies on a proprietary mathematical technique in which algorithms select representative small transactions to stand in for streams of payments to reduce interchange and other transaction costs.