Peppercoin’s Big Ambitions in Small Payments

Peppercoin Inc., the Waltham, Mass.-based micropayments startup that only this week emerged from its test phase with a commercially available service, may have a small footprint in the transactions business so far, but its ambitions are big. First, it plans to snag more merchant signings like the one it announced this week with Blue Note Records, in which it will handle 99-cent payments for songs downloaded from a record player on a Blue Note Web site starting early next year. But, beyond that, Peppercoin hopes within a year or two to license to acquirers the proprietary software it has developed to process small payments. Rob Carney, vice president of marketing, won't name any companies, but says, “We're talking to the appropriate parties.” By striking its own deals now, directly with online music stores and other content merchants, he says, “We're trying to get out there and prime this market.” Peppercoin charges online content merchants anywhere from 7% to 10% of the transaction value, but Carney believes acquirers running Peppercoin's system could price payments even more aggressively, bundling micropayments with other transaction services. Eventually, he argues, Peppercoin has the potential through such arrangements to capture a 30% to 40% market share in the market for sub-$10 payments. And transactions in the physical world are fair game, as well, with payments occurring on anything from keyfobs to cell phones. “We support small payments no matter what device you're using,” says Carney. “There's no reason why there shouldn't be billions of transactions that are digital.” Internet transactions make a good starting point, he says, because buyers of online products have no cash alternative. The company relies on credit card payments and a proprietary software program that selects micropayments, which can run as little as 50 cents or so, according to a mathematical model. The model assigns a much larger dollar value to each selected transaction, avoiding the inefficiency of credit card interchange and processing fees. The company's software builds on the mathematical work of noted cryptographers and co-founders Ron Rivest and Silvio Micali.