What is your advice for the best provider to accept micropayments? Ideally the economics work for products that are $0.99 - but anywhere from $0.99 - $9.99 would be ideal.
Obviously the transaction charge is what makes the small prices so difficult... any suggestions would be greatly appreciated!
You should look primarily at the fees. Paypal's standard account has is around $0.30 per transaction + 3%. If you Google "PayPal Micropayment" they have an account that is not advertised publicly with lower fees for small transactions. The downside is you have to make a new account to use it, including a different bank account. I spoke to our PayPal account manager, and he said there is no internal plans to change this or promote the micropayments plan.
What do I mean? Well, suppose you had asked me to pay a nickel to read this comment thread. I value my own time at about a hundred dollars an hour. I've already spent more than a nickel of time reading this thread, so clearly I should have been willing to pay a nickel to read it. But the mental decision point on whether to cross the penny gap or not, plus the amount of friction it would take for me to authorize this transaction (fish out credit card, type in digits, sign in, click "Are you sure you want to pay $.05 to this merchant?", yadda yadda), is worth far more than a nickel of frustration to me. That increases the cost of the content to me but it is revenue that you don't capture.
Rather than selling things for micropayments, do what essentially everybody does in this space: sell a microcurrency in macro-units ($10, $20, etc), and then make authorizations to spend the microcurrency as friction free as possible. For getting over that penny gap on the first transaction, you probably want to give people a significant incentive to buy their first hit of microcurrency -- 100 dragon eggs for $5 instead of $10 like usual, whatever.
Clarifying edit: for non-Americans reading this comment, it might be useful to know that a nickel is .05 USD and a penny is .01 USD. They're the common names for two of our low-value coins.
Whereas, with PP, the site just takes me to PayPal's site where cookies know who I am, so I just enter my password, press OK, and I'm done.
It's gotten to the point where I often check if a vendor takes PayPal as soon as I even think of ordering.
I am not associated with them, but I love the idea, think it's a great modeel, and am about to become a customer.
TipJoy (http://tipjoy.com/) is making a play as a micropayment platform I believe. I think they're a YC company as well.
Amazon Flexible Payment Service (http://aws.amazon.com/fps/) is also one to scope out.
Has anyone used Amazon FPS vs. PayPal vs. Regular processor?
there's also http://aws.amazon.com/fps/
there's also one other good one out there, but i can't recall the name since i don't use it. will edit/reply later if i can remember or find it.
I assumed they only offer PayPal in hopes of bringing PayPal's customers even at the sake of margin.
They did this aggregation when I just had my plain old credit card number linked as well, although I don't think they ran the first charge immediately (probably just reserved funds).