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Planned Microsoft micropayments system may challenge credit card fees

Summary

Xbox maker Microsoft noted its planned payment system would allow merchants to take micropayments — presenting a potential that would challenge to credit card companies.

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Credit card companies may see some competition from the maker of the popular Xbox video game console.

Over a breakfast meeting at the recent World Economic Forum, Bill Gates explained a plan for an online payment system from Microsoft.  The envisioned online payment system would allow companies to take small payments, otherwise known as micropayments.

Currently, some online retailers are hampered by transactions fees charged by credit card companies, which average about 2.75 percent per transaction.  Merchants sometimes complain that such credit card fees take a bite out of the profits they earn on low-priced items.

However, Gates noted that a system from Microsoft would let retailers charge customers a dollar or less each month using only a click, which would mean there would be little to manage and would save retailers from a large credit charge — part of which goes to clearing.

Such a system could have a major impact on a source of revenue for credit card companies.  Additionally, the system would let merchants more easily charge for services that some presently offer free of charge, such as newspaper articles or information retrieval.

Although Microsoft has not provided details on how the micropayments system would work, some industry watchers predict it will use Microsoft Points.  Microsoft Points is a universal system that can be purchased for use on the Xbox Live Marketplace.  Microsoft Points can be bought with or without the use of a credit card.

Regardless of how the system works, Microsoft will need to clear the major hurdle of getting its payment system on to websites such as eBay, which currently uses in-house system PayPal.  So for now, consumers will have to make use of their low interest credit cards, airline credit cards, and other plastic for slightly more expensive purchases.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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