Subscription Billing and Micropayments for Online Games

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Subscription billing will continue to be part of MMOG payments in the US and Europe although micropayments for virtual goods will inevitably have to included to maintain a competitive edge. In Asia, subscription billing has never caught on and micropayments are the dominant billing model.

According to Screen Digest, the subscription based billing in MMOG grew by 22% in 2008. The biggest MMOG with subscription billing is World of Warcraft ,with estimates of $1.4 billion in subscription billing. World of Warcraft players like “all you can eat” subscription billing and many are resistant to micropayments.

Of course, the argument could be made that subscription billing was the only billing model available when World of Warcraft players began to play the game. Had micropayments been available, players could have could have easily gotten used to buying virtual goods rather than subscriptions.

Still, even Blizzard is moving towards adding micropayments. Micropayments will not replace subscription billing but will be added as a way to buy virtual goods that will not affect the outcome of the game.

MMOG will continue to offer subscription billing and move to enhance premium subscription benefits. The billing infrastructure in the US and Europe easily accommodates recurring billing and merchants are wise to take advantage of the steady stream of recurring income.

Yet, to compete successfully, a free play model must be offered to entice new players. Micropayments are the best way to make money off of new players until they reach a level of commitment to play that justifies spending on recurring billing. And, certainly for MMOG targeting markets outside of the US or Europe, micropayments are the way to go.

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In a 2008 survey, Neilson reported that 875 million people shop online. More than 85 percent of the world’s online population used the Internet to make a purchase, an increase of 40% within just 2 years.   Credit cards were used by 59% of internet shoppers.  That means 41% of online shoppers use other payment methods.

Internet shoppers are one click away from leaving a merchant site.  Offering the right choice of payment options is important because if a desired payment option is not offered, consumers will quickly exit the site.

Merchants need to provide customers the payment choices that the buyers want.  Preferences vary according to credit card adoption rates, local payment options and availability of international payment alternatives.

For example, Germany is Europe’s second largest online shopping market.  But credit card penetration is barely over 20%. Chinese buyers use bank issued debit cards for 95% of internet purchases, not credit cards.  Even in the UK, where credit card penetration is about 85%, there is still a large market in for buyers who do not use credit cards online because of fears of security breaches.

In the US, electronic checks are the most popular alternative payment method. Millions of Americans regularly pay for goods & services online with electronic checks.

Certainly, merchants should offer credit cards for those who want to pay.  But, know your market and offer the preferred regional payment options along with credit cards.

Alternative payment solutions increase sales.  Any business serious about maximizing revenues will benefit from adding alternative payment methods at checkout.

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Shopping cart abandonment is a big problem for ecommerce businesses. Shoppers visit a site, put items in the cart, click checkout and then do not buy. According to research by eMarketer, 60% of US online retailers are experiencing shopping cart abandonment rates of over 20% this year.

What are the most common causes of shopping cart abandonment? Reasons include lack of alternative payment methods and concerns over shipping costs. These issues are easy to solve. Of course, some consumers are simply comparison shopping or looking for coupons and do not plan to purchase, even though items have been placed in the cart.

Offering alternative payment options is an easy way to capture more sales at check-out. Credit cards are important but certainly not the only payment method. Based on your product and target market, consider electronic checks, mobile payments, international bank transfers, and e-wallets. Promote alternative payments on the check out page as well as on homepages and product pages.

Make it easy for consumers to find out what shipping fees will be. Buyers should be able to easily discover what shipping will cost before getting to the checkout. If possible, offer free or low-cost shipping or give customers a choice of shipping options.

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What is Interchange?

Interchange fees are a percentage of each credit or debit card transaction paid by the merchant’s bank and paid to the card user’s bank Interchange makes up most of the fees that merchants pay to their banks for processing card transactions.

Issuing banks frequently use a portion of interchange fee revenue to encourage card use by offering cardholders rewards, such as cash rebates, airline miles, or other incentives. The more the card is used, the more rewards can be earned by card holders.

Issues with Interchange

As payments by debit and credit cards have increased and become the preferred method of payment for most buyers, interchange fees have increased. As a result, merchants, essentially subsidize the issuing banks that make money both on interchange and from charging cardholders fees to use the cards.

For years, merchants have complained that interchange fees are unfair. Merchants allege that interchange allow banks, which would normally compete on fees, collude on fees instead.

Banks say if merchants do not want to pay interchange fees, merchants can chose not to offer cards as a payment option.

Merchants counter that not accepting cards is no longer a viable option because buyers expect to cards to be accepted everywhere. As a result, merchants claim interchange rates can be set artificially high leading to excessive profits for the card issuing banks and are punitive to the merchants footing the fees.


Interchange is a fact of life if you want to accept card payments. Understanding how interchange affects your processing rates will help you negotiate with your merchant account provider.

How is interchange affecting your payment processing rates?