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Abstract:

In this chapter, we discuss payment systems with low operational costs, supporting low value transactions (micropayments). We first explain the typical scenarios, and then identify, discuss and rank the cost factors. We elaborate on the three most significant cost factors: handling and refunding disputes and chargebacks; customer acquiring and support costs; and computational costs (processing, storage and communication). While most research so far focused on the computational costs, these are often almost negligible. The two other cost factors are more critical. In particular, strong security measures, including digital signatures or equivalent means for non-repudiation, are essential to reduce the dispute handling and chargeback costs. The hardest challenge is to reduce customer acquiring and support costs. First, there is the problem of creating a sufficiently large market, with many customers, merchants and transactions, to justify the initial investment of all parties (considering the low value of transactions). This requires interoperability among competing Payment Service Providers, which is difficult yet technically feasible, as we show. Second, there is a conflict between the need for customer-controlled `wallet ` for non-repudiation, and the

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