Micropayments: myth?

[szabo@netcom.com (Nick Szabo)]

Some electronic commerce projects promise dramatically lower transaction
costs, so that we can achieve "micropayments", "microintermediation",
and so forth.  Is this achievable?  

Consider a feature fairly independent of the particular payment system: 
the statement of charges.  Here lies a tradeoff here between completeness 
and complexity.   On the one hand, merely summarizing charges creates 
the opportunity for salami frauds, allowing widely distributed false or 
exaggerated microcharges to go undetected.  Furthermore, parties reading 
only the summaries get no feedback by which they can adjust their behavior
to minimize costs.  On the other hand, a statement too complex to
be easily read also allows fraud, error, and inefficient usage to 
go unrecognized, because one or both parties cannot understand the 
rationale for the charges in relation to the presumed agreement on
terms of service and payment. 

There seems to lie here a fundamental cognitive bottleneck, creating a
limit to the granularity of billable transaction size whether electronic
or physical.  One proposed solution to this has been "intelligent 
agents".  But since these agents are programmed remotely, not by the 
consumer, it is difficult for the consumer to determine whether the agent
is acting the consumers' best interests, or in the best interests
of the counterparty -- perhaps, necessarily, at least as difficult 
as reading the corresponding full statement of charges.   By
sleight of hand we may have merely transformed the language of 
the transaction as it needs to be understood by the party, without
reducing the complexity to be understood.  Furthermore, the user 
interface to enable consumers to simply express their sophisticated 
preferences to an agent is lacking, and may represent another fundamental 
cognitive bottleneck.

Telephone companies have found billing to be a major bottleneck.
By some estimates, up to 50% of the costs of a long distance call
are for billing, and this is on the order of a $100 billion per year
market worldwide.  Internet providers have been moving to a flat fee in 
order to minimize these costs, even though this creates the incentive for 
network resource overusage.  

A micropayments system assumes a solution to the billing problem.
If somebody could actually solve the this problem, rather 
than merely claiming to have solved it via some mysterious
means ("intelligent agents", et. al.), the savings would be 
enormous even in existing businesses such as long distance and
Internet service -- never mind all the new opportunities made
possible by micropayments.  

Nick Szabo
szabo@netcom.com
http://www.best.com/~szabo/