Microtransactions Where Everyone Wins
Hopefully by now gamers understand that the majority of micro transactions in the world are a source of income for free-to-play or small fee paid casual games. Gamers and developers lose when the fees to have this aspect in a game is egregious for the developer. A great rate and turn around time would result in a major win for all.
Dallas IGDA cochairman and 12 year payment industry professional, Myke Sanders, has developed a system of guidelines and technologies that can be used with any platform that does not lock the developer into a specific way to process transaction, i.e. Apple store or Android store. The windows store does allow the developer to use a 3rd party payment platform. This process will take 48 hours to get the developer funded and the cost drops substantially compared to Microsoft in app purchases. While the technologies are specific to the processor Jetpay the guidelines can be used with any system to reduce the costs of micro transactions.
In order to reduce micro transaction costs, there are some items to consider. Your first focus in reducing transaction costs is to work with the correct payment platform. There are two types of payment platforms: processors and gateways. Processors directly interface with the various card ‘associations’ (e.g., AMEX, Discover, MasterCard, and Visa). They take on the responsibility of moving the money from the cardholder making the purchase to the merchant. A gateway operates as a ‘middle man’ and partners with a processor to communicate with the card associations. Processors are almost always cheaper than gateways but they may have limited methods for grabbing transactions, and the application process for merchants tends to be more thorough. Gateways may offer a quicker, easier merchant signup process as well as more options for transmitting the transactions from the merchant to the gateway. I recommend pursuing the processor route first before considering a gateway. Be patient in working with a processor, they don’t move as fast, but the saving can be substantial.
Be aware of the pricing plan that your payment provider gives you. There are many different plans that they can give you but this is what you want to look. Flat rates are nice because you don’t have to worry about hidden fees and they require less work to monitor, but on some transactions you might be paying more than you could get away. There is another plan called a pass through, where the processors passes through all the fees they get charged plus their cut. If you are working with a reputable business this will be the cheapest route. However this one can be abused with surprises fees that the processor or gateway made up. Either way the average cost of the transaction is 2% + $0.20. You should not be paying much more than that.
The next item to consider is how to boost the dollar amount of the transactions as high as possible in order to maintain decent profitability for micro transactions. The average interchange fee rate charged by the card associations to the processor or gateway for an online credit card transaction is 2% + $0.20. The merchant will be charged these interchange fees along with any additional fees to cover various processing-related expenses. To illustrate my point, a $1 transaction means that you will lose more than 23% of the transaction in fees. For a $3 transaction, the fee rate drops closer to 9%, and a $5 transaction translates into just 6% charged for fees. The goal, then, is to make the transaction as large as possible in order to reduce the percentage amount lost in interchange fees.
One strategy for doing this is to accumulate several transactions together into a larger, single transaction. For example, instead of separately processing a $1.15, $0.65, and $1.75 transaction, they can be bundled together into a single $3.55 transaction. Although this method can generate significant savings, it does mean that individual transactions may have to sit around longer before being settled; transactions that take too long to settle can incur higher interchange rates and may need to go through a re-authorization processed if more than 30 days has elapsed. Essentially, this method works best if there is a strong likelihood of multiple transactions within a short period of time from each customer. Since a developer can’t guarantee this will happen it is not a good route to take.
To get around this, a developer can CREATE their own world ‘currency’ that must be purchased by players. The in-world currency can be created in a denomination sized to allow the player to buy several small items or fewer larger ones. This removes the difficulty in assigning a real-world amount to small items. It, also, allows the developer the ability to adjust how much the player can buy without having to rework the value of an entire stock of items for sale … and, best of all, the currency can be targeted at real-world dollar amounts that incur a SMALLER percentage of interchange fees.
The last consideration is pricing. If the developer uses an in-world currency, the pricing is simply a conversion rate between real-world and in-world currencies. Also by giving the player a high rate of return for in game money versus real money its pushes them towards purchases that give the developer a better payment percentage. If this approach is not taken, then the value of each item will need to be established by considering its effectiveness in the game and the amount a person will pay for it. This can be reworked during the life cycle of the game, of course.
So what IS the magic dollar amount of a micro transaction? Drum-roll, please…..it is $3 dollars or $2.99. This is the point at which the rates for processing are at their lowest AND the amount of the transaction is still an impulse buy for the player.
The technology piece of the process is a c# class that can be used with any .Net game. This code will take care of submitting and receive credit card transactions. It can also create a token of the card number that can be stored and used later which satisfies PCI compliance and protects the customer and the developer. The c# code submits xml to a front end so it is easy to code to using other languages.