TowerGroup says micropayments - transactions under $5 - span several different markets across mobile, Internet and point-of-sale channels - although the chief micropayments market today is electronic payments for digital content.

At present, the total market for micropayments remains small in comparison to the consumer payments market. In 2003, the total value of Internet micropayment transactions in the US was $1.9bn - driven primarily by media and Internet publishing services, digital music and other audio services. Mobile micropayments sales in the US (such as for content like ringtones) accounted for $0.15bn in 2003.

Ed Kountz, senior analyst in the Emerging Technology Solutions practice at TowerGroup, says: "As technology has advanced so have customer expectations and networks, and these factors are setting the stage for expanded micropayments growth across the mobile, Internet and physical channels."

Micropayments today are characterised by a number of fee models, including the flat fee subscription model, direct-to-bill (mainly seen in mobile telecom), merchant aggregation (where small charges are grouped and submitted as a single transaction), prepaid accounts and direct transfer (where a user's bank or other account is credited directly).

Kountz predicts that direct-to-bill payment will continue to be used for mobile transactions, while aggregation-based system will gain traction for some types of Internet content. Prepaid will be used across other mobile and e-content environments.

"Financial institutions should begin considering how these changes will impact their payment businesses, and determine how to build out alternative payment services as extensions of existing products for certain emerging groups," says Kountz.