An AuctionBytes reader recently wrote to me to say he is saving a lot of money using PayPal micropayments pricing (see also this page). It's not a new service, but sellers of low-priced items may not realize that they can take advantage of micropayments, which many might associate with digital content rather than physical goods.

I conducted an email interview with PayPal's Anuj Nayar to find out which sellers could benefit from the program and to nail down the restrictions sellers might face in using a PayPal Micropayments account.

After conducting my interview with Mr. Nayar, Bloomberg reported that PayPal planned to make its micropayments plan even more attractive by allowing companies to accumulate micropayments until a certain volume is reached, charging them a single processing fee (see this March 15 article). Anuj said, "PayPal has not announced any new plans for handling micropayments," so it's something to keep an eye on, as it would provide further savings to sellers of low-cost items.

AuctionBytes: PayPal introduced "micropayments pricing," what is it and what kinds of merchants are using it?

Anuj Nayar: Our micropayments pricing is 5 percent plus 5 cents. It's ideal for merchants who process a high volume of small transactions.

PayPal was the first major payment company to announce micropayments pricing in August 2005. In Q4 2008, we made micropayments pricing available worldwide to any PayPal Business or Premier account holder using one of PayPal's 24 supported currencies. (See this page for more information.)

Micropayments are financial transactions involving very small sums of money. PayPal defines a micropayment as a transaction of less than $12.

For digital goods merchants specifically, we offer ease of integration and a fast way to get up and running, a global market they can instantly tap into, and a competitive discounted rate on micropayments. PayPal's micropayments discount allows merchants to set sensible prices for their lowest price transactions. We've seen substantial usage so far among our merchant base - while we can't break out any specific numbers, a few notable merchants who are using our micropayments pricing are Napster, One True Media, and Spare Change.

AuctionBytes: Is the micropayments account only available for selling digital goods? Can you explain what types of goods can be sold with a micropayments account?

Anuj Nayar: No. It's available for any online merchant, but the economics make it ideal for purchases under $12. To-date, our focus in micropayments has been on pricing strategy vs. any specific products. The exact product depends on the merchant's offering, but this pricing is available to any merchant with a Business or Premier account.

AuctionBytes: Can eBay sellers use it, or is it only for merchants with their own website?

Anuj Nayar: It can be used with PayPal's payment products including Website Payments Standard, Website Payments Pro and for eBay sellers.

AuctionBytes: Does PayPal have a hybrid account where it will charge micropayment fees for low-priced items and regular PayPal fees for higher priced items? This would be especially useful for sellers selling in the auction format who might not know the final selling price.

Anuj Nayar: No, we don't currently support this type of "hybrid" account. Our experience shows that most merchants either deal in micropayment transactions and benefit from the pricing or they don't.

AuctionBytes: If you set up two accounts, how do you make sure the buyer uses the right account?

Anuj Nayar: The seller would have to set up their checkout in a way that the micropayments account is always associated with the lower-priced items.

AuctionBytes: How many PayPal accounts may users have?

Anuj Nayar: There is no limit to the number of PayPal accounts an online merchant is allowed to have.

AuctionBytes: What's the break-even point where it makes more sense to use a regular account versus the micropayments account?

Anuj Nayar: The break-even point is $12. For transactions over $12, it makes more economic sense for the seller to use our regular pricing.

AuctionBytes: Do you have any stats on how much this has saved sellers in fees, and how many people are using micropayments accounts?

Anuj Nayar: While we can't break out any specific numbers, a few notable merchants who are using our micropayments pricing are Napster, One True Media and Spare Change.

AuctionBytes: PayPal is doing some integration with sites like Facebook. Does PayPal micropayments solve certain social networking and virtual goods challenges in ecommerce?

Anuj Nayar: Yes. PayPal has been on Facebook since it first opened up its platform to developers. Developers like Zynga and Playfish brought PayPal onto the Facebook platform as a fast and easy way to buy virtual goods in games and applications like Mafia Wars, FarmVille or my personal favorite, Fishville.

AuctionBytes: What kinds of buyer/seller protection come with this type of payment?

Anuj Nayar: Our buyer and seller protections are the same. PayPal's highest priority has always been the security of our payment service and we have built our security from the ground up. Our fraud models and verification techniques are recognized as some of the best in the industry. Because PayPal never shares users' financial information - security and privacy have built into our service since its inception.

However, we also recognize that digital goods merchants have specific needs and are committed to continuing to build upon our security features and risk models to fit the requirements of this segment. To find out more about how we are helping provide education and resources on fraud and risk prevention go to PayPal.com/digitalgoods and download our "Fraud Prevention Best Practices Guide for Digital Goods Merchants."