This is an idea that Steve Klebe, vice president of strategic alliances for CyberSource, often refers to for guid¬ance. "I remember when we first heard of PayPal, which was created for the pur¬pose of beaming money from one PDA to another, we all laughed," says Klebe, who tracks the market for emerging payments closely. "Well, who is laughing now?

The lesson is that you need to look beyond the technology and determine if the purveyors of these new payment types have the wherewithal to hang around long enough and have the organizational flexibility to adapt to new market opportunities when one emerges."

When looking at new types of payments, Klebe says it's important that the systems are easy for the end user to understand and the merchant to install, and that there is enough economic reward for all participants throughout the food chain as either incremental revenue or replacement revenue. "If it passes these tests," he says, "then it makes sense to expend the energy to get involved and promote new capabilities to your merchants as a way to differentiate yourself and generate incremental revenue."

Three such payment methods garnering attention are debit bill pay, dynamic currency conversion and micropayments. As they evolve, all three are presenting new opportunities for acquirers and other industry players.

Debit bill pay rides the rails of a PIN-based debit transaction where only the embossed card number is sent for processing. A debit bill pay transaction is used only in a recurring payment environment and is currently limited to a pre-defined list of merchant types, including telecommunications, government, insurance, utilities, satellite/ cable providers and financial institutions.

The payment has to be processed by a Web site or VRU system. Debit bill pay is currently only supported by NYCE, Star and Pulse and a limited number of card issuers. Each merchant must be approved with each network in order to partici¬pate in this program. The merchant assumes 100 percent of the liability for debit bill pay transactions.

Here's how it works. The consumer visits the merchant's Web site or calls the merchant's VRU and selects his debit card as the method of payment and then enters the debit card number. The transaction is sent through the NYCE, Star or Pulse networks for a real-time funds verification. If approved, the consumer's checking account will be debited for the amount, and if declined, a message will be sent back to the merchant so that they may request another form of payment.

The cost to process debit bill pay card transactions will be the main driver for merchant adoption, as it is lower than most other payment types. "The fact that it's online means a lot to merchants because of the pricing and the immediacy of the settlement," says Neil Axe, director of emerging network payments for NYCE.

The cost to process the transaction varies per network, but most are in line or slightly higher than Current retail based, PIN-entered debit trausactions. It is also much less than the merchant issuing a paper bill and processing a check, especially if they get a check from a bill payment service for multiple customers, typically referred to as a "check & list." For example: Rates: Pulse: 6 cents switch fee and 35 cents interchange fee; Star: 3.5 cent switch fee, 1 cent trans fee and interchange of 0.60% of transaction amount + $. 12(capped at $.35) NYCE: 3.75 cent switch fee and interchange of 0.55% + $0.19 capped at $0.45 The PIN-less transaction will also allow the merchant to receive funds much quicker then a standard pay-by¬check environment

Another benefit to merchants is the offering of another payment method to consumers, many of which prefer and feel more comfortable using their debit cards "It's not meant to replace credit cards," says Axe. "Online debit is another tool to minimize the cash and checks that a biller receives, and it's [ideal] for just-in-time payments."

Not since the advent of the POS ter¬minal has there been so much margin on the table for acquirers than that offered by dynamic currency conversion (DCC). C is the process of converting for¬eign credit card transactions into the cardholder's local currency before sending them to Visa and MasterCard. Without DCC, when a foreign card¬holder makes a transaction at a US merchant, the transaction is marked up by approximately 3 percent, with 1 per¬cent going to the card associations and 2 percent paid to the card issuer.

Despite the recent lawsuit against Visa and MasterCard for not properly disclosing their portion of the conver¬sion fee, the end price to the cardholder is very competitive relative to the alternatives a foreign traveler has in the US. That's why DCC has become so compelling, specifically with regard to Internet transactions.

"When global consumers are provided with final prices in local currencies they enjoy a local, familiar shopping experi¬ence and they know what their final charge will be in their own currency, at the time of payment," says Yuval Tal, CEO of E4X, a company that offers a suite of currency conversion solutions.

"Multi Currency Conversion solutions, [the equivalent of DCC for online sales], are mostly used by e-com¬merce companies that sell to international cardholders," says Tal. "Those companies offer global shoppers the ability to purchase in their own domestic currencies rather than in the merchant's currency. The most common industries include software, travel and entertainment, music and other pay¬per-view applications, as well as large retailers that sell overseas."

Plug-n- Pay has developed such an interface along with DCC processor Planet Payment. Acquirers using such a solution can allow their Internet mer¬chants to process DCC/MCC transactions today. Planet Payment already has contracts in place with First Horizon, Fifth Third Bank and Humboldt Merchant Services. Other industry players include First Data Corp., Paymentech, Monex, First Currency Choice and Fexco.

There is no set definition of a micropayment other than perhaps payments whose value is too small to justify the overhead in cost of a credit card trans¬action. In monetary terms this generally equates to transactions less than $5. The concept of micropayments has been around for years, but since there is no true mechanism for acceptance and implementation, it has never been truly embraced. Although some consider micropayments impractical, new technology and market trends (such as the increase in paid online content) indicate that this is a growing field.

"We live in a micropayments world,"says Robert Carney, vice president of marketing for Peppercoin, a company that provides a service to facilitate micropayments. "Small transactions hap¬pen in the physical world all around us. There's no reason that those exchanges can't happen in the electronic world."

And they're starting to happen. Apple Computer says it sold more than 70 million songs (for $.99 each or $9.99 for most albums) in the first year of the iTunes Music Store's existence, and many high-profile competitors are trying to get in on the action. Coca¬Cola sold 50,000 music files in its first week online."Music is clearly dominating in terms of pure volume," says Carney. "Music has demonstrated the market [for micropaymen:ts]." But music is not the only industry using micropayments, as newspapers, gaming, and other companies join the fray. It is this type of corporate endorsement that gives continued life to micropayments.

How do digital content companies make money on micropayments? Today, the only way these small pay¬ments make sense is for companies to aggregate the charges. This can be done in several ways. First, companies can offer stored valued accounts. For example, a consumer charges $10 or more using a credit card and then buys digital goods until the $10 is spent. There are a number of companies doing this already, such as KnowX, a seller of public records.

Conversely, micropayments are handled through a system of aggregation, converting a stream of small payments into larger payments. There is also the notion of "allowances" for digital goods. This new term is being used by music and gaming companies for stored value. A parent will give their kids an allowance to spend on digital goods. The parent is then responsible for the charges either in a pre- or post-pay¬ment form, depending on a merchant's business rules.

Most merchants offering micropayment options use services from third¬party vendors to facilitate these sales before they are processed as credit card or other transactions. These vendors include BitPass, Pays tone, and Peppercoin. Pay Pal recently announced an offering for this segment, which, considering their 40 million account holders, many with funds already on deposit, is likely to be a player as this market evolves.

The current interchange structure makes micropayments cost prohibitive without aggregation. However, the market will either force changes in interchange, or alternative payment systems will continue to evolve to avoid processing via the established interchanges.

"The card associations have been fairly supportive [of our service]," says Carney. "They'd like to see plastic expand its market share. One of the few places where paper still dominates is at the low end."

As the market and consumer demand dictate, new payment types and appli¬cations will continue to evolve. Just as consumer preferences have driven the creation of debit bill pay, dynamic cur¬rency conversion and micropayments, consumers and industry innovation will lead to even more options.