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PayPal Opens Digital Goods Service

The online payment powerhouse is moving into micropayments.

Paypal on Thursday said that its micropayment service, PayPal for Digital Goods, has emerged from beta testing and is now available to sellers of digital content.

Announced last October, PayPal for Digital Goods provides a way to sell low-cost content without onerous transaction fees that eliminate the possibility of profit. The service's rate is 5% plus $0.05 for purchases under $12.

"This is actually a lot lower than the fees typically charged by payment processors in the digital goods industry," claims Carey Kolaja, senior director of digital goods operations at PayPal, in a blog post.

As a point of comparison, Apple charges a 30% fee for digital goods bought through iTunes, leaving a merchant selling a $0.99 song or app with $0.70. Using PayPal's service, the developer would collect $0.90, assuming PayPal also rounds fractional amounts up.

Kagi, a digital goods payment and hosting platform used by many software vendors, starts at 7.99% + $0.75 for monthly sales of up to $5,000. At the highest sales tier, $100,000 and over per month, its rate is 4.99% + $0.75. Google Checkout starts at 2.9% + $0.30 for monthly sales under $3,000.

There are additional fees to consider: PayPal charges an extra 2.5% charge for any currency conversion and 1% to receive payments from another country.

It's worth keeping in mind that PayPal is only providing a payment service, so merchants using PayPal for digital goods have to maintain their own Web sites and pay for bandwidth. That's included when one sells through iTunes or the Android Market, among others.

PayPal's Digital Goods system appears to be aimed at the Web rather than the mobile market, though presumably it would work in a mobile Web browser. The company envisions merchants using the service to sell e-books, music, videos, software, digital images, e-manuals, and virtual goods in games, among other things.

It's not geared for the mobile market, which could hinder adoption. Micropayments have become particularly popular among app developers as a way to monetize free apps. Apple has been encouraging developers to implement its in-app purchase system, and Google recently added in-app billing to its Android OS, also with a 30% revenue split.

However, PayPal is not exactly a newcomer to the payment business, having processed $3.4 billion in digital goods payments in 2010.

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