It's no secret that the existing "merchant" system for processing credit cards is nothing but a way for large banks to rip you off one plastic swipe at a time. It's ridiculously hard to process small transactions when you're paying 2.75% plus $0.35 per transaction in fees. And because the industry puts up roadblocks to prevent you from shopping around, so you never know just how badly you're getting screwed with each transaction. One time, I processed a $14,000 transaction, and got hit with over $400 in fees. Plus they're getting interest from the credit card holder as well. What a freakin racket.
Over the past several years, Microsoft has been building out the Microsoft Points framework, and using Xbox Live to iron out all the details. I like to think of it as very similar to the .NET Framework. The .NET Framework is one engine that lets as many different programming languages as possible plug into one system. You can use any language you want, as long as your compiler spits out code in an "Intermediate Language" that the Common Language Runtime can execute.
Microsoft Points work the same way. A Point is a Point is a Point, it doesn't matter what country you're in or what currency you use. On Xbox Live, every TV show is worth the same number of Points, whether you're in Australia or Zimbabwe. Microsoft manages the exchange rates internally, so the actual cost of the point varies per country. But the genius of the system is twofold:
- It detaches your brain from the concept that you're spending money, by detaching the exchange of money from the item you intend to buy. After you buy 800 points for $10 USD, you forget that the 600-point Live Arcade title just cost you $7.50 USD. In the mind of most individuals, you've already spent the money on the points. This leads people to spend points more quickly than they would cash (this is not based on hard evidence, just my own personal experience... but Joystiq backs me up).
- Microsoft is able to get around the fees issue because you buy Points in bulk. You can't just buy 10 Points (that's $0.12 USD for those keeping track) because MS would get creamed in fees. So they charge just enough to make it worth your while, and worth theirs too.
Points aren't just used for the Xbox 360, though. The Zune Marketplace uses Points to acquire songs. And there has been talk inside Microsoft about using Points elsewhere, like on Windows Marketplace. But apparently that's not all.
On Friday, Bill Gates told the World Economic Forum in Davos, Switzerland that Microsoft plans to open up this micro-payments framework for everyone. I would imagine that this would be called Windows Live Payments, or something like that (that's pure speculation, not any inside information. I haven't been briefed on this plan.) I would also imagine that there would be an SDK to enable websites to enroll in this system.
I don't know what fees, if any, Microsoft would charge members of this system. But I can imagine that, any way you slice it, the merchant processing industry isn't going to like it, and that's why it's so cool. Time to change the game!
[Hat tip to John Obedo for the heads-up]