Micropayments are financial transactions involving very small sums of money. PayPal defines a micropayment as a transaction of less than 12 USD, and offers reduced fees for micropayment transactions. A problem that has prevented the emergence of feasible micropayment systems that allow payments of less than 1 USD is a need to keep costs for individual transactions low, which is impractical when transacting such small sums, even if the transaction fee is just a few cents.
Micropayments were initially devised as a way of allowing the sale of online content and were envisioned to involve small sums of only a few cents. These transactions would enable people to sell content on the Internet for small sums and would be an alternative to advertising revenue. During the late 1990s there was a movement to create microtransaction standards, and the World Wide Web Consortium (W3C) worked on incorporating micropayments into HTML, even going as far as to suggest the embedding of payment-request information in HTTP error codes. The W3C has since stopped its efforts in this area, and micropayments have not become a widely used method of selling content over the internet.
In the late 1990s, established companies like IBM and Compaq had microtransaction divisions, and research on micropayments and micropayment standards was performed at Carnegie Mellon and by the World Wide Web Consortium.
Compaq's Millicent was a micropayment system that supported transactions from as small as 1/10th of a cent up to $5.00. It grew out of The Millicent Protocol for Inexpensive Electronic Commerce, which was presented at the 1995 World Wide Web Conference in Boston. Millicent utilized symmetric cryptography.
The NetBill electronic commerce project at Carnegie Mellon university researched distributed transaction processing systems and developed protocols and software to support payment for goods and services over the Internet. It utilized a pre-paid account that micropayment charges would be drawn from. Started in 1997, it was an early foray into microtransaction research.