On Wednesday, August 31st, Paypal announced that it is extending its micro-payment system to include inexpensive digital content as well as the music downloads it has been doing for some time. This is a big step forward in the struggle to bring convenience and appeal to the world of low cost online purchases.Now consumers with Paypal accounts can use it to buy video games, online greeting cards, cell phone ring tones, and subscriber only news articles. Paypal was encouraged in the new move by the success of its music download payment program most commonly associated with iTunes.Paypal customers normally pay from 2% to 3% of each transaction plus a $.30 fee. The micro-payments will cost 5% plus a $.05 on each transaction. Paypal defines a micro-payment as any amount less then $2. The reduced fees allow merchants offering low cost goods to save about 50% of the traditional Paypal pricing structure. Merchants can choose whether to adopt the new pricing structure or use the old one depending on which is more favorable for their business.The public has historically been unwilling to go through the rigmarole of payment processors when making small purchases but this seems to be changing since the introduction of the iTunes music download service. It has been said that since 2004 the number of online purchases on things costing less than $5 has doubled from 10% of the e-commerce total to 20%.Peter Ashley, Paypal’s director of micro-payments, said, “Consumer response to a-la-carte pricing for music downloads has clearly shown that customers want to be able to pay as they go. With our new pricing tier for digital goods merchants can affordably provide customers with what they are demanding, the opportunity to purchase the content they want without signing up for subscriptions or pre-payment.”The possible impact of this change on small business is difficult to overstate. Paypal has almost 79 million existing accounts representing a gigantic new market for inexpensive downloads. A merchant can now offer items that would never have worked before. Hand designed electronic greeting cards, small software programs and video games, new fonts, and even short stories and news articles that could never be sold profitably before are now within the reach of the online business. Garage bands that could never dream of setting up a credit card processor can now endeavor to find a market for their original music with consumers willing to risk a dollar or two on an unknown act.Of course big business is sure to look to micro-payments as way to pay for movie and video game rentals as well as subscriber services that will require tiny monthly fees.One possible downside of all this for consumers is now being forced to pay for things they’ve been getting for free. A good example of this possibility is fonts. Up to now designers have often given new fonts away as advertising for their services. If the fonts can be sold for 99 cents in a convenient manner designers are sure to try.Paypal faces a new problem of dealing with huge numbers of tiny purchases that are just as likely to create customer service problems as larger purchases. While consumers might be willing to let a $1 sale gone wrong slide you can bet merchants wont. Paypal has made strides in handling its customer relation problems but they can count on a volume of calls they’ve never dealt with before.Paypal is not alone in offering a micro-payment service. The Waltham , Mass company Peppercoin recently launched a small payment processor of its own. The company just announced that it had raised $8 million to fund its attempt to compete with Paypal. However, given its relative obscurity it is difficult to imagine Peppercoin posing a real threat to Paypal.The vending machine age has come to the Internet. Consumers will be able to pop in their Paypal account number and purchase a whole new world of inexpensive products they just couldn’t get before. Small business’ creativity will be challenged to find products that fit into the new niche and cash in on the micro-payment.Art Mickelwraith is the author of the Wholesale Buyer’s Guide at TopTenWholesale.com. He can be reached at artmicklewraith@gmail.com.