Despite the potential of micro-payment systems very few systems have been successful. Little is known about the reasons behind the successful few and the failures of the majority. Micro-payment markets exhibit two-sided network effects and the underlying dynamics of these markets are not very well understood. Based on a stylized model of a two-sided market, we find that a 'survival mass' of merchants and consumers is required for a micro-payment system to exist and a 'critical mass' for the acceptance levels to take off and remain stable. We also find the non-intuitive result that lowering the consumer-side adoption cost will actually reduce the chances for the micro-payment market to develop. Thus, subsidization alone cannot create a micro-payment market. Anecdotal evidence supports this finding. When subsidization is needed, the consumer side will normally be subsidized. The two-sided market structure makes comparative analysis complex and non-trivial, rendering the implementation of micro-payment systems very difficult as indicated by the mixed results of a number of initiatives worldwide
