PayPal said Wednesday that it is extending its micro-payments service to include forms of low-cost digital content beyond music as the online payments outfit attempts to make its services cheaper and more appealing to merchants.

The digital content to be covered by the service would include video games, online greeting cards, news articles, mobile phone content, and music. PayPal has already been working with digital music providers to process small payments, a typical example being the $0.99 payments for iTunes.

A PayPal spokesperson said the eBay company wants to replicate its success with the music business in other verticals.

PayPal’s transaction fee is typically volume-based, and ranges from 1.9 to 2.9 percent in addition to a charge of $0.30 per transaction. In the case of micro payments, which PayPal describes as payments of less than $2, the fee is 5 percent plus $0.05 per transaction.

PayPal has begun to face increasing competition over the past few years from assorted startups targeting its home turf. The launch of iTunes further intensified the interest in the online payments business.

“We’ve seen a dramatic shift in terms of purchases people are willing to go through with since iTunes came to the market,” said Dan Schatt, an analyst with Celent, a consulting company. “In the beginning of 2004, the percentage of online content sold for less than $5 was about 10 percent. It’s now doubled.”

He estimates that the total market for online content is $12 billion.

Posted: 09|1|05 at 9:06 am. Filed under: US News.