Small transactions have become a constant in the world of casual gaming. Whether it’s $6.99 for a new PC title, $5 for FarmVille cash, or 99 cents for an iPhone game, small purchases make up the bulk of this industry. With that in mind, PayPal has just announced a change in how they handle smaller transactions in an effort to encourage digital media producers to adopt the service.

Producers of small content like casual games and digital music have often shied away from PayPal, as PayPal fees would take too large a percentage of the sale away from the merchant. On items less than $10 merchants are required to pay 5% of the transaction plus 5 cents. In the case of a $1 item this would mean 10 cents would go to PayPal. That’s 10% of the sale price going to service fees – a hefty sum indeed.

Under the announced changes, PayPal wouldn’t charge their fees until a certain number of units has been sold, thereby reducing costs to the merchant. Just how many units need to sell to trigger those fees has yet to be determined.

“The challenge is how do you make a $1 transaction attractive to everyone from an economic standpoint,” said Francesco Rovetta, PayPal’s mobile unit director at a conference in Austin, Texas. “We are finalizing the development of that business model.”

The digital goods market is currently valued at $30 billion, and despite its popularity PayPal estimates it only controls about 10% of all online payments. Once this new structure is in place, we look forward to seeing what impact it may make on the casual games industry.

[via Business Week]