eBay has reduced processing fees for its PayPal online payment service on inexpensive digital items like 99-cent ringtones and music downloads, the company announced today.

The new micropayments processing fees are expected to provide merchants an affordable way to process payments for low-cost digital content, including video games, online greeting cards, news articles, mobile phone content and digital music, San Jose, Calif.-based PayPal said.

Merchants can now process payments under $2 at 5 percent plus 5 cents per transaction, the company said.

"The consumer response to a-la-carte pricing for music downloads has clearly shown that customers want to be able to pay as they go," Peter Ashley, director of PayPal's micropayments business, said in a statement.

Merchants are expected to save anywhere from 40 percent to 60 percent on processing payments, compared to the industry's standard rates of approximately 2 percent, plus 20 to 30 cents per transaction, the company said.

The move puts PayPal in a position to drive sales upward by enticing merchants serving consumers who don't want to sign up for an annual subscriptions or make advance payments.

"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 the need to sign up for subscriptions or pre-payments," Ashley said.

The new fees enhance the convenience of downloadable digital content, he said. Customers can buy any number of items using a variety of funding methods, including credit cards, bank accounts and stored PayPal balances.

Digital content merchants can choose to process transactions at their current PayPal rate or the new micropayments rate — whichever is more favorable to their businesses.