Credit-card companies want to be nickeled-and-dimed by the nation's consumers.

A decade after they began encouraging spenders to put everyday purchases on plastic, financial institutions now want people to use them for even smaller transactions. Known as "micropayments," these transactions typically are less than $2 and can ring up sizable industry profits even when they are less than a dollar.

After making a big appearance in online transactions a few years ago with the ability to charge a 99-cent song downloaded from Apple Computer Inc.'s iTunes, tiny payments now are showing up more often in the physical world.

In Houston, city officials are preparing to install 1,500 parking meters that accept credit and debit cards, in addition to coins and bills. Rowe International, owned by holding company Harbour Group and one of the nation's largest jukebox makers, recently started selling $199 kits to its customers that enable them to outfit their machines to accept plastic. And Visa USA Inc. is exploring technology that would enable card acceptance at subway turnstiles, among other places.

For the financial-institutions that issue cards, small payments are another way to generate big fees from businesses that accept plastic at the same time that merchants are crying foul over those charges. In all, these fees generated $25 billion in revenue last year for the financial institutions that issue cards, according to industry statistics.

The push toward smaller transactions is part of the credit-card industry's continuing strategy of getting consumers to use plastic instead of more traditional forms of payment. Consumers already are moving in that direction: The number of U.S. electronic payments topped the number of cash and check payments in 2003 for the first time, according to a study conducted by the American Bankers Association and Dove Consulting, a Boston consulting firm. Cash and checks now account for 45 percent of consumers' monthly payments, down from 57 percent in 2001 and 49 percent in 2003, according to the latest version of the study, issued last week.

Many small transactions still are cash-based, making card companies salivate at the prospect of turning those payments into plastic. The market for transactions valued at less than $5 accounted for $1.32 trillion in consumer spending in 2003, representing more than 400 billion transactions, according to research by TowerGroup, a unit of MasterCard International Inc. By comparison, Visa processes a total of about $2 trillion of global transactions each year.

"This is a market that is ripe for card-issuers to try to penetrate," says Dan Schatt, an analyst at consulting firm Celent Communications Inc. in San Francisco. Indeed, American Express Co., long known as a card for big spenders, began accepting transactions of less than $1 about a year ago as part of its strategy to get its cardholders to use plastic for buying groceries and gasoline.

The push toward smaller payments also is accelerating with the industry's development of so-called contactless cards, in which a consumer waves or taps a card before a reader located at the check-out counter. Big lenders, including J.P. Morgan Chase & Co., Citigroup Inc. and American Express, are introducing cards with the new technology and are trying to convince merchants to install the readers. So far, a handful of big merchants have adopted the new payment method, including 7-Eleven Inc., CVS Corp., McDonald's Corp. and the Regal Entertainment Group movie-theater chain.

That, combined with the growing popularity of debit cards -- in which purchases are immediately deducted from a checking account -- are making consumers more interested in using plastic for small purchases. More than 37 million Americans are willing to use their cards for $5 or less and an estimated 6.5 million Americans would be comfortable using cards for transactions of less than $1, according to a study released late last year by Ipsos-Insight, the latest available from the market-research firm.

"As card networks look for sources of growth, this is a significant one," says Mark Friedman, chief executive of Peppercoin Inc., a closely held Waltham, Mass., company that specializes in small-payment services for merchants.

Merchants pay the card-issuing bank a percentage of each card transaction; the payment structure varies widely depending on the type of card and the business where it is used. Visa, for example, sets a 1.65 percent fee for a group of businesses that typically generate small payments, including parking lots and taxi services. Visa is expected to soon expand that list, which also eliminates the need for signatures on transactions that are less than $15.

Still, businesses are looking for ways to keep those fees and other processing costs down. One method is to aggregate multiple transactions -- meaning to gather small transactions together and then process them as a single, larger transaction, which can slice costs. Cost also is an issue in Houston, where officials hope to negotiate lower fees by rolling parking-meter card transactions into other city departments that generate card payments.

So far, the 15 percent of Rowe's jukeboxes that accept cards are generating increased revenue, says John Margold, senior vice president of sales and marketing for the company. Adds the executive: "Playing a jukebox isn't a necessity of life, but if you want to hear 'Margaritaville' and you've spent your cash, a quarter doesn't get you anything."