Digital Transactions Authoritative, insightful and timely information for payments professionals
The Internet, especially through online gaming and social networks, has spawned a number of new electronic currencies. Are any of these ready to make the leap into general usage, the way dollars and pounds and euros and yen are today?
That was the fascinating question raised this week at a Webinar about virtual currencies sponsored by NACHA, governing body of the automated clearing house association. The answer: not yet, although Facebook Credits, the virtual currency of the massive social network Facebook, could do it if anyone can, according to panelist George Warfel, consulting director of Global Payment Solutions at bank processor Fiserv Inc. Facebook now claims about 800 million users, a good number of whom use the Facebook Credits virtual currency to play games, send virtual gifts, or make other transactions through Facebook.
For more than a year, however, Facebook Credits have been moving into the wider world. American Express Co. uses them as rewards points, and they’re sold or to some degree usable online at retailers Walmart, Target and Best Buy. Customers of Time Warner can buy or rent movies using Facebook Credits, Warfel said. “Facebook Credits may, and I emphasize may, be the only use case to demonstrate that an artificial digital currency can escape the world within which it was born and become generally usable,” he said. One drag on Facebook Credits’ greater acceptance, however, is the 30% cut Facebook takes on its transactions.
While Facebook Credits may be the most famous virtual currency, they’re far from alone. Others include Blizzard Entertainment Inc.’s World of Warcraft Gold, Linden Lab’s Linden dollars for use within Linden’s Second Life 3-D virtual world, and Bitcoin, the only major virtual currency today created for general use and not tethered to a social network or online game.
Javelin Strategy & Research estimates that U.S. revenues from virtual-goods sales will hit $2.4 billion this year, up 41% from an estimated $1.7 billion in 2011. While most sales are for goods within online games, Javelin’s research shows that 17% of virtual-currency users use the electronic money to buy physical items or services, 16% use virtual currency to buy digital entertainment downloads such as movies, music, or TV-show rentals, and another 13% use them to buy vouchers that could be redeemed for physical goods or services. “We’re seeing this extension again beyond the virtual world into new applications,” said Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin.
Still, according to Warfel at Brookfield, Wis.-based Fiserv, no virtual currency has yet met the three criteria that any currency needs for general usage: widespread social acceptance, a central authority to compel usage, and interchangeability at agreed-upon exchange rates. Bitcoin, which Warfel called “the electronic equivalent of bullion,” arguably has met two of the criteria in that it has a central authority, albeit private, and a controlled exchange rate. But it has very few users outside of the United Kingdom, he says. (Bitcoin also has attracted Congressional attention for its alleged use in illicit drug sales.)
Warfel and Robertson, however, both predicted that the virtual currencies would continue to increase their real-world utility, but also will come under greater regulatory scrutiny as they move outside their original confines. “The real world has seen hundreds of currencies, real currencies, come and go,” said Warfel. “The one [virtual] player that in our view that has the possibility of being a big enough market to change this would be Facebook, but we haven’t seen that happen yet.”
Facebook recently changed a policy that required application developers that reward consumers who take an advertiser’s offers through a virtual currency to offer Facebook Credits. Instead, developers can now offer other virtual currencies.
