When will payment networks open up to non-government issued currencies?

Probably sooner than later, not only because these new kind of currencies are currently popping up all over the place and represent a lost opportunity for payment networks, but especially because there are very valid business use cases.

First of all, what are we talking about?

A payment network opening up to non-government issued currency would essentially allow payments to be done non just in US dollars or any other legal tender, but in privately-issued currencies, whether it’s World of Warcraft gold coins, Facebook currency or others. In particular, multi-currency payments would be possible: say 20% of the amount in a currency and 80% in another, which isn’t possible right now.

Furthermore, non-government issued community or virtual currencies are by nature circulating within a specific group of people, with limited conversion from/to real US dollars, which reduces revenue for payment networks exclusively focused on US dollar. It would be much better for payment networks to provide their operational expertise to communities and charge for it.

What would be the business case?

Think about the following scenario: you log in to Amazon and have registered your World of Warcraft username, so Amazon knows that you are a player. You have authorized Amazon.com to access your WoW balance and submit transactions on your behalf (say via OAuth). You now browse to a produce page, and instead of the regular price of $100 (USD), you see $80 (USD) and 20 WoW gold coins. You press the buy button, and $80 are taken out of your credit or debit car or bank account, while 20 WoW gold coins are transferred to Amazon.com WoW account.

Why would Amazon.com do that?

  • It’s a very cheap way to target and attract a particular community of customers that they can further target with specific offers knowing what they like.
  • It’s a perfect way to build their brand using the accumulated game currency on the virtual world
  • They can use the acquired game currency to target specific players with incentives to purchase at Amazon.com
  • As long as they see value in using these acquired game currency to build their brand (i.e. they recirculate them), it’s really not a rebate, simply a different use of their marketing dollars.

Beyond game currencies

Beyond game currencies, the above use case would be valid for any community currency, say of a particular city or neighborhood. It may not work very well for Amazon in the case of a neighborhood since Amazon.com may not be willing to spend too many dollars on a particular local community, but that’s the point: if they don’t, why would the local community shop at Amazon.com? there are probably other retailers that would be happy to collect currency that they can redeem for advertisment in a local newspaper or local Web site.