Payments Watch

Currently residents of Second Life, a virtual world created by Linden Labs buy from and sell to one another directly using the Linden (a virtual currency which is exchangeable for US dollars and other currencies on market-based currency exchanges). How about offering other payment channels in Second Life like credit cards?

According to the Second Life website:

Second Life is a 3-D virtual world entirely built and owned by its residents. Since opening to the public in 2003, it has grown explosively and today is inhabited by a total of 7,785,924 people from around the globe…The Marketplace currently supports millions of US dollars in monthly transactions. This commerce is handled with the in-world unit-of-trade, the Linden dollar, which can be converted to US dollars at several thriving online Linden Dollar exchanges.

Source: Second Life

I started to think about Second Life as an economy after watching this CBC video on the weekend:

As of today, the exchange rate is approximately 268 Lindens to the US Dollar. Based on my reading of the statistics there were 12 Billion Lindens worth of transactions in March and banking has already taken a foothold in Second Life:

Some banks like Meta Bank use a standard banking business model entirely within Second Life. They have checking accounts to which they pay interest, and lend money with interest to businesses in Second Life. Meta Bank operates operates entirely within Second Life and in Linden dollars only. An interesting interview with the president of Meta Bank can be found here.

ABN AMRO and Wells Fargo have developed a presence in Second Life but use it as a method of communicating with customers and do not offer banking services in the virtual world. According to Reuters:

Denmark’s Saxo Bank plans to offer Second Life residents the ability to manage their real-life financial portfolios from within the virtual world, and may eventually create a market to trade the Linden dollar against real-world currencies.

Source: Reuters Second Life News Centre

What opportunities exist for the payments industry in Second Life? One that jumps out is the credit card, offering Second Life residents both a payment device and access to short term credit. Perhaps the Second Life economy can support a network of issuers, and acquirers just like the credit card business model in Real Life. The closest thing I can find now are credit cards which offer Linden dollar rewards for purchases made in the real world. The opportunity seems larger. Besides offering Linden based credit and payment services in Second Life, these cards could bridge the virtual and real worlds by allowing purchasing and credit across both worlds. The issuers could make money on the currency exchange, and in fact, this would provide a highly efficient mechanism for exchange outside of the existing exchanges within Second Life.