The Future of Money: Conversation Starters

How big is the virtual currency market?

ZYNGA
Founded in 2007, with current revenues of $100m. Supported by direct credit card payments or partner business generation. Several Zynga games require an "Energy" characteristic to play. Engaging in "Missions", a core feature of many games, consumes a certain amount of energy. Expended energy is slowly replenished to the character's maximum limit (taking up to several hours, whether or not players are logged into the game), after which players can engage in additional missions. Waiting for energy to replenish is a significant limiting factor in the games. Zynga games link to offers from a number of partners. Players can accept credit card offers, take surveys or buy services from Zynga's partners in order to obtain game credits, to replenish their character's energy or get premium currency that can be exchanged for other virtual goods. Players may also purchase game credits directly from Zynga via credit card or PayPal. From within the game, players can purchase the points for a fee: e.g., US$ 5.00 for 21 game credits. Zynga now sells prepaid virtual currency cards at more than 12,800 stores across the US.

SECOND LIFE – LINDEN DOLLARS
The virtual world Second Life has its own economy and a currency referred to as Linden Dollars (L$). This economy is independent of pricing, where users pay Linden Lab. In the SL economy, residents buy from and sell to one another directly, using the Linden, which is exchangeable for US$ or other currencies on market-based exchange rates. Linden Lab reports that the Second Life economy generated US$3.6 m in economic activity during Sept 2005. As of Sept 2006, Second Life was reported to have a GDP of $64 m. In 2009 the total size of the Second Life economy grew 65% to $567 m, about 25% of the entire U.S. virtual goods market. Gross Resident Earnings are $55 m US$ in 2009 - 11% growth over 2008.

[LINDEN DOLLARS/ EXCHANGE RATE graph on original document]

KWEDIT
Kwedit Direct allows you to buy digital content and virtual goods and pay for them by visiting local stores (e.g. 7-Eleven) that accept Kwedit payments, mailing the cash in a pre-paid Kwedit envelope/mailer that’s printed right off the web, or using Pass the Duck™ -- the world’s first social payment network – to ask family members or friends to pay on your behalf.

Kwedit Promise allows you to purchase virtual goods by making a Promise to pay for them later, typically within 7 to 14 days. This unique capability allows you to continue playing without interruption. The amount you can Promise in the future will increase as you pay off your previous Promises and build up your Kwedit Score, our virtual version of a FICO credit score – the real-world metric that companies use to decide how much you can borrow to buy real things like cars and houses! Your Kwedit Score applies only to Kwedit Promise. It doesn't affect your FICO credit score in any way.

  Other reference points:
o    Dibspace founder to spend 1 year on virtual currency only
o    Offerpal gets $15M in funding
o    China’s QQ coins form parallel currency
o    China bans purchase of real commodities with virtual money
o    South Korea allows exchange of virtual currency for real currency
o    Several governments now concerned with financial & regulatory controls to prevent fraud and money laundering through virtual currency

What is the future of Mobile Money?

CONTACTLESS COMMERCE WITH MOBILES
North American consumers paid for less than $100 million worth of goods in 2010 using a type of mobile contactless payment chip technology that is known as Near Field Communication, according to telecom industry analysis firm Juniper Research. By 2012, the total could rise to $5 billion. NFC chips, made by companies that include NXP Semiconductors and Inside Contactless, contain tiny antennae that communicate with in-store scanners. Outfitted with these accessories, phones can function as electronic wallets.

4.6 billion mobile phones globally, across 60.6% of global population (Wikipedia)
0.92b smart-phones estimated globally, across 14% of global population (Smartphone DAQ)
Global unbanked population ~ 2.7 billion people (~40%)
Combined market for all types of mobile payments is expected to reach more than $600B globally by 2013
SK Telecom & Citibank launch JV “Mobile Money Ventures” (2008); Citibank trials tap-and-pay in India; Vodaphone mobile financial services in India; Citi mobile in China
iPhone app iBump allows transfer of funds by bumping iPhones together
Zong (payment options – adding to bill, or forwarding to card)
Obopay (social gaming purchases through mobile + credit card)
Facebook Buxter payments allows transfer of limited funds (up to ₤45)
China Mobile, with > 500 million subscribers, purchases stake in local bank to enhance mobile payment offerings.
Opportunity International Bank of Malawi (OIBM), the leading provider of microfinance in Malawi, launches mobile phone banking system named 'banki m'manja'
Developed countries’ device subscriptions > population (Europe: 11% higher)
Developing countries ~ 67% of mobile phones, against <50% in 2002. Africa fastest growth: 2% - 28% in 10 years
Much uptake fuelled by money transfer services used by unbanked population: Vodafone's M-Pesa, launched in Kenya in 2007, now has 5 million users; Gambia has 800,000 mobile subscribers, 50,000 fixed lines
By end 2008, ~ 335 million mobile broadband subscribers globally. (14% penetration in developed world, <1% in developing world)
Comparisons with global broadband penetration:
o    11% in 2002 à 23% in 2008.
o    5% global population has home broadband internet (20% in developed world)
o    <5% Africans, <15% Asians online in 2007; Europe 43%, Americas 44% penetration

Credit card penetration & trends

Credit card penetration is closely linked to GDP per capita: developed countries have a higher penetration of cards than do developing countries.

[ graph on original document]

However, credit card penetration growth (and present levels) has remained far behind the growth of mobile phones per capita, across the world. A paper by McKinsey & Co on the subject suggests that mobile commerce can be a “leapfrog” technology in markets where mobile phone penetration significantly outstrips credit card and sometimes even bank account penetration.

'Table 1: Market Penetration in Selected Countries (Credit and Charge Cards per Capita)' Source: ITA [graph on original document]

What are the likely implications for

eCommerce?
o What percentage of eCommerce will be transacted using cards, phones and virtual currency over the next 5 years?
o Are merchants, payment processors and manufacturers prepared for change? Is infrastructure available for changing consumer behaviour and preferences?
Credit Cards?
o How will the credit card industry compete with the increasing numbers of transaction enabled smart-phones and other contactless commerce options?
Retail?
o    Is the retail industry thinking about changing customer payment options and preferences?
o    How far away are tap-and-pay systems from being ubiquitous? Are retailers investing in these technologies?
o    What partnerships and affiliations must retailers have in place to execute these changes?
Mobile phone manufacturers?
o    What additional conveniences will mobile phone manufacturers include in newer models?
o    Will there be a standards issue around handsets and payment systems?
o    What are the security concerns around mobile money, and how will these be tackled?
o    Where are the highest growth markets for phones and smart-phones?
Telcos?
o How will telcos take advantage of mobile financial services?
o What form will these services take? (Inclusion in bill, linking to bank accounts / credit cards)
City transit systems / infrastructure?
o How will infrastructure, transit and transport systems, entertainment services make use of mobile money?
Television?
o Will micro-payments find their way onto Set Top Boxes? By when?