Virtual World Currency Exchange Launches; Use Gold Pieces to Buy Simoleons

Brought to you by Gaming Open Market, the exchange plans to cover Ultima, Sims Online, There, EverQuest, Camelot, Star Wars Galaxies - together over a million users - and of course the US dollar.

Comments

[Bruce Boston]

1.

Congratulations to Jamie Hale! All the best to your effort!

-Bruce

[Jamie Hale]

2.

Thank you Bruce. Selling any therebucks? :)

[Kenny Dembner]

3.

I wonder if this has any additional economic implications? Is this to be the next Foreign Exchange Market? With a centralized marketplace and the possibility of cross-trading, I am very intrigued!

Thank you very much, Professor Castronova! It shall indeed be interesting to monitor the website's activity. I hope they release their statistics for research purposes.

Thanks again!
Kenny

[Bruce Boston]

4.

Hi Jamie,

Yes, of course Therebucks are always for sale.

This also opens up a few other fun ideas.

I am wondering what it would take to make a service to replace Paypal as the link between virtual markets and RL currency.

I think this type of service is really the next missing link. Anyone that has had a chargeback from Paypal knows that they do not guarantee virtual trades. This suggests that the doors have cracked open for someone who wants to make a play for becoming the Paypal of the virtual markets.

What if someone could create a paypal like service that guaranteed payment when delivery was made through the 'Open Game Market'. Would we even need paypal? Would this new service also need to compete on price or could the added benefit of guaranteed payment be enough to justify a little higher cost? I wonder what it would take for people to be willing to switch from using Paypal to using this new service?

Anyone have any thoughts?

-Bruce

[Edward Castronova]

5.

"Would we even need paypal?"
If someone can figure out how to keep game currency values stable - end MUDflation - the gold pieces of games would basically turn into the Digicash and e-gold everyone's been warned about. The problem with those currencies has been that they never developed a user community. Not a problem for game monies. For them, the issue is faith in long-run value and convertibility. But maybe not for long.

[Brian 'Psychochild' Green]

6.

Hey! Another source of income for developers.

Reduce the flow of cash into the world through in-game means, then create a whole bunch of cash to sell on the external market before the money hits the world and lowers the value of the currency!

I need to get myself in on that scam. ;)

[Bob Kiblinger]

7.

I have heard many people talk about developing a paypal-type service specifically geared towards virtual markets - but so far no one has figured out the logistics. In my mind, it would have to include the involvement of the gaming company – and there would also have to be a neutral third party to monitor the transaction. Credit card chargebacks are extremely easy to perform – the scammer simply call up their cc company and tells them they didn’t authorize the transaction, and the cc company gives the customer back their money. It then befalls the merchant to get their money back in the court system. This is not limited to virtual worlds of course - it happens in the real world as well. I have a good friend who operates a guitar store. A customer walked into his store, bought a $6,000 1950s Gibson with his credit card, and filed a chargeback a month later. The company that runs his cc service simply took the money from my friend’s merchant account and gave it right back to the cc company - no questions asked. It was then up to the seller to take legal action directly against the customer (not the cc company). Not an easy task with "real" items – a seemingly impossible task with virtual ones. Having a neutral third party monitor transactions would seem to be a huge step in the right direction. Some type of digital signatures would also be a very helpful. Regardless of the system put into place, chargebacks will still happen - and the merchant will always bear the burden of proof.

[Bob Kiblinger]

8.

One other thing, Citibank guaranteed "no chargebacks" for all items (even virtual ones), on a paypal-like service called c2it. Most of the virtual sellers quickly moved to this service and it was wonderful while it lasted. Obviously it didn't work very well, as c2it is now out of business:

www.c2it.com

Paypal does protect merchants against chargebacks for "real" items, as long as the seller has a proof of shipment (tracking number). I suppose if paypal would be willing to do that, they would also be willing to offer the same protection for virtual items if there was "proof" the item was delivered to the right person.

[Hiroshi Yamaguchi]

9.

Now we are watching an economy emerges and developes. A world was created, people started to trade, and now we have a market. Isn't it exciting to think what comes next, is it? Yes, it does have an important implication on the future of our economy.

[Jamie Hale]

10.

Without doubt, PayPal is likely to be our biggest headache.

Our first approach is going to be that GOM clients are not "buying" anything when they transfer money between their PayPal accounts and their GOM accounts. They're simply moving money. I can provide my PayPal IPN records as proof that I received the cash, but PayPal keeps their own records.

If someone does a chargeback on a GOM cash deposit, an equivalent would be for you to transfer money from one of your bank accounts to another and then call up the first bank to say "I didn't do that!". Of course the bank is going to say, "Well, yes you did and here are all the records to prove it."

Here's hoping it won't be much of an issue. :)

[Julian Dibbell]

11.

FYI, here's PayPal's "official" "position" regarding sale of virtual items:

http://www.juliandibbell.com/playmoney/2003_10_01_playmoney_archive.html#106645520484229563

I dare say it doesn't bode well for your attempts to get PayPal in your corner, Jamie. I'd be working on a way to avoid them altogether, if I were you.

[Jamie Hale]

12.

Julian, we are. Started in earnest when I read that blog post of yours back in October. :) Not sure what's going to come of it. At the least, we will be providing details for sending bank drafts and actual wire transfers. It's safest for us to deal directly with the banks.

The trick with Paypal, however, is that our users' transfers from PayPal accounts to GOM accounts don't map directly to purchases. We're not selling them anything. They're moving their money into our account to have fast access to purchases. Purchases that happen at some later time.

If they reverse the transfer, there is no reason that they can claim they're buying intangible goods and hence free from liability. There was no purchase. Just a transfer.

That's my standpoint anyways. Based on what I read of your encounters, I imagine it's going to be thoroughly unpleasant confrontation when it occurs.

[Bruce Boston]

13.

So Ted said,
"If someone can figure out how to keep game currency values stable - end MUDflation - the gold pieces of games would basically turn into the Digicash and e-gold everyone's been warned about."

So I think it is safe to assume that not all game developers are going to figure out how to do this at once. So the question becomes how many companies would it take? What if only one company figured this out? And, what if they were on the exchange? Would we expect this company to become a sort of virtual Switzerland? Maybe a sort of safe-haven to tuck your money in while the other currencies deflated in value overnight?

-Bruce

[Jamie Hale]

14.

Another interesting possibility is that GOM becomes the standard payment method for gaming purchases - that is, we replace PayPal. Provide real seller protection for the game commodities community.

My partner and I are talking right now about the possibility of establishing a "Pay with GOM" service that eBayers could use.

All our community needs is an in-game courier service, some way of verifying delivery, people could simply "Pay with GOM" by transfering money from their GOM account to the seller's.

Then we need is to establish a relationship with a progressive credit-card company - one that recognizes our efforts to prove delivery. Is there such a thing as a progressive credit-card company? :)

[Bob Kiblinger]

15.

I can tell you that I have been doing a tremendous amount of business with paypal - ever since they came into the market and were known as www.x.com. They will not, under any circumstances, protect the seller against chargebacks unless there is a tracking number that verifies a shipment to the buyer's verified mailing address. There have been times when a scammer has hit many sellers at once - totaling over $10,000 worth of chargebacks. It is blatantly obvious that a fraud occurs, and paypal admits as much. Still, paypal holds the seller 100% liable - they are merely acting as a conduit to get money from one place to another - and will assume no liability if there protection policy is not followed to the letter. Their protection policy states "no virtual items" and also you must provide a "tracking number that shows shipment to a verified address". It would be nice if you could eliminate paypal from the equation altogether - perhaps just allow personal checks, money orders, even western union. Otherwise, you will receive a whole lot of chargebacks :(.

[DivineShadow]

16.

"That's my standpoint anyways. Based on what I read of your encounters, I imagine it's going to be thoroughly unpleasant confrontation when it occurs."

That (PayPal) seems to be a pretty large leg you're standing on that you seem to have totally neglected. The reversals will come, no doubt about it.

The scenario is simple: You have a Virtual-World trinket sell order, someone loads their GOM account with PayPal money and matches the sell order, has the item delivered and then either they or the real PayPal account owner files a claim. PayPal immediately takes the cash back from your balance. How do you plan to deal with that?

[Bruce Boston]

17.

I am not familiar with the policies behind the policies, but from what Bob is saying, it sounds like Paypal doesn't guarantee 'virtual delivery' simply because the CC companies don't stand behind these transactions and therefore, Paypal figures that they will be the ones left having to go to court when trouble comes up. Since it is difficult for Paypal to prove that something was actually 'virtually' delivered in the case that they have to go to court, I would understand Paypal's reluctance to take on this added risk, or try to pass the cost to their customers in the form of higher fees.

Also from what everyone is saying, GOM sounds like it would be a good service for seller's as they may not have to worry about charge-backs, but this could be a serious problem for GOM.

I hadn't thought about it but, I guess it could be possible for someone to play both ends of GOM with two accounts.

1a) Account A: Loads-up 10M SWG Credits.
1b) Account B: Loads-up $200US into Paypal.

2a) Account B: Buys 10M SWG Credits from Account A.
2b) Account A: Has $200 Paypal
2c) Account B: Has 10M SWG Credits

3a) Account A: Withdrawals $200 from Paypal
3b) Account B: Files $200 charge-back against GOM

4a) Account A and B cash out, leaving GOM with the $200 charge-back from Paypal.

It doesn't sound like there is much risk when sellers withdraw funds from GOM through Paypal, only when they add funds is there a substantial risk to GOM. Is that correct?

So maybe we don't need to totally replace Paypal? Only replace them as a method of adding funds to GOM.

-Bruce

[Jamie Hale]

18.

Bruce, that is exactly what my partner and I have come to over the past few hours. He's looking into alternative CC processing that is more liberal with their "proof of delivery", but in the meantime, we will likely be dropping PayPal *as a method of deposit*. Withdrawal to a PayPal account will not be an issue.

Chargebacks are indeed a problem inherent to taking CC payments. GOM is a currency exchange. We will offer standard secure methods of deposit (cheques personal and certified, money orders, Western Union, etc.) which will in turn cost our clients substantially less. The only issue is the inconvenience of having to wait a few days while the mail delivers your deposit.

Now, all that being said, we are also going forward with something else a little different, and we'd love your feedback on it.

We'll be adding a feature whereby GOM clients can transfer funds to another GOM client account. This opens up the possibility for our clients to "take payment" for eBay auctions to their GOM accounts, provided the buyers also have an account with us.

This should open up a whole slew of opportunities for us all. Instant payments for your auctions with no chance of chargebacks.

What say you?

[DivineShadow]

19.

"This should open up a whole slew of opportunities for us all. Instant payments for your auctions with no chance of chargebacks."

Looks like you're losing focus on what you were trying to do. Where's the market transparency if I can trade behind everyone's back? The rates on the site will be meaningless. It would be more of a payment system than anything else...

[Jamie Hale]

20.

First off, as altruistic as it sounds, our only intention is to make it easier for people to trade their game goods. Well, and to cover our costs. The GCX is the first step. Future plans include supporting "secure" account and item auctions.

But if, in the meantime, we can help to solve the PayPal chargeback issue (and add to our bottom line a bit), then that's great too.

I don't think we're losing focus at all. People are going to trade outside the market anyways. I'd be completely naive if I thought we'd get the whole market.

Our only hope is to make it too easy for people to trade elsewhere. We're cheaper, faster and more secure, and we're hoping that should do it. If people want to setup a trade and use our payment service, perfect. We'll get a small cut and they'll get the confidence that they can't be scammed. Plus they won't have to worry about moving their money from GOM to PayPal or other financial institution.

But yes, if we become a payment system as well as the main currency exchange, terrific. It can't hurt our clients.

[Bob Kiblinger]

21.

Yes, Bruce - that is exactly right. The only risk with paypal would be when a customer adds funds via paypal. Withdrawing funds should not be a problem for GOM. There are "professional" paypal scammers out there now - most of them targeting virtual items because they are well aware that paypal does not protect the sellers of these items. I had one scammer who was arrogant enough to give me his home phone number, file a chargeback, and challenge me to prove that I delivered the virtual item to him. Alas, I can't. It is a catch22 really. If you accept credit card payments to fund the GOM account you stand to receive a lot of chargebacks. If you don't accept credit card payments you will lose a lot of customers who are mostly impulse buyers and want instant gratification (i.e. most won't want to mail a payment and wait for their account to be funded). Not sure how you could make it work without paypal - but also not sure how you can afford to make it work with it :).

[Jamie Hale]

22.

Well, I just re-read the PayPal user agreement. Section 7.2 says: "Your Information and your activities (including your payments and receipt of payments) through our Service shall not: ... (c) consist of providing yourself a cash advance from your credit card (or helping others to do so) ..."

And I imagine there's no way for us to specify "non-cash-advances" only. So, unless I hear otherwise from PayPal in the next few hours, we'll be going to a strictly cheque and money order system until we can sift through our other payment method candidates.

Anyone need a PHP IPN script? Free to a good home. :)

[Bob Kiblinger]

23.

Another candidate would be www.payingfast.com . They allow customers to purchase money orders with credit cards - and there are no chargebacks. The buyer has to pay a slight fee - but it is nominal. It takes payingfast about an hour to approve the transaction, and at that time it is safe to deliver the merchandise. It's a much safer option that paypal - paypal is much more widespread.

[Jamie Hale]

24.

Sorry for the multiple posts, but I think I've found a reasonable alternative.

PayPal allows you to send payments by "e-check", a direct withdrawal from your bank account. If we accept only e-check transfers instead of standard PayPal, we make it less convenient for those folks who want to use their CC, but a heck of a lot more convenient than a strictly cheque and money order system. Plus, chargebacks become a non-issue. (I think?!)

Damn this is exhausting! :)

[Bob Kiblinger]

25.

Nope - the buyer can still file a chargeback with e-checks. The only 100% safe alternative would be www.payingfast.com. With echecks it is a bit more difficult - but the scammer merely tells paypal that their paypal account was hacked and they did not authorize the charge (this is what happened to Julian recently).

[Bruce Boston]

26.

Stepping outside the immediate problem, I wonder if there are things that Developers could do to make it easier for Paypal to someday recognize virtual deliveries.

Obviously, there is a win-win here, for both Paypal and any VW that wanted to increase the rate of real world<>virtual trade.

I know in There that all currency transactions are tracked, and can be confirmed by calling Customer Service. We also have transaction history that can be downloaded into excel. We even go so far as providing e-mail confirmation if you request one when transferring funds from one account to another.

I wonder what else it might take to get the level of confidence up? Certainly we have to assume virtual trades can be tracked much more accurately than something sent by US mail.

My guess is a few court cases on the books where this actually stood as evidence would be one of the early steps. But, if there were steps before that...I would be interested in hearing thoughts.

-Bruce

[Bob Kiblinger]

27.

I imagine a service like you have within There would do quite well within other MMORPGs. What Jamie is proposing would also work great - an in-game, neutral moderator verifying that each transaction took place. Some type of digital signatures (complete with IP addresses) from the buyer and seller would also be very helpful. There have been a few people who have talked about setting up a service like this - but so far nothing exists. It would still not eliminate the problem entirely (the bold scammer/hacker who dares you to catch him would still be out there) - but I think it would go a long way in eliminating the majority of the fraud.

[DivineShadow]

28.

"And I imagine there's no way for us to specify "non-cash-advances" only. So, unless I hear otherwise from PayPal in the next few hours, we'll be going to a strictly cheque and money order system until we can sift through our other payment method candidates."

If I send you a deposit using a credit card, and I subsequently have it restored to my PayPal account or sent by you via a cheque to me I just did a cash advance circumventing the system.

Not to be rude or pejorative, but ideally you figure out the risk factors/model before opening shop.

[Peter Ludlow]

29.

Dropping in late, but this exchange is such a great idea. And not just the idea (which a lot of folks *have* bounced around) but, payment issues aside, the execution of the idea looks very impressive start.

[Edward Castronova]

30.

The next level: Gaming Open Market starts issuing claims against its virtual world currencies. If you have 500 GOMs, you can get 10 million UO gold pieces, or 2 million EQ platinum pieces, or 500 bazillion Simoleons. GOMs are effectively backed by a market basket of game currencies. They are the first truly global digital currency.

[Omar Abdelwahed]

31.

Maybe I can help? :)

I've been developing an in-game commerce service based on a platform I call "Meesha". Basically, instead of external commerce transactions via PayPal and eBay, online games will have their own built-in service.

You can read more about it here (so as not to bore everyone):
http://www.indigenoustech.com/meesha.htm

(By the way, many shout-outs to Mr. Castronova and Julian Dibbell, both of whom I quote extensively in my daily work!)

In truth, you can still have the charge back problem with credit cards, depending on the card company. But, with your own in-game commerce service you could automate transactions to a typical merchant account with your bank of choice. It's a matter of setting up the payment gateway with the in-game service. This would facilitate the "one experience" if nothing else rather than jumping in-and-out of game just to conduct business on eBay/PayPal. And, like the comments above, you can elimate PayPal by not allowing its use for populating an account.

I'm currently finalizing my own game demo, but I'd be interested in collaborating with an existing online game (hi Bruce!) or game exchange (hi Jamie!) This would go a long way towards proving my work and making progress on virtual markets.

A little about me: I'm a software engineer at Best Buy Co. Helped create several ecommerce sites including BestBuy.com. I was a typical UO addict until I finally decided I could make the experience better somehow (like a lot of people). That lead to Meesha.

Feel free to contact me via my site above or my work e-mail:
[email protected]

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