Thursday, January 7, 2010

Swedish Authorities License Real Bank in Virtual World

By Virtual Goods News
Wednesday, March 18, 2009

Today MindArk PE AB, operators of the Entropia Universe virtual worlds, announced that the Swedish Financial Supervisory Authority had granted MindArk's subsidiary Mind Bank AB a license to conduct legal banking activities. This allows MindArk to operate Mind Bank AB as a fully functioning bank within the Entropia Universe, providing real world banking functions to all virtual worlds running on the Entropia Universe platform. Mind Bank AB will be the first bank that fully incorporates real money transactions with activities within a virtual world.

“This is an exciting and important development for the future of all virtual worlds being built, using the Entropia Platform. Together with our partner planet owner companies we will be in a position to offer real bank services to the inhabitants of our virtual universe,” said Jan Welter Timkrans, CEO of MindArk.

Entropia Universe has always pushed its true cash economy as a unique benefit for the virtual world. The in-game currency, the PED, has its value tied to the value of the US dollar at the rate of 10 PED to 1 USD. Users are free to "cash out" their PED into real money at any time. According to Timkrans, this creates a situation where in-world banking can add greater security and convenience to Entropia Universe's transactions.

"When deposits are made into Entropia they will actually be made directly into our own bank, which will follow the strict European banking regulations. The bank will be continuously monitored and audited by the financial authorities. This will provide added security for both planet partners and users. Like all banks in Sweden, our bank will enter the government guarantee program, which will ultimately guarantee users' and partners' funds by the national government," said Timkrans. "We will also be able to issue cards directly to our customers thereby reducing user fees to a minimum."

MindArk also wants to bring banking to Entropia Universe so it can help regulate the game's virtual economy. Inflation is a serious problem in most virtual economies, even ones that do not allow RMT, when there are not enough controls to keep users from generating essentially infinite amounts of cash through various methods or sinks to remove cash from the economy.

"We have seen this happen to all virtual game economies and irresponsible real-world countries like, for example, Zimbabwe where inflation last year was about a trillion percent," said Timkrans. "In the Entropia Universe, inflation is kept under control. Some hard to obtain items, as in real life, rise in value to incredible levels but the basic consumer items follow a pretty stable pricing, and in real life inflation is measured on basic consumer products and not on for example the price increase on paintings by Andy Warhol."

Timkrans promises that Mind Bank AB will have a virtual presence on each planet in the Entropia Universe platform. The bank will function like an Internet bank and be able to provide users with every basic banking service offered by real-world banks, including loans, savings accounts, and checking accounts. Mind Bank AB will also be able to provide these services for conventional markets (i.e., the real world) which in theory would allow Entropia Universe users to do most of their banking through the virtual world.

"MindArk's gain is twofold: we will raise the confidence level for the entire system for our clients, and the bank will profit chiefly from providing loans just like any bank does," said Timkrans.

As far as offering services specific to a virtual world, Timkrans states that Mind Bank AB will go beyond the services provided by real world banks in some respects. Through Mind Bank AB, Timkrnas hopes to guarantee the Trade Terminal (or "TT") value of every virtual item owned by clients and Planet partners who participate in the virtual world. This is the value at which MindArk "buys back" virtual goods from Entropia Universe users who choose to sell their virtual possessions back to the company rather than trying to find another user interested in buying it.

For a comparison of other virtual worlds, look at Second Life, where last year Linden Lab banned all banks without governmental regulation. As virtual worlds attract older, richer users who participate more strongly in the economy, the real value of goods and currencies becomes more important. Integrating a more traditional bank isn't the only solution, but it's certainly one worth watching for the ways it affects business, perception of the world, and economic activity.

For further reading:
"Entropia Universe Sells Virtual Space Station for Record-Smashing $330,000", Max Burns, Pixels and Policy, January 7, 2010
"When MMOs Pay Out: Real Money Economies", Zam, January 6, 2010
"Online Bank Robbery at Eve Online’s EBank", Gossip Gamers, July 6, 2009
"Virtual Currencies Gain in Popularity", Olga Kharif, BusinessWeek, May 6, 2009
"Online game gets real-world banking license", Gossip Gamers, March 19, 2009
"New Policy Regarding In-World 'Banks'", Kend Linden, Second Life Blogs, January 8, 2008
"Is there real money in virtual real estate?", Christopher Solomon, MSN Real Estate, July 19, 2007

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