Decay On Net

I was pretty shocked when I first heard the news. After banning gambling, Second Life is now banning banking services wef 22 Jan 2008. Banking services? Although I don't agree with the gambling bans on Second Life, I do understand why Linden Lab decide to ban it. But banking is a legal activity. Every country in the real world has banking service (correct me if I'm wrong). So why is banking services being banned on second life?

The reason behind the ban, according to Ken Linden, is that most in-world banks offer unsustainably high interest rates of up to 60% per annual. Ginko Financial was the best known failure, owing 200 million Linden ($750,000) when it closed down.

So to prevent Banking Institutes from closing down together with resident's money, Linden Labs decide close them down at one go. (I don't know why, but some of my friends find this statement funny)

Going forward, only banks with proof of an applicable government registration statement or financial institution charter are allowed to operate in Second Life.

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Techcrunch reported this new and questioned if First Meta will be affected. First Meta is a Singapore based company that offers banking and credit card services in Second Life. First Meta's saving account will surely be affected by this new ruling. But their MetaCard, a credit card in Second Life, is on the grey area.

Douglas Abrams, CEO First Meta, replied on the Techcrunch comment:

First Meta fully supports regulation of financial services activity in the virtual economy. As First Meta’s business is not dependent on savings accounts or other investment instruments which are addressed by the new policy, we believe that the new policy will not have any adverse effects on our company. Insofar as the new policy strengthens the virtual economy, we believe this will actually benefit First Meta and our customers. You can read more about our view of this new policy at: http://www.firstmeta.com/main/policy

To certain extend, First Meta might be able to pull thru this. First Meta is a registered company in Singapore and has funding from real life investors. But the question is, does Linden Labs recognize these proofs? Will they be given the green light to continue to operate in Second Life?

If Linden Labs gives the green light, it would be a great victory for them. Not only will that boast confidence among the residents of Second Life, they will also be in a good position to capture the market share that was previously taken by other banking services.

But if Linden Labs feels that First Meta is not safe, then I'm afraid First Meta might have to close down soon unless they can find another virtual world to operate in.

Looks like a battle for life and death.

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The way Linden Lab is handling the whole issue is rather alarming. Yes, there are indeed some banks in Second Life that are operating like a ponzi schemes. But instead of shutting down those "fake bank", they decided to shut down all banking services, including those bon fide banks.

What about those banks which has a proper business model but doesn't have a financial institution charter or government registration? Are they considered unsafe too? Imagine having invested lots of money in buying land, hiring programmers and marketing and having them gone to waste overnight when this ban is implemented.

All the residents would surely rush to withdraw their money with these banks. How do they return money to residents? A proper banking business model would reinvest the money they got from savings account. Are the banks able to get back all the money from their investments within such short notice without making a huge lost?

This is not the first time something is being banned on Second Life within such a short notice. If you are an entrepreneur, would you have the confidence to start your business in Second Life? We are talking about a very big risk here where you might just lose everything you invested overnight due to policy change. Even if you are doing something that is legal.

It is like running a business in a developing country ruled by a dictator. The dictator can cease your property and throw you into exile anytime he likes. And you have no legal means to fight back.

Would you set up your business in a developing country like this?

Labels: Second Life

Posted by DK on Thursday, January 10, 2008 at 3:59 PM