Who needs a real world anyway?
Glenn’s reporting on the new banking licenses offered for the virtual world. Although there are obvious potential abuses, on balance I think these virtual world development are fantastic.
Back when I was running more website advertisements from Europe, Paypal was a godsend in terms of making it very easy to collect money from European partner. It was somewhat expensive – often running 5% or more in total fees, but well worth it in that I did not have to wait for checks in the mail and then wait for them to clear (international checks can take 10+ biz days to clear) .
I’m not clear on all the details but it looks to me like virtual banking is going to empower a LOT of places to compete with PayPal’s quality but expensive services, run their own interest rates, CDs, etc. Once a virtual bank establishes credibility it should be able to very cheaply and effectively offer better rates than conventional banks with their high costs. More risk? Probably some, but with greater risk comes greater reward so … you should sometimes choose to roll the dice on these things.
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A lot of banking is already virtually virtual, if you will. We just refinanced with a company that gave us a great rate on a 30-year fixed loan; this company also told us it was pretty much a done deal that they’d resell our loan to another bank. This is the second time we’ve gone this route; we benefit from what I guess is an arbitrage process on the lending end, and even if we got a loan from the bank down the street, they buy and sell loans (and each other).
So an entirely virtual bank seems like a natural extension. If I were doing business with such a bank, the main thing my wife the finance guru and I would want to know was who was regulating them and what standards they adhered to.
Which is pretty much the same thing we find out when we do our due diligence on a deal through a broker…
Right, regulation will be a key issue. I’m hoping the transparency of information and the investment risks, rather than extensive regulation, prevails in this market. I’m assuming that standards will be somewhat lower, but that the increased risk will be balanced by better rates.
The Adam Smith in me says that Government tends to over-regulate … almost everything. I think “lotsa regulation” advocates generally do not incorporate the huge cost to society of many forms of financial regulation. e.g. when the US Savings and Loan industry collapsed it was the taxpayers who bailed out everybody.
When things go south I want investors to feel some pain and corporate lawbreakers to feel some cold steel prison bars (and lose all their ill gotten gains).
An interesting point: regulation is, in some sense, a substitute for transparency. If I can’t access data, or haven’t the ability to evaluate it, then regulation serves as a delegation of authority.
Problem with this model is that regulation doesn’t do this very well; it’s pretty brittle in the face of changing information (especially if the regulated are aware of the system and reacting to it), and the regulation can become a whole separate furball that contributes to the problem set instead of the solution set…
Yes very interesting perspectives…another real issue with speculating on these virtual money makers is the fact that they governments will typically outlaw the activity and now all of a sudden instead of being a visionary you are a felon!
Amazing what happens when they can’t tax you!
Glenn – I like it as a new reality show where people vote on financing a new project or hauling the participants off to jail: Visionary or Felon? YOU decide!
Tommo – I like this idea that regulation is invoked when transparency fails us. This reflects some of the upcoming privacy battles. Google et al are not very transparent with respect to how they are storing, analyzing, and using our query data.
Most onliners fear the Government with the Carnivore boxes are the most likely to abuse us with our own data but I’m more worried about commercial abuses, partly because transparency is not there and existing data regulations are elusive / ineffective.