By Ted Sorom, CEO of Rixty
Visa recently purchased PlaySpan, a company who primarily built its business on cash payments for virtual goods, and the buyout is receiving a lot of media attention. Visa is sending a clear signal: credit is no longer the ruler of the payments universe. A few key trends are coming together here that major players in the e-commerce space can no longer ignore.
First, the recent economic crisis has pushed credit card usage to an all-time low. TransUnion estimates an 11% decline in 2010 credit card spending, the result of consumers and banks tightening their spending controls. Visa, which went public in 2008, has seen its stock price drop more than 12% over the last year; one can’t help but wonder about the correlation between those two numbers. Diversifying away from credit certainly makes sense for Visa and with the recent changes to debit card interchange rates, Visa-branded debit cards won’t be the growth engine they once represented.
Secondly, the massive growth of digital entertainment and services has seriously altered the online marketplace. During the Dot-com bubble of 2000, many companies like RocketCash and Doughnet tried to tackle the problem of online cash, but they all went down in flames. Why? In my opinion there were no compelling products that could only be purchased online at that time. Cash consumers, especially youth, tend to shop locally where they find the products and services they need at the local mall or big-box store. Today, however, there are entirely new classes of products such as online games and entertainment that can only be found and paid for online. CityVille, the fastest growing game of all time, grew from zero to 100 million monthly active users in less than two months, all without the help of a single brick and mortar retailer. Electronic Arts recently announced strong quarterly earnings that were marked by a 39% year over year jump in digital distribution sales. This spike was led by digital content for game consoles and social & mobile games sold primarily via the Internet. Digital distribution goes well beyond games, however, as evidenced by the Hulu TV streaming service, with its growing library of content accessible via a monthly online subscription. The age of digital entertainment is here and huge global companies are taking notice; from McDonald’s (who has offered branded virtual goods in Zynga’s FarmVille game) to American Express, who lets its Membership Rewards users exchange points for virtual cows in that same game.
Visa’s PlaySpan acquisition validates what we in the online games ecosystem already know so well; online games are big business and things are just getting started. The acquisition makes it clear that credit cards are only one aspect of a successful online monetization strategy; cash acceptance online is an important and necessary part of serving the entire online audience regardless of their age or socioeconomic status. I’m excited to see how Visa’s entry into the digital entertainment space changes the online payments landscape. I hope, for their sake, that the payment juggernaut can keep up with the lightning pace in the world of online play.