What price for a truly flexible online currency?

WIRED:I HAVE A friend who has spent the last few years working for free with her other friends on a small online project. It's done well – people like it, and investors were interested in giving her money to continue. Now the time has come for her to take it a little more seriously: charge for what they make, and pay her colleagues for their efforts. She got a little investment and set to work.

Suddenly, what was easy to organise online became hard. With freely available online tools, she could coordinate a squadron of volunteers larger than most small companies, all in her spare time. As soon as money entered the picture, however, bureaucratic and social complications multiplied. Audit trails have to be followed; tax rules need to be complied with. Ex-volunteers question if they’re getting paid enough, continuing volunteers suddenly wonder why they’re doing this when someone else is making bank.

What was worse, however, is that she lives in a Middle Eastern country. Her business partners were scattered across the rest of the world. Co-operating online was easy between them. Paying them was next to impossible.

Few of her friends had credit cards. Banks in the region were a nightmare of red tape. For many years, the online payments giant PayPal did not offer money withdrawal services across the Middle East. Even now, usage is limited to a few countries.

When I spoke to a friend in the US about this problem, he came up with an intriguing suggestion. Why not use Facebook Credits, he said, referring to the internal currency used for in-game purchasing on the website.

Now, as it turns out, Facebook Credits don’t really work for this kind of thing. They’re not really designed for paying out money, more for sucking up users’ cash. They are available in an even smaller circle of countries than PayPal, and in fact use PayPal as their payout mechanism for the majority of developers. Facebook also takes a sizeable fee. Facebook is also not terrifically interested in becoming a transnational currency, or a bank, if only for the regulatory horrors that that would entail.

Nonetheless, stranger things than Facebook game money have emerged as methods for transferring value. Like cigarettes in prisons, a world connected by near universally accessible, global high-speed communications has been struggling to overcome the distinct lack of a universally-accessible, global, high-speed currency. Locally, mobile phone users without bank accounts have stumbled upon pay-as-you-go cards as a way of remotely paying others (you buy the card, then read them the number). As I’ve mentioned in previous columns, an underground economy swiftly emerged around BitCoins, which might be best described as the minimal viable model for an unregulated electronic currency.

Facebook Credits may deal with a sizeable chunk of transactions, but other game platforms have a larger market for person-to-person transfers of money. Last year, the World Bank estimated the secondary market in internet games – where individuals within games trade among themselves – as being worth roughly $3 billion. Economists have noted for years that much of this trade is cross-border. Many a bored gamer in Europe will happily pay a Chinese player to play the duller parts of the game for them, in return for in-game currency. And that currency can be cashed into real money.

Mobile-phone cards and World of Warcraft gold don’t sound like very firm foundations for a future global financial system, even given the currently rather low bar. But to me they’re an indication that something is going to give. People dearly want to pay others with as much ease as they can send email or texts now, and they will go to great lengths to do so.

What will it take for the real financiers to fill that need? About the only bright spot in the future of e-commerce, Kenya’s M-Pesa system, exploited the existing phonecard economy, and turned it into a viable banking system that worked over the country’s mobile phone system. Now Kenyans can use credit cards online, and save in interest-bearing bank accounts with an ease that would be the envy of many European countries.

But that was on a single mobile-phone network, in a single country. What net users such as my Middle Eastern friend need is something that works anywhere the internet or even the mobile phone system works.

There’s not many companies that can co-ordinate such a global roll-out. The credit card giants don’t seem particular motivated to cannibalise their own existing infrastructure. And to do so, they’d need an amazing consensus agreement by the world’s financial regulators. Frankly, there aren’t that many international financial institutions which are in an experimental mood right now.

Which is a shame. A little more flexibility at the bottom level of our world of financial transactions – where individuals don’t have to go through a bank to trade, or a government lender to borrow, or some other institution that’s too big to fail to make a simple trade – might inject a needed fillup to the global economy.

I’m sure the financial overlords can’t quite conceive of Facebook Credits, gaming gold or scratch phonecards being harbingers of a new financial system. If they don’t spot what billions are doing with what they have to hand, our new system may really end up being built out of such monied rejects, instead of currencies that are a little more stately, and a little more stable.