virtual goods Selling virtual goods on CREDIT (interest free)

[Wili Clip]

I am currently running an experiment that I might decide in future to develop into a full scale system that other content creators in SL can benefit from.

About half a year ago I started selling my virtual products on credit. At 1st I was setting credits manually in database for each customer upon their initial pre-payment of 30% and it was lots of unneccesary work. But recently I programmed what I call a credit vendor and now when customers pay 30% of full price of the product the remaining 70% is set as debt automatically. These remaining 70% then they pay off with 50% of their earnings from all of my systems when they withdraw them.

From the 1st look it might seem that this is a bad idea and that it doesn't make sense and that as a content creator I am loosing money. But it is really not a bad idea and I ❤ the concept. And here is why:

Drop rate of new signups in Second Life or Residents who stay in SL for only a month or few months is very high (like for any other free social platform - people try it out some stay lots drop out). 

If as a content creator I can sell my products for at least 10 - 30% of full price through credit vendor (as in case of many SL drop outs who will never pay off their debt because they stop using SL) I am still getting sales that otherwise would not happen.

*The virtual goods I sell are no transfer so they can not transfer to another avatar and abandon their obligation to pay.

Unlike with RL physical goods there is no material production cost and with virtual goods we can sell unlimited copies of it.

Because above reasons to me selling virtual goods on credit makes a perfect sense.

Another amazing reason worth pointing out is that i n this way I can get my product and brands in the hands of many more people and that makes for great marketing effect. If your product is not worn or used by anyone and for others to see it and talk about it then that is almost the same as if it doesn't even exist. 

(There is a scifi book author Cory Doctorow who issues his books with public copyright permissions, so books can be copied basically for free and his argument is that this way more people find out for his work and he also gets more sales). I learned great deal from reading about his rationale from a preface of one of his book.

Selling something on credit is known concept already from ancient times. While for the selling of virtual goods on credit I kind of hope I am the 1st one or one of the 1st ones doing it in history. \O.. O/

Now 1 main disadvantage or risk is that a customer doesn't fulfill their obligation to pay off their debt (but at least they paid pre-payment). So if I ever build full scale credit system for other content creators to use the customers will have a credit rating / credit score that will be based on their past repayment of debts. Customers with bad or low credit rating won't be able to make any aditional credit purchases and content creators using credit vendors will be able to set minimum credit rating needed to buy on credit.

I have been very happy with my credit sales little experiment. Since I've started offering my products on credit there is now a total for about 15 000 usd of customer/players debt on my books (database) for which its questionable of what % of it will be ever repaid but what is not repaid will be mainly because the SL users are no longer in SL.

It has not hurt my product sales purchased paying full price. I think its actually boosting it.

I've established trust with hundreds of customers. By giving them my trust first that they will respect their obligation.

My goal is for the debt to grow to 21 000 000 L$ by the end of 2021 for a better proof on concept and if its recepted well by content creators community I might expand the credit system for others to be able to sell on credit through it too.

We'll see \O.. O/

Some general advantages and disadvantages of selling on credit from the web:

Advantages:

An increase in sales may happen when you start selling on credit. Your customers are likely to buy from you as their cash flow is not disrupted and it is not necessary to pay upfront to competitors. Better customer loyalty. Offering credit to customers demonstrates trust.

 

Disadvantages:

• It can lead to bad debts.There is no guarantee that the customers will pay back. 
• Loss of income/capital. Bad debt is a loss of income as well as loss of capital you have invested in buying the goods.  (Does not apply for virtual / digital goods of which there can be unlimited copies and copying has 0 cost).
• Strained relationship. 

[Phil Deakins]

29 minutes ago, Wili Clip said:

These remaining 70% then they pay off with 50% of their earnings from all of my systems when they withdraw them.

I didn't read very far down your post, but the part I quoted makes the concept make sense.

I don't know your products but, as long as the use of them earns money via your scripts, then you can get your 70% ok. So it's good. Where it's no good is when the products don't take money via scripts, such as expensive furniture, and you don't have any means of getting your money. So the idea has great merit in some case, but not in most case.

My thinking is that, if a person buys your product, but doesn't take any money in with it, or takes very little, so stops using it, then you are probably not bothered about only receiving 30% for it. But if does take reasonable money in, you get paid in full.

Edited March 23, 2021 by Phil Deakins

[Paul Hexem]

Impossible to implement for 99% of SL products.

Dead before it even begins.

[Odaks]

I don't know how well you could fall back on the concept of L$ being only "game tokens". L$ have a US$ value; might this need you to jump through a lot of hoops to get approvals to be a Financial Provider? I might be wrong but needs clarifying.

[Charlotte Bartlett]

I would be careful with your terminology.    "Affiliate" commissions are one thing when you structure them paying you commission from their ongoing sales after initial purchase of your product for resales (oh look a pyramid).  That aside:

Offering financial products, including extending credit may create you significant issues both from a legal and regulatory standpoint. Plus, the multiple and varied laws in the US from consumer protection through to regulatory requirements.  Virtual tokens - yes (for now), but you are going deep into a concept without seeming to understanding any of the legality or risks.  Just the terms you are using are setting off significant alarm bells so I hope you take this in the spirit it is intended.

Before you go anywhere near this, you should get a formal legal opinion from a lawyer who understands banking and securities laws plus applicable consumer credit laws that apply both in California, the US, plus the location of you and these "borrowers".  Even if to simply understand, if you offer 'credit' instruments in virtual tokens, payable by same said tokens (e.g. in a commission format or other) issued by a third party Money Service Business (Tilia Inc.), what burdens, reporting and other risks you are creating for your "company".  How are you regulating and navigating (for example) not becoming an IVTS operator (by mistake) - one tiny example.   You will also want to ensure that lawyer has dialogue with Tilia Inc in advance as they own the license to those tokens.

Before you even get that far,  I wholly recommend reading the TOS.  Particularly the section on 4. Conduct and links to banking policy. https://www.lindenlab.com/legal/second-life-terms-and-conditions - LL need to update their wording significantly on their "bank" policy as it's vastly out of date in terms of definitions, but it should give you an idea of how they view in-game "banking" type activities.  I am pretty sure one could argue credit instruments would fall within the spirit of that definition, even if not explicitly called out.   It would be reasonable to assume this on the basis of Tilia Inc. being a Money Service Business and their underlying services aka "the tokens" you intend to create credit instruments from as a derivative product.

 

2 hours ago, Odaks said:

I don't know how well you could fall back on the concept of L$ being only "game tokens". L$ have a US$ value; might this need you to jump through a lot of hoops to get approvals to be a Financial Provider? I might be wrong but needs clarifying.

Linked to my point about the legal opinion -  there is some semblance of wider question as L$ tokens do not have direct USD value (technically) - the age old currency argument v property v definition around game tokens that continues across FINRA, IRS and FinCEN etc etc.   Again, I see no mention of the OP having navigated those aspects in terms of his business venture.

 

 

 

[Wili Clip]

Yes Charlotte I think you are right. Before offering credit system for other content creators to use if I ever do that and especially if on a large scale as a business consultation with a lawyer and doing a legal research is a must just like with any other business venture.

In regards to credit as far as I know in broad aspect by definition it is not a financial instrument (it probably depends on how its used or what product is offered on credit). I am still learning and researching but there seem to be many different types of credits. From bank credits (credit cards) to credits issued by normal non financial companies for products with delayed payments for buyers.  

The type of credit (selling end products on credit) in from what I currently understand (*and I am still learning/researching) is not a financial instrument and does not require a company who is offering one to have a banking license. I currently believe (*learning) that credit becomes a financial instrument only when the product is money and in cases of different financial derivatives based on credit or someones debt.

From what I learned from quick research about definition of credit by itself is not a financial instrument and in most cases it is a matter of an accounting category.

https://www.investopedia.com/terms/c/credit.asp

I think as long as there are no interests on selling end products on credit and there are no investments possibilities and the credit debt is not packaged into a financial instrument and re-sold there is no banking activity going on.

Selling end products (virtual goods) in Second Life on credit (selling a product to customers with delayed re-payment) does not fall under banking regulation. I also don't see a reason why or how and on what legal grounds would it be prohibited if LL was to update their TOS regarding banking activities in SL.

Do correct me if someone is a lawyer or has legal experience or direct experience with those things from the industry. I am open to learn and adapt my understanding.

Edited March 24, 2021 by Wili Clip

[Wili Clip]

22 hours ago, Phil Deakins said:

..as long as the use of them earns money via your scripts, then you can get your 70% ok. So it's good. Where it's no good is when the products don't take money via scripts, such as expensive furniture, and you don't have any means of getting your money. So the idea has great merit in some case, but not in most case.

If I was ever to expand and create a system for other creators to sell their products on credit there would be a credit whortiness scheme implemented and consumers with bad credit rating / score wouldn't be able to buy expensive designer furniture on credit (and it would be up to creator to decide min credit score buyers need to have).

The credit score system could then further be used / built on and become a mechanism for creating model virtual "Residents" with high public/community score - proof of good social reputation. It would promote pro-active and good behavior within the community.

But that already falls into realm of social programming / engineering and can be created into a game system that promotes social good.

I envision a possibility of SL Residents buying on credit just to participate in such system for opportunity to build their social points / reputation. To prove to others that they can be trusted.

People do adjust and control their behavior in public because of perception (even real possibility) that there is something to loose if they behave out of general socially agreed norms. Same is within online communities for users/players who worked hard to achieve something. That something where users can advance and progress in can be created.

If I am not mistaken in SL market of virtual goods is over 30 millions usd every year. Take 5 - 10% of that money and employ it for promotion of pro-social and good behavior and you will get a platform that will attract people from all over the world because it would be different and better than RL. Second Life could present model or multiple models of future society that gives equal opportunity to advance themselves to everyone.

 

Edited March 24, 2021 by Wili Clip

[Rowan Amore]

1 hour ago, Wili Clip said:

scheme

🤔

[Silent Mistwalker]

Banking services are not allowed in Second Life as per the TOS since banking is not allowed.

Buying on credit is a banking service.

Your layover to catch meddlers is cruising for a bruising.

[Silent Mistwalker]

2 hours ago, Wili Clip said:

Yes Charlotte I think you are right. Before offering credit system for other content creators to use if I ever do that and especially if on a large scale as a business consultation with a lawyer and doing a legal research is a must just like with any other business venture.

In regards to credit as far as I know in broad aspect by definition it is not a financial instrument (it probably depends on how its used or what product is offered on credit). I am still learning and researching but there seem to be many different types of credits. From bank credits (credit cards) to credits issued by normal non financial companies for products with delayed payments for buyers.  

The type of credit (selling end products on credit) in from what I currently understand (*and I am still learning/researching) is not a financial instrument and does not require a company who is offering one to have a banking license. I currently believe (*learning) that credit becomes a financial instrument only when the product is money and in cases of different financial derivatives based on credit or someones debt.

From what I learned from quick research about definition of credit by itself is not a financial instrument and in most cases it is a matter of an accounting category.

https://www.investopedia.com/terms/c/credit.asp

I think as long as there are no interests on selling end products on credit and there are no investments possibilities and the credit debt is not packaged into a financial instrument and re-sold there is no banking activity going on.

Selling end products (virtual goods) in Second Life on credit (selling a product to customers with delayed re-payment) does not fall under banking regulation. I also don't see a reason why or how and on what legal grounds would it be prohibited if LL was to update their TOS regarding banking activities in SL.

Do correct me if someone is a lawyer or has legal experience or direct experience with those things from the industry. I am open to learn and adapt my understanding.

 

 

Stop deluding yourself.

[Qie Niangao]

Obviously if there were ever even a hint of interest being charged, the whole thing would become against the banking provisions of the ToS. 

Perhaps counterintuitively, the fact the credit is extended in L$ which is not a real world currency could actually make it more likely to run into trouble with real world regulators. US Treasury's FINCEN has been repeatedly redefining "virtual currency" regulations beyond cryptocurrencies, so as that all continues to evolve at least the reporting may become burdensome. I'm also thinking, though, about what happens if the L$/US$ exchange rate were to change, making delayed "credit" payments effectively include interest, even though the face value remains the same. (Those with foreign currency accounts know US Treasury pays a lot of attention to exchange rates, so I expect the same would apply to anything they decide qualifies as "virtual currency.")

Mechanically, I think it may work with things that generates ongoing explicit cash flow, notably including things like affiliate vendors that only operate with debit permissions, and other arrangements where the revenue is distributed from the credit-giver (i.e., the borrower only gets income by claiming it through the same outfit that extended the credit). Extending this to serve some third-party furniture-seller, say, by managing "credit scores" for would-be buyers seems fraught with prohibitive privacy concerns. If we can't even review shady businesses on the forums, I can't imagine a customer avatar's "credit worthiness" could be provided from one business to another in-world or through any Linden Lab service. That sounds dystopian in the extreme, combining several Black Mirror episodes.

[Wili Clip]

1 hour ago, Rowan Amore said:

scheme 🤔

scheme - noun: scheme; plural noun: schemes
a large-scale systematic plan or arrangement for attaining a particular object or putting a particular idea into effect.

[Rowan Amore]

2 minutes ago, Wili Clip said:

scheme - noun: scheme; plural noun: schemes
a large-scale systematic plan or arrangement for attaining a particular object or putting a particular idea into effect.

verb

make plans, especially in a devious way or with intent to do something illegal or wrong

[Madelaine McMasters]

1 hour ago, Silent Mistwalker said:

Stop deluding yourself.

Not gonna happen. During the several years I wandered in venture capital circles, I met quite a few would be entrepreneurs. They had an unshakable belief in their ideas/selves that, while vexing to me when I thought they were screwy, was an essential part of any successes I witnessed. As a critical thinker and engineer, I was often the bearer of bad news when mentoring startups, news that wasn't always received graciously. Over the years since, I've run into several of the unshakeable ones who didn't make it, and they still harbor anger at me over not believing in their ideas, some of which clearly violated laws of physics.

Self delusion ain't always a bad thing, but it's almost always a stubborn thing.

[Bree Giffen]

I don't think the idea of selling goods on credit should be dismissed out of hand. It might work for certain goods and certain sellers. I see it as a way to make money from transient visitors to SL. There's no way you can sell a $10,000L house to a new resident but if you sell it for $1,000L and $9,000 credit then they might just buy it. Even if they leave, you still get $1,000 from someone who would have never bought your product in the first place. 

Another strategy would be built-in-obsolesence. Let's say you sell a nice mesh dress that tracks how long it has been since purchased. You script the dress to get "dirty" or "torn" after a month and the customer has to bring it into a laundry & alteration service that you provide for a fee of course. Eventually the dress gets so old that you have to throw it out and buy a new one.

[Evah Baxton]

Create a vending service that only delivers an item once some % is paid back based on your trust system.

You could charge a delivery fee upfront for using the service.

Trust-based layaway for SL! 

All the risk would be on you where it should be.

[Orwar]

2 minutes ago, Bree Giffen said:

Another strategy would be built-in-obsolesence. Let's say you sell a nice mesh dress that tracks how long it has been since purchased. You script the dress to get "dirty" or "torn" after a month and the customer has to bring it into a laundry & alteration service that you provide for a fee of course. Eventually the dress gets so old that you have to throw it out and buy a new one.

   I quite like that idea ... If it can be scripted in a sensible manner that doesn't cause other issues. Sounds like something the beYou folks would like, if nothing else. 

[Syo Emerald]

2 hours ago, Silent Mistwalker said:

Stop deluding yourself.

Nah, we will be getting 15 more pages of denying that there is any problem with his ideas. Just like all the other threads from him.

[Paul Hexem]

54 minutes ago, Bree Giffen said:

I don't think the idea of selling goods on credit should be dismissed out of hand. It might work for certain goods and certain sellers. I see it as a way to make money from transient visitors to SL. There's no way you can sell a $10,000L house to a new resident but if you sell it for $1,000L and $9,000 credit then they might just buy it. Even if they leave, you still get $1,000 from someone who would have never bought your product in the first place. 

Another strategy would be built-in-obsolesence. Let's say you sell a nice mesh dress that tracks how long it has been since purchased. You script the dress to get "dirty" or "torn" after a month and the customer has to bring it into a laundry & alteration service that you provide for a fee of course. Eventually the dress gets so old that you have to throw it out and buy a new one.

Isn't that how those animals work? You have to keep going back to the merchant to buy food, or they die?

[Madelaine McMasters]

25 minutes ago, Bree Giffen said:

I don't think the idea of selling goods on credit should be dismissed out of hand. It might work for certain goods and certain sellers. I see it as a way to make money from transient visitors to SL. There's no way you can sell a $10,000L house to a new resident but if you sell it for $1,000L and $9,000 credit then they might just buy it. Even if they leave, you still get $1,000 from someone who would have never bought your product in the first place.

How do transient visitors differ from transient users? I've been here for 13 years, but probably spend less time in-world in a month than most newcomers. Though I'd never make the argument, you know someone will say "I hardly ever use the thing, why should I pay full price?" Do you think that new users, faced with a debt burden should they decide to stay, might be more inclined to leave? Might they just rejoin under a different ID to shed the debt?

Let's say I purchase this $10K home for $1K and decide not to pay the credit. LL won't have anything on their books stating that $9K is owed. There is no concept of debt in the L$ ecosystem. Does Wili file an abuse report with LL to recover the $9K? That'll be a resident-to-resident dispute over US$36. They won't get involved and without that, Wili has zero leverage other than block/ban. What do I care? I've got the house. If Wili does file abuse reports, I imagine LL quickly concluding "he asked for it".

[Charlotte Bartlett]

To the OP, you seem like a well intentioned person, but you seem also like somebody who is trying to come up with Get Rich Quick Schemes without the level of understanding /hard work and background required to be successful, to the point where your posts sets off alarm bells.

1. Please don't quote Investopedia (their Brides and Liquor websites are far better written / accurate), it proves my point about your lack of experience and understanding around the topic.  You need proper guidance.  Yes of course learn, but do that before you put yourself at risk.  Otherwise it's just a gamble, not a business and you'll never succeed.  I am not going to give you financial or legal advice on a forum.  Go write a proper business plan and stop posting get rich quick schemes to a forum if you are serious.  If you don't even understand basic finance and don't have a degree or work experience in the topic including being up to date with the complex regulation that sits across it, you'll need proper advisors on your "board",   You do that before you offer a product, you certainly don't piece together bits of random internet knowledge from appalling sites like Investopedia and think you understand finance and complex regulation and transact without a safety net.

2. In your OP (in summary) you said you have hundreds of customers and had to date transacted 15K USD of debt "on to your books". What did your lawyer say on that ahead of completing that activity, especially about the recent activity? My guess is from your secondary posts you treated this as an experiment and did not take the requisite steps for this to be a credible business or opportunity.   

(Starting point for you once you do understand how monetary definitions differ outside the BSA - > https://www.wolterskluwer.com/en/expert-insights/new-fincen-virtual-currency-bsa-requirements-present-compliance-implications).  + as Qie mentioned the upcoming continued changes around currency definitions you have significant risk exposure as a result based on the manner you are conducting yourself.  Again if you are serious about having a "business" you will have taken the considered and risk management steps ahead of just wading in and offering "credit" right?  Your test phase above would have been done with considered regulatory understanding and risk management?  Did you contact Tilia Inc. too in advance to ensure you were able to use their tokens in that manner as a product?   What specific due diligence did you conduct?  What disclosures did you provide to each customer who purchased with your token zero interest "credit" repayable in digital tokens issued by a Money Service Business?   What laws did you consider and what changing regulatory framework did you bake into your assessments?  What compliance rules did you apply etc etc.

3.  it's easy to think SL is a "play at business" environment - it allows us to explore learning & running small businesses in a way, but it does not remove from us the obligations from things such as tax, reporting, regulation and laws that exist in the real world.   The onus is on you to ensure what you are doing is appropriate before you do it.

4. I don't necessarily think being able to pay installments is bad thing per se.  But the implications and financial constructs behind it is not for amateur hour even if you try to hide it behind gaming token definitions and creating derivative ways of paying with those tokens from a registered Money Service Business - (Tilia Inc.).   There is one company who is perfectly positioned to offer such a product e.g. a partnership with Afterpay or Affirm or PayPal etc etc- and that is Tilia Inc.    I would strongly question why Tilia Inc. would expose themself to any regulatory risk allowing randoms to try and get into financial products of ANY definition based on their Money Service Business status.    I have pinged LL as their TOS still links to the old banking info page and it's out of date and needs to be brought up to scratch via Tilia Inc.     Do not confuse banking licenses with money service businesses and constructs around how they operate.

4. Finally I am sorry but If it walks like a Multi-Level Marketing "Business" that keeps trying to pitch opportunities on a forum, then it likely is a......that's a perception driven by pitching versus soliciting feedback.

That all aside  - that new resident likely won't buy a 10K house, they will go and potentially buy the 75L one which around 30 cents in the Saturday Sale in a higher volume environment.  I do like Bree's idea / spin off with aging on products.  Albeit a customer for the same price can buy a non aging product but focused on role play like Orwar mentioned could be a great niche product for things like your cookies going stale and crumbling if you don't eat them during role play etc.

Anyway, can I suggest if you have more ideas it may be worth first seeking input and feedback before the big pitch on a forum.  You may find you get some good feedback and Ideas that help shape your maturity and approach before you expose yourself to risk.
 

 

Edited March 24, 2021 by Charlotte Bartlett

[Coffee Pancake]

On 3/23/2021 at 9:12 AM, Wili Clip said:

Now 1 main disadvantage or risk

There is no risk.

The items are virtual and conjured out of nothing.

You are both the vendor and the loan shark.

Now, seeing as you are formally offering these as loans, that means you're running banking services in SL.

http://wiki.secondlife.com/wiki/Linden_Lab_Official:Policy_regarding_inworld_banks

When would you like your ban to start ?

[Arduenn Schwartzman]

"Klytus, I'm bored. What plaything can you offer me today?"

"Instant gratification with delayed repercussions, your majesty. The inhabitants refer to it as... 'finance'."

[Orwar]

"And you can finance your bones
And your kidneys
For every market a submarket grows
But best you be punctual
With making your payments
Lest it be you on the concrete below

It's quick!
It's clean!
It's pure!
It could change your life - rest assured!
It's the 21st century cure!

And it's my job
To steal and rob
GRAVES!"

Edited March 24, 2021 by Orwar
Borked gif link

[Love Zhaoying]

1 hour ago, Charlotte Bartlett said:

you seem also like somebody who is trying to come up with Get Rich Quick Schemes

If they mentioned Blockchain then we'd know they are Expert Level!