Is Kwedit a wacky idea?
New service lets kids and others without credit spend real money in the virtual world.
Don’t have a credit card? That’s OK. You can use Kwedit -- essentially a promise to pay -- when you purchase virtual goods on the interwebs.
On the surface, it sounds goofy but harmless enough. So why did Stephen Colbert and personal-finance writer Kathy Kristof blast the new service? Colbert said on his show, “Instead of just having adults spend money they don’t have on things they don’t need, now we’ll have kids spending money they don’t have on products that don’t exist.”
He's right. Here’s a brief explanation of how this new “play now, pay later” service works.
- You buy virtual goods -- food for your virtual dog at FooPets (target audience: girls 12-14), for example -- and promise to use Kwedit to pay real money for the virtual bag at a later date. (Before you scoff at this, keep in mind that buying virtual goods is a big enterprise. An estimated $1.6 billion will be spent on virtual goods this year -- and a service like Kwedit is likely to make it all the more profitable.)
- You pay by taking cash to a 7-Eleven, mailing cash or check in a prepaid envelope, or “Passing the Duck” by asking Mom and Dad or your friends to make good on your debt. (A cartoon duck appears in Kwedit’s logo.)
- The amounts of Kwedit extended are initially small -- you can spend a few bucks. If you actually pay, you build a Kwedit score, and you can spend more.
- The Kwedit score is portable from game to game. Scott Sorochak, a co-founder of FooMojo, which operates FooPets, told The New York Times, “That Kwedit score will go with you, so, long run, if Kwedit is successful, that becomes the de facto virtual credit score, like Experian’s and the other FICO scores.”
Who’d want to use Kwedit? Answer: People who frequent these virtual games and don’t have credit cards -- kids come to mind, and there's the rub for Colbert and Kristof. (The Kwedit site says you have to be at least 13 to use it, but, as Kristof points out, that’s unenforceable.)
In fact, the Kwedit site touts it as a teaching tool for parents. It says that “Kwedit Promise provides a safe, virtual environment in which consumers can learn about credit and develop financial literacy -- with no real-world implications.” Since what you’re buying with Kwedit isn’t real, no one suffers if you don’t pay. (If you pay, Kwedit and its game-publishing partners make money from the sale of products that don't exist. Why didn't I think of this?!)
Also, Kristof commented at CBS MoneyWatch in a post called "How to warp your kids in one easy Web site," "Contracts are not enforceable on 9-year-olds. Eventually, if you and your parents fail to pay up, they’ll just stop letting you play the game.”
Danny Shader wrote a post at the Kwedit Blog in response to “The Colbert Report” (which you can view at Kristof's post). Here are some snippets from Shader:
Are we going to hook teenagers on credit by exposing them to Kwedit Promise? Again, I don’t think so. We are simply enabling them -- and adults -- to make payments without plastic.
Are we trying to convince people to buy things they can't afford? No. Since we don't lend money or charge interest, we have no incentive -- nor do our merchant partners -- to extend Promises to people who can’t afford to pay. We only make money when someone actually makes a payment. Our goal is to allow trustworthy people to use the system while blocking those who cannot or will not make a payment.
What about Pass the Duck? Is that a way to guilt parents into paying? No. It just makes it easy for parents to do what many already do today: Teenagers routinely ask their parents for their credit cards so they can pay for their on-line activities.
Miranda Marquit at Moolanomy found fault with such arguments:
- Kids can use Kwedit without getting the parental units involved. They just have to print out the Kwedit barcode and pay what they “owe” at the convenience store.
- Kwedit “perpetuates the idea of easy money and instant gratification," she wrote. "It’s easy to get Kwedit, easy to charge, and kids don’t have to save up to buy anything in the game."
Credit Karma points out another pitfall: “... the lack of real accountability to pay back these virtual loans glosses over the pitfalls of the actual credit world.”
Regardless, Kwedit appears to be catching on. The NYT reported: “In addition to FooPets and Puzzle Pirates, more than 1,000 games now let players use Kwedit’s arrangement with 7-Eleven as a way to pay cash for game currency, but their publishers insist that users pay before using the currency.”
The CEO of 7-Eleven said he imagines the day when Kwedit can be used to pay for real stuff too.
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