Since eBay and PayPal allowed users to charge and pay with Skype credits, the banks and credit card companies have been running scared. That was until Nokia, Visa and Vodafone launched their VodaCash global payments platform.

Now it’s an all out war for the payments standard of the future, while Second Life waits in the wings with Linden Dollars.

Traditional banking is dead – long live virtual banking, where no money changes hands – it’s all done in credit balances and transfers over the net and between smartphones, without central control.

“I charge for my online consulting in Skype credits,” says Racer-X, who prefers not to reveal his real identity.

“Then I transfer them to PayPal and buy stuff on eBay and Amazon. I even pay the rent with PayPal. What’s left gets sent to my Second Life identity and converted into Linden Dollars. There I can do investment deals in other countries, but mostly I just pull out the cash through the virtual ATM – tax free.”

And where does this leave the IRS and traditional banks – high and dry! Even the FBI cannot keep pace with virtual cash.

The effect on tax revenues must run into billions.

ANALYSIS >> SYNTHESIS: How this scenario came to be

Virtual Money Laundering
It’s not just Second Life and World of WarCraft that offer the opportunity to make anonymous transfers of huge amounts of cash. Now other social networks and global communication platforms have a monetary component as well.
Skype now allows its millions of users to earn Skype credits, as well as give them to others, that is pay with Skype minutes if you like.
Premium SMS has long been a method of making payment via the cell phone operator. The new ‘Vodacash’ idea will give effect to a true electronic wallet on the phone, with convenient payments to merchants, and user to user payments by SMS – mobile PayPal if you will.
Of course eBay owns PayPal and Skype too, so we can expect these services to be fairly tightly integrated. Vodafone has over 200 million customers, while China Mobile has 300 million. They are unlikely to allow Skype to serve their customers from a payments point of view, and we can expect a ‘war’ over this space.
But the interesting angle is the ability to transfer money virtually, over the internet or wireless networks, without using an accepted national currency. Second Life ‘residents’ can buy Linden Dollars with real money, and pay another resident, who may be physically in another country. That person can convert those virtual dollars back into PayPal balances in their local currency and buy Skype Credits, and transfer them to some other identity.
Once you can top up your Vodacash balances from PayPal, the opportunities for virtual money changing seem endless. Surely the crime syndicates are watching this space with great interest?