

Kwedit: The openly unreliable payment network - JacobAldridge
http://www.techcrunch.com/2010/02/03/kwedit-launches-the-first-completely-unreliable-payment-network/

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pg
Tipjoy was working on this idea at one point, but they switched ideas because
they couldn't raise enough money to get certified as a money transfer agent. I
still think it's a great idea. The way to make micropayments work is simply
not to insist on them always being collectible, and factor predicted payment
rates into your prices.

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patio11
When you say "micropayments", were you thinking $5 ~ $10 or $0.05? I see this
as being able to provide low-value payments to a clientele that can't normally
access them. It fixes the major problem they have: inability to credibly
demonstrate willingness and ability to pay within the constraints of an online
interaction. Banked people can do this fairly easily: punch in credit card
details.

(Well, technically, it really fixes the merchant's problem with that user more
than the user's problem -- which is one potential stumbling block in user
adoption.)

This doesn't alleviate the problem with nickel/dime scale micropayments, which
is that users hate them with a passion unmatched by a thousand burning suns.
That was true back when Clay Shirkey mentioned it in 2000 and is true today.
The mental transaction cost makes every single microtransaction a significant
barrier to conversion.

This is one reason aside from credit card fees why people who do micropayments
successfully tend to use a dual currency model where the micropayment currency
(bought for cash money) is as easy to spend as the currency which you can earn
from ingame actions. (i.e. one-click no auth no confirm purchases, like buying
something from the vendor in WoW.)

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BearOfNH
Does one necessarily have to make a purchase prior to payment? Couldn't this
concept include a "wallet" as well? Just tell the Qwacker "Bill me $10", take
the $10 coupon and $10 cash to the 7/11 and get credited with $10. As an
option, possibly for somebody who wants to repair a bad reputation.

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patio11
That's so insane it is almost intriguing.

So basically it is a stored value card but you effect the purchase of the card
after actually spending it. That is the insane part. However, since you're
only using the SVC to purchase bits which were free to the company anyhow, and
there is presumably no cashing mechanism, fraud-related concerns are
negligible. (Oh no, extra records in my database. How ever will I cope.)
Granted you're not going to get anything near 100% payout on the SVCs, but
because the purchase step is later, it doesn't present a massive brick wall to
conversion. And because people's Facebook identities are semi-durable, there
is an incentive to pay these if (big if) the user wants to have a second bite
at the apple with the same merchant or another merchant.

Branding it as the Promise-That-Isn't is probably not a great idea, though.
That destroys the social norm that you'll pay for what you "promised" to pay
for. That is a very, very strong social norm which is extraordinarily
effective in the real world even for low-trust interactions -- for example,
see pizza restaurants or sit-down restaurants. (Anybody can get a pizza
created "on credit". Similarly, almost every pay-post-eat restaurant is
theoretically vulnerable to dine-and-dash and yet it is rounding error on
their businesses.)

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mey
Since it's targeted at virtual goods and services, on failure to pay, goods
either cost nothing to create, or services can be revoked.

As a merchant you should never use such a system that can be transfered
between users, converted into other units of value, or for tangible goods. :)

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adelevie
I can't wait until someone figures out how to sell Kwedit Default Swaps.

Think of all the FarmVille foreclosures.

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patio11
Literally the first place my brain went is "Would it make sense to buy Kwedit
from a business in return for cash money." For example, if Kwedit is generally
~5% collectible within 60 days, and you're a startup who is not yet ramen
profitable who has rent to pay but Kwedit to burn, I might make a _very_
speculative investment and give you US$1,000 for KW$33,000, expecting that to
result in future revenues of US$1,500+. Essentially it is factoring for B2C
receivables.

(And, ahem, such a stupefyingly bad deal for you that it is probably illegal
in some jurisdictions. Proving once again that charging money is an excellent
business model...)

You can then imagine a business selling the Kwedit of customers who they
believe are not likely to be good for it (subprime Kwedit?) while keeping the
Kwedit of customers they believe are likely to actually pay, which would
roughly mirror the activities of a collection agency.

This is, of course, all a flight of fancy: I think the idea is likely to be
massively unworkable in practice or, in the alternative, regulated out of
existence.

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joe_the_user
The legality is indeed an open question.

But it survives that hurdle, I think Kwedit will have a bright, bright future
- for a while.

Also, just taking Kwedit will become the equivalent of leveraged finance if it
gets off the ground. And we know how well that works... for a while.

~~~
jerf
As the article points out, and I'll highlight here, right now it's Kwedit in
exchange for virtual property. That's unlikely to crash the economy no matter
how large it gets, _if_ we don't start extracting second-order derivatives
from it. If you can start taking out mortgages by putting up Kwedit as your
collateral or somehow start involving real assets, then yeah I think this is a
recipe for more trouble.

Oh, and connecting a story from a few weeks back where the spelled-with-a-C
credit agencies want to start using social networking to gather credit rating
info, Kwedit is credit rating info on a silver platter. How long will it take
for failing to pay your Kwedit to show up on your credit report?

It's an odd thing where it only mostly works if they don't extend it at all,
but the pressure to extend will be enormous.

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JacobAldridge
The TC story is more interesting, but you can also read about the launch on
their blog - <http://www.kwedit.com/blog>

Promise to pay. Get your stuff. Pay later ... or not, because there are "no
real-world implications".

~~~
jmtulloss
Judging by the success of social games, I would say there is a "real-world"
incentive to actually pay. Sure you don't have to, but then you might not be
able to play FarmVille anymore! That's a real-world problem for a lot of
people.

It is true, however, that you'll never not be able to buy a house because of
this though. Thank god for that.

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qeorge
I'm actually most impressed by their payments via 7-11. Finding a way to
transfer cash to an online account is actually really difficult, should you
find yourself in that position. If PayPal accounts could be loaded via 7-11, I
think that would be surprisingly popular.

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zhyder
This is brilliant, especially the idea of a Kwedit score (and consequently
Kwedit limit) tied to one's Facebook identity. ivankirigin, had you ever
considered something like this for Tipjoy?

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ivankirigin
We did do this, but for twitter. Fighting fraud with a social graph is
awesome. We planned on doing it with Facebook too, but never made it urgent.
We probably should have focused more on commerce instead of P2P and non-
profits, and gone for wherever the transactions were. We expected the twitter
platform to grow with the usage, but I still haven't seen that. There are very
few companies that build on top of twitter that ask you for money.

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ricosroughnecks
The 7-11 system is quite similar to the payment system for most things
(specifically utilities) in Japan. I pay nearly all my debts (in cash) via a
scan-able bill at a combini (convenience store). At first it seems weird, but
after awhile, you wonder how you lived without it. This service could be very
interesting, and profitable. It's gonna open the floodgates to many similar
services.

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pavlov
_I pay nearly all my debts (in cash) via a scan-able bill at a combini
(convenience store). At first it seems weird, but after awhile, you wonder how
you lived without it._

That seems a lot less convenient than just making an online money transfer.
When I need to pay a paper bill, I log in to my bank's web site, type in three
numbers from the bill (account #, reference #, amount of €) and click "send".

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keefe
User A: I want $5 worth of <stupid thing> for my facebook profile <stupid
thing>-r-us: Here it is, you owe $5 Kwedit User B : <Sign Up> User A : Pass
the Duck to User B User B : <disappear>

7/11 scanning is a nice idea, I don't care for the name

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AndrewS
People who go to that amount of trouble to not pay probably wouldn't have
bought anything directly anyway. If nothing else they're advertising <stupid
thing> to their friends for free.

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keefe
I've often heard this argument regarding security and I always have trouble
with it. It's really not that much trouble to scam someone and it's actually
rather fun... I think people often operate in a kind of need based mode, they
get it in their head they want X and so they go about going to get it,
probably trying free routes before pay ones. The only exception to this is in
the enterprise scenario where there could be a penalty for getting caught at
something.

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benhacks
Hi Ycombinator.

This is Ben from Kwedit. You can email me via ben at kwedit com

If there are developers interested in using Kwedit, please reach out.

I did want to point out that our mission is to enable an entire group who
presently cannot purchase something on the internet.

1)teens & other people without credit cards or bank accounts

2)people who prefer not to submit their banking or card information online

If you are working at a publisher or ecommerce site, please reach out cause we
can improve your conversions at competitive rates with no chargebacks.

Thanks, Ben Kwedit.com

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pmjoyce
A by-product of this idea is the size new market it opens up. Not only does it
allow adults without bank accounts to get involved but now kids - previously
without means of easy online payments - can start making payments (or should I
say, pay with credit).

Actually settling the debt is kid friendly also with the option to use cash
(either via a 7-11 or simply mailing the cash) or by "passing the duck",
presumably to a parent.

Of course, whether this is a good thing or not is another debate.

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jrockway
How long until there are Kwlection agencies?

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blahedo
Aside from the lack of draconian fees, how exactly is this different from a
credit card? Are they liable for government regulation as a credit agency?

~~~
jmtulloss
It's spelled kwedit.

Honestly though, I don't know. It probably has something to do with the
consequences of not paying.

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paraschopra
Branding wise, I was immediately reminded of DuckDuckGo. Will it hurt
DuckDuckGo brand?

