On April 4, the CFPB released a new report. issue spotlightEntitled “Video Games and Banking in Virtual Worlds,'' we analyze the increase in commercial activity within online video games and virtual worlds and the obvious risks to consumers, in this case online gamers. In particular, this report examines how “gaming assets” are being used and the risks associated with them, including the emergence of products and services that resemble traditional consumer finance products and services.
Key findings of the report
- Games, game marketplaces, and related infrastructure increasingly resemble traditional financial products and services. According to the report, companies are leveraging players' game assets through person-to-person transactions, including in-game currency, virtual items such as skins and cosmetics, and crypto assets that can be traded in-game and via external marketplaces. … apparently … -Persons (P2P) transfer or buy and sell goods and services in the game by providing services in the form of payment processing, money transfers, and even loans. Some games also allow consumers to convert game assets back into fiat currency.
- As the value stored in gaming assets increases and their usage becomes increasingly similar to money, hacking attempts, account theft, fraud, and unauthorized transactions have prevented users from accessing gaming assets. Reports of this are also increasing. However, operators of games and virtual worlds do not appear to offer the same consumer protections and data security protections that apply to traditional banks and payment systems.
- Gaming companies collect large amounts of data about players, tracking purchase history, spending thresholds, and location data. Gaming companies are also adept at monetizing behavioral, personal, and biometric data. According to the CFPB, gamers can be harmed when their data is sold, bought, or traded between companies, including for purposes other than gameplay.
market participants
- Market participants at the core of this report include companies that publish traditional video game and virtual world platforms, as well as marketplaces that allow the buying and selling of in-game assets. The report also mentions crypto assets commonly used in blockchain games and his Web3 services such as Metaverse. This report mentions large, established technology companies that have launched their own games or acquired or invested in gaming companies that offer these products and services. Finally, the report also focuses on third-party systems (such as marketplaces and crypto exchanges) that gamers use to transfer gaming assets to another account or sell assets for fiat currency. I'm guessing. The report notes that these third-party systems collect large amounts of personally identifiable information, including email addresses, game usernames, and log data such as IP addresses and browser information. However, many data breaches and hacks occur in these systems.
be careful. issue spotlight It is not intended to impose any obligations or define rights or to interpret any regulations or laws by the CFPB.
How the evolution of gaming business models led to CFPB scrutiny
Game business models have evolved significantly in recent years. Traditionally, game publishers operated a closed-loop economy. Gamers could use fiat currency to purchase virtual currency, which could be used to purchase virtual items for in-game use only, but there was no way to convert those items into cash. In this model, a gaming company typically operates an inventory management system to manage an inventory of players' game assets and licenses those assets for use solely within the game for entertainment value rather than player benefit. Donate. Most video games still do not allow cashouts. However, a number of unauthorized marketplaces have emerged where players can buy, sell, and trade virtual currency, virtual items, and even entire gaming accounts. Additionally, the traditional video game model has evolved to include the so-called creator economy, where players can create and sell their game assets. Some of these creator economies allow users to earn real money from these creations.
As the report suggests, from a financial regulatory perspective, these innovations minimize the likelihood of application of the Remittances and Electronic Funds Transfers Act. Separately, any perceived weakness in a platform's ability to fairly and timely address customer complaints could lead to complaints from regulators alleging unfair, deceptive or abusive conduct or practices. concerns will inevitably increase.
A bigger evolution in gaming business models has been brought about by blockchain gaming and the Metaverse. Blockchain games and metaverses are often premised on play to win business models. In blockchain games, game assets are typically tokenized and represented as cryptocurrencies or non-fungible tokens (NFTs). In blockchain games, the game economy is decentralized, and cryptoassets are owned and controlled by players and can be freely bought, sold, and traded via P2P wallet transfers or crypto marketplaces. Additionally, efforts to capture business models in blockchain games have also led to other types of “financial” transactions, such as staking, mining, and lending of game-based crypto assets. For example, players can earn passive income by lending their in-game items to other players for a fee. In some blockchain games, players form guilds to help play the game, and often players benefit from playing the game using the guild's game assets. I can.
The Metaverse is the Web3 version of a virtual world. In the metaverse, game assets are also typically tokenized and the business model includes a creator economy. In the Metaverse, players buy tokens that represent ownership of virtual land and earn money by building things and providing services on their land. Some players invest large amounts of upfront capital to do this.
This evolution of business models employed in games and virtual worlds appears to have led the CFPB to believe that elements of these models are similar to traditional banking and payment services, including lending.
Practice and what game companies should do now
Latest issue spotlight, the CFPB's commitment to monitor non-traditional markets and go wherever financial products and services (regardless of infrastructure) may be provided to ensure compliance with federal consumer financial protection laws. continues to show. The agency's next steps after this report remain to be seen, but as the agency has previously done with large technology companies, “buy now, pay later” or BNPL providers, and large auto companies, Market surveillance orders are expected to be issued against market participants. Lenders (see previous blog posts about these orders here, here, and here). Additionally, the Bureau did not hesitate to use its risk-based supervisory powers to scrutinize nonbank institutions that offer products that may pose a “risk to consumers” (as previously reported on the CFPB's initial public disclosure). (See blog post) where we make the decision to designate non-bank financial institutions for supervision based on the institution's potential risk to consumers).
Although the CFPB has not set a timeline for its next actions, gaming companies should consider this report carefully and analyze their current practices to minimize the risk of encountering the issues the report focuses on. It is necessary to identify measures that can be taken now to reduce the . This may include:
- Assess actions that may be harmful to gamers, such as buying or selling game assets, or financial losses due to theft or fraud resulting from transactions.
- Whether privacy rules are being followed and consumers, particularly young people and their parents, are concerned about how their data is being collected and used across the industry, especially when it is being collected without the user's knowledge and whether it is being monetized. Determine whether you are fully aware of the situation.and
- Assess whether your products and services are subject to various consumer financial services laws, such as the Electronic Funds Transfer Act, BSA/AML, lending laws, and state transfer requirements.
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