Local start-up First Meta faces possibly of Shutting Down?

Duncan Riley of Techcrunch reported earlier today that virtual world banking will be banned within the most popular virtual earth, Second Life, effective on 22nd January 2008. This was announced on the Second Life blog where the creators, Linden Labs, said that they “will begin removing any virtual ATMs or other objects that facilitate the operation or facilitation of in-world ‘banking’”.

This was a result of failed virtual banks such as Ginko Financial which owed the equivalent of US$750,000 to their customers when they declared itself insolvent in August 2007. Riley then goes on to say that even though the virtual stock exchanges will most likely not be affected, credit card providers may be forced to end.

Local start-up First Meta is one such company offering credit card services on Second Life. They have previously enjoyed a lot of media attention for providing the world’s first virtual credit card. They were covered by Techcrunch and Valleywag and they even got into the Red Herring 100 Asia 2007 Awards.

Even though the savings account that First Meta provides will have to be closed down, I believe there may still be a possibility that their credit card services can go on as Linden Labs’ concern is more on institutes that offer high interest rates for storing their user’s money which they may not be able to pay back. The credit card service can then be provided based on a pay back system that only collects what is spent and hence the users are protected. It is still however unclear whether Linden Labs will accept this argument.

There still may be alternatives for First Meta like going into another virtual world such as popular Chinese virtual world Hipihi, but surely without the user base of Second Life, the company’s revenue model will surely take a huge hit.

This brings about a huge issue on whether start-ups should focus all their efforts on hosted platforms such as Second Life’s or Facebook’s. This incident has showed that there is a huge risk involved, that the host can change its policies without giving much notice and may very well destroy the company.

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