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European Experts on Kwedit: Risks and Benefits

By Sebastian Sujka

Kwedit’s business model raised a lot of controversy. When Kwedit launched this February TechCrunch brand marked it “the first completely unreliable payment network“. Kwedit is an innovative payment method for social games that allows users to get their virtual goods immediately if they promise to pay for it later. The user must promise to repay the amount at a local 7-Eleven store or to mail the cash in.  However, the promise is not enforceable. If a user does not repay the money as promised his “Kwedit score” will fall. When the score is very low the user will be simply blocked for the service until he restores his Kwedit score to by repaying. Another option Kwedit offers it to “pass the duck” where the user can ask friends or relatives to pay the amount for them. Again, the person asked has the right to refuse the payment.

When Kwedit launched it was absolutely uncertain how many users will repay. In March the repayment rate was 26% and 33% in May. According to Kwedit the rate will keep increasing because users who do not repay are removed and paying users are kept. Revenue increase for publishers is reported to be 5%. We talked to Ingo Lippert, CEO of MindMatics, German provider of the international mobile payment platform mopay and Magnus Alm, CEO of Swedish social game developer Muskedunder about their views on Kwedit.

Ingo Lippert, CEO of MindMatics

SocialGamesObserver: The debate about Kwedit’s concept is still going on. Do you think the concept is marketable?

Ingo Lippert: Kwedit combines micropayments with credits. Since Paypal acquired BillMeLater micro credits are a trend topic. When Kwedit launched they partnered with over 100 social games and 7-Eleven but nobody knew if the concept would work. After a couple of months Kwedit gained some experience and had to readjust several times. These are indications that the concept is still not fully marketable.

Magnus Alm: It seems to have been fairly successful so far, according to Kwedit’s own reportings. In the long term it might be a valid extra source of revenue for developers who have an audience that is hard to monetize due to lack of credit cards. So yes, why should it not be marketable? I think that Kwedit is aiming for a niche that has the potential to expand a lot.

SGO: Kwedits main target group in the US are children. Would you expect the same targeting if Kwedit came to Europe or could the service be valuable for different target grousp?

Ingo Lippert: Predominantly, Kwedit works with cash payments. That is why children are clearly the main target group. However, I would even extend the target group from 10-20 years because cash is often the only payment option for this group.

Magnus Alm, CEO of Muskedunder

SGO: Does Kwedit make sense for the European market?

Ingo Lippert: Kwedit addresses a global phenomenon: kids borrow money from their parents, grandparents, aunties, uncles etc. The concept is certainly exercisable in Europe.

Magnus Alm: Certainly, the payment market in Europe is very fragmented and the Kwedit concept makes a good additional way of payment for younger users. Kwedit is going for a much smaller piece of the pie than the biggest payment providers, but that piece may grow fast if the large publishers start using their services.

SGO: What are Kwedit’s biggest advantages and risks?

Ingo Lippert: Kwedit’s biggest advantage from the user’s perspective is that the required amount for a transaction is instantly available. The convenient use of the service needs to be paid later in combination with a relatively inconvenient trip to the next 7-Eleven or to the post office. For the publishers there are significant disadvantages. The first figures show what has been expected before the launch: the missing willingness to repay the micro loan. Being banned from Kwedit does not seem to be sufficient to pressure users to repay. The consequence is a terribly low repayment rate. The second big disadvantage is the potential cannibalization of other payment methods. Customers who own credit cards or mobile phones can use Kwedit instead of other payment methods that would be more favorable for the publisher.

SGO: Would you consider Kwedit a threat for offer-based monetization platforms?

Magnus Alm: Not so much actually. I think that offers are a great way to monetize users if you have relevant offers. I would rather say that offers are a threat to Kwedit because they are trying to upgrade users from non-paying to paying and if there are offers that appeal to the users, I think they would rather take the offers than using Kwedit.

SGO: Do you think Kwedit can create new paying users for publishers?

Ingo Lippert: Yes, I am sure Kwedit has the potential to create more paying users. However, it is important to check who those new paying users are. Kwedit addresses players who have limited access to alternative payment methods. Those users are very young and possibly have a relatively bad payment behavior. Kwedit offers a channel to increase paying user rates but publishers should be aware of the potentially low repayment rate. Of course with the disadvantages mentioned previously.

Is Kwedit a payment solution that you would consider for your games?

Magnus Alm: We have only looked at it briefly, but the idea is interesting. We would prefer to see some more developers using it and learning about their experience before trying it out ourselves though.

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