Kwedit lets kids use cash to pay for online games, buy virtual goods

There are lots of people — teens in particular — who don’t have bank accounts or credit cards with which to pay for online purchases. They can use prepaid cards to sign up for online services, but alternative payment provider Kwedit wants to make it far easier for them to buy digital content, virtual goods, or online games.

The Mountain View, Calif.-based company is launching new payment services today that knock down the barriers to online purchases and could even get more users to convert from playing a game for free to purchasing items in the game. If it does that, it could generate considerable revenue growth for game publishers and others that rely upon virtual goods business models.

Like many things involving teenagers, this scheme involves 7-Eleven stores. Teens can buy prepaid cards for games at the stores now. But in the middle of the night, that doesn’t really help them if they want to make a purchase in an online game so they can join with their friends, said Danny Shader, chief executive of Kwedit and a longtime veteran of the payment industry.

Virtual goods are expected to generate $1.6 billion in revenues in the U.S. this year, according to Inside Network. But teens can be left out because 95 percent of them pay for goods with cash.

“While they don’t have credit cards, they do have cash and they do have access to computers,” Shader said in an interview. “If we can reduce the friction for them, we can raise the percentage of people who pay for items in free games.”

Kwedit is one of many companies targeting the “unbanked,” or those without credit cards and bank accounts. In the U.S., the unbanked add up to 25 percent of American households, or tens of millions of people who primarily use cash for transactions. Others serving them include Rixty, which lets kids trade in their coins at Coinstar booths in stores so they can get coupons to play games.

Kwedit has two different services to offer the unbanked. One is Kwedit Direct, which lets you make a payment for online services via any of 5,800 7-Eleven stores. All you have to do is print a Kwedit Slip with payment information and take it into the store. The clerk scans it and then the payment is credited to the correct account. You can also print out a Kwedit payment slip and mail cash with it. And you can can ask a friend or family member to pay the bill for you in a feature called Pass the Duck.

The other new service is Kwedit Promise, which lets you “play now, pay later.” That is essentially like Bill Me Later, which eBay bought in 2008 for $945 million. You can pay later using the different payment methods included under Kwedit Direct. Kwedit gives you a Kwedit Score that is a measure of your reliability in making payments. The higher your score, the more you can bill under Kwedit Promise.

The concept is similar to a FICO score used to gauge credit risk for credit card holders. For teens, it thus becomes a way to learn financial responsibility, Shader said. As with credit cards, there is a risk that the unbanked will default with Kwedit Promise. But the good thing is that with virtual goods, the actual loss if someone defaults is zero, as it costs nothing to produce another virtual good.

Kwedit is available today on more than 100 popular online sites, including FooPets and PuzzlePirates. Full told, Kwedit will work in 1,000 online games. Kwedit is included as a payment method in Jambool’s Social Gold, a popular payment system on Facebook.

The company was founded in 2009 and has 13 employees and contractors. It has raised $3 million from True Ventures, Kapor Capital (owned by Mitch Kapor), Maples Investments, Endeavor Partners, Fenwick and West, and angel investors.

The company was founded by Shader and a number of successful tech entrepreneurs, including Steve Capps, creator of the Apple Lisa and the user interface for the Apple Newton. Shader founded Accept.com, an early consumer-to-consumer payments company bought by Amazon.com in 1999 for $175 million. He also founded Good Technology, which Motorola acquired in 2007 for $500 million.

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