On April 4, 2024, the Consumer Financial Protection Bureau (CFPB) issued a report on “Banking in video games and virtual worlds” (Report). The Report focuses on the movement of money in virtual worlds and how gamer data is collected, used, and shared. In tandem with the Report, the CFPB issued a press release and a statement noting that it is monitoring financial transactions in video games and virtual worlds for fraud and scams, and emphasizing its position that in-game currencies increasingly resemble the traditional banking and payment system, particularly where they can be converted back to fiat currency. In this client alert, we summarize the Report’s findings and key takeaways.

The Gaming Industry

The gaming industry has evolved rapidly in recent years. In-game assets, including in-game currency and virtual items, have become an increasingly important part of the gaming experience. As in-game virtual worlds have grown on an international scale, in-game payments have similarly advanced from one-time purchases or “microtransactions” to in-game worlds with their own virtual payment environments. For many of these games, in-game virtual currencies have become a key part of buying virtual items and services within the game. According to the Report, gaming companies are using gaming assets and proprietary marketplaces to replicate everyday activities online, including financial payments.

The CFPB estimates that the gaming industry is valued at $249.55 billion as of 2022 and is expected to grow to $321.1 billion by 2026. In 2022, American consumers spent $56.6 billion on gaming. The CFPB notes that “gaming may be [an] introduction to financial activity” for many young people, for example, by giving them an “opportunity to learn about earning currency, managing assets, and making purchases.”

The CFPB’s “Banking in video games and virtual worlds” Report

The Report identifies various trends and risks associated with these in-game financial transactions.

“Real world” value of in-game virtual currencies. Gaming companies often take the position that their gaming assets have no monetary value and are irredeemable for fiat currency, and that their environments function as closed markets. However, the CFPB believes that the ability to assign and extract value from gaming assets inside and outside of the video game, particularly through the gaming platform or third-party markets or systems, presents risks similar to “traditional” payments systems.

The Report describes several in-game payment structures, including:

• Closed gaming markets. Closed gaming markets use only in-game virtual currencies, where no fiat currency flows into or out of the games.
• Games with “on-ramps” of fiat currency. Games with “on-ramps” permit players to use fiat currency to purchase in-game virtual currency that is stored on the player’s account in an in-game “wallet” to make in-game purchases. Once players purchase in-game currency, it cannot be withdrawn as fiat currency.
• Games with “on-ramps” and “off-ramps” of fiat currency. Like the above model, these games permit players to purchase in-game currency using fiat currency and to withdraw funds by converting the in-game currency back to fiat currency.
• Crypto asset-related virtual environments. This payment environment is a virtual environment or “metaverse” that allows customers to use virtual assets, which can be bought and sold outside of the virtual environment, for purchases within the environment.

Third-Party Marketplaces. Some in-game currencies have become so valuable in the payments ecosystem that third-party markets have emerged to monetize in-game currencies that have no “off ramp” and cannot be converted to fiat currency. According to the Report, these third parties “facilitate the buying, selling, and trading of in-game currency, virtual items, and even entire player accounts,” but are not necessarily sponsored or associated with the game and can operate independently to convert gaming assets back to fiat currency.

Loss of Gaming Assets. Users are increasingly reporting lost access to gaming assets through hacking attempts, account theft, scams, and unauthorized transactions. The CFPB has received complaints from players regarding the limited consumer protections and recourse provided by game operators in the event of lost gaming assets compared to what consumers are accustomed to in traditional banking and payment systems.

Money Laundering and Other Risks. Research shows that gaming markets can be used to facilitate illegal money laundering because of reduced traceability of funds when users purchase gaming assets with illegally obtained funds and later convert them to fiat currency on third-party markets. Fraud, unauthorized transactions, and other scams on gaming platforms and third-party websites have resulted in increased consumer complaints about user terms and conditions offering consumers limited or no recourse for such losses.

Monetization of Data

Collection of in-game personal and behavioral data—which includes financial data, in-game purchase behavior, spending thresholds, location data, and biometric data—impacts users. Video game developers are monetizing user data through the concept of “dynamic odds” to entice players to spend more and to manipulate prices and the availability of goods or services on a highly individualized level. The CFPB has expressed concern that the use of “dynamic odds” can mislead players about the scarcity of gaming assets and obscure the real value of such assets, which may encourage users to make certain in-game purchases.

The CFPB also identified targeted advertising tactics that gaming publishers utilize, such as charging users for an ad-free version of the game, incorporating non-skippable ads at certain key intervals of the game that users must watch in order to keep playing, and offering users in-game currency or other rewards for watching in-game ads.

Key Takeaways

The Report and associated statement indicate a potential shift in the CFPB’s monitoring of financial services and payment-related activity on gaming platforms. This could result in heightened regulatory oversight for video game developers by both the CFPB and other relevant regulators, including the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). FinCEN is responsible for oversight of money services businesses and other financial institutions that are subject to anti-money laundering and countering the financing of terrorism (AML/CFT) requirements. FinCEN has previously released guidance stating that companies facilitating transactions in virtual currencies that have an equivalent value in fiat currency may be subject to AML/CFT regulation.

Video game developers should consider the findings detailed in the Report and identify whether any of their current business practices—particularly the ability to convert fiat currency to in-game currency and vice versa—may trigger compliance obligations.

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