Microsoft Corp. will reportedly eliminate Microsoft Points, its virtual currency for digital content for Xbox consoles, echoing moves by several of its rivals.

Microsoft unveiled the next version of its Xbox, called Xbox One, today, though it did not mention any changes to its payment system during its presentation. The elimination of Microsoft Points was first reported by The Verge. Microsoft would not comment to PaymentsSource on the rumor.

Microsoft Points were a successful concept, allowing users to purchase funds on stored-value cards in retail stores rather than use a credit card or a PayPal account. But the product seems archaic today, when companies such as Nintendo and Facebook have been phasing out their namesake virtual currencies in favor of pricing things in real dollar amounts.

Even the newly launched Amazon Coins doesn't stray too far from its real-currency roots, with 100 coins worth a dollar. Microsoft, by contrast, has long maintained the odd conversion rate of 80 Microsoft Points to each dollar.

Microsoft already accepts payments in real currencies for Xbox content, a structure that makes its Microsoft Points redundant.

"There's a lot of growth for in-app small ticket mobile transactions to purchase a digital good," says Gil Luria, an analyst at Wedbush Securities in Los Angeles. "It's a real riddle and question about how to implement that in the best way."

The concept of stored value, says Luria, is at the core of digital currencies such as Microsoft Points and Amazon Coins. Merchants can save money on credit-card fees by requiring stored-value accounts to be funded at higher increments than they can be used to spend money. For example, if Microsoft sells $20 worth of Microsoft Points to a credit card user, Microsoft pays a fee only to fund the account; it does not pay a fee for each game purchased with that $20.

Microsoft can maintain this structure by pricing its stored-value cards in real currencies. But it still faces potential consumer backlash by requiring a stored-value system at all, says Luria.

Consumers "don't want $25 lying around in several places and if Microsoft isn't a primary way to spend money then they might not store money there," he says.

Pricing its wares in dollars instead of Points may alleviate some consumer concerns, says Dave Kaminsky, senior analyst at Mercator Advisory Group.

"In order to convince customers to use virtual currencies you have to get them to feel comfortable," he says.

Even if many companies are scrapping their virtual currencies in favor of real ones, Amazon's recent launch of Amazon Coins demonstrates that virtual currencies still have some potential.

"Amazon definitely has the market position and opportunity to take advantage of what virtual currencies offer," says Kaminsky, citing the company's large existing user base. 

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry