‘Metaverse’ is the current technology buzzword. Its mission is to transform lives by creating a decentralized and immersive world. As we continue with our daily regime, there is another world that will allow us to perform the same functions in this digital environment.
Traditional banking experiences have become a nostalgic memory of a physical space - heavily dependent on manual work, where the involved parties are to be two-dimensionally present to avail and lend services. However, the metaverse will bring more collaborative and decentralized brand experiences to the consumer across industries/services. This means that the interactions with one brand/product, can be utilized within other platforms. The metaverse is here; it’s not the future. But how will financial institutions in the real world prosper in this highly evolved digital arena?
Opportunities for banks in the metaverse
Banks must identify potential customers who already exist in the metaverse. To understand their needs and provide services, will need significant time. Buying virtual properties is driving the demand for real estate in the metaverse. A clear advantage lies in providing loans and leveraging mortgage services to those looking to invest in real estate.
Young customers interested in art, gaming, and entertainment are keen on using the metaverse marketplace. There is a scope to offer them financial planning services, loans, creating depository accounts etc. Banks are encouraging customers to use AR/VR devices to check their account balances, make payments, transfer money, and transact. Banks can reconnect with customers and form meaningful relationships throughout the customer journey.
The emergence of Blockchain has made currencies like Cryptocurrency available for people to trade, invest and transact with. It also enables Non-Fungible Assets (NFT) to be created and transacted.
Banks in the metaverse will be able to offer services available in the real world like ATM withdrawals , deposits, and customer service. Customers will be able to view their accounts in 3D, and transfer their data back and forth.
Prep for the metaverse
Finally, banking professionals must equip themselves with the knowledge and expertise of the metaverse to prepare for entering that market.
J.P. Morgan, the largest U.S.-based bank, has entered the Metaverse by setting up a branch in Decentraland, a marketplace for digital assets called the Onyx Lounge.
The company has released a research paper describing their plans to operate like banks in the metaverse, much like the real world. Like its role as a bank, it can facilitate cross-border payments, forex, financial assets creation, trading, and safekeeping.
Although the metaverse is looking for rapid adoption by banks and FIs, the immersive virtual space holds questions that need addressing. Since the driving force behind Decentralized Autonomous Organizations is Web 3.0; transactions and experiences that occur through digital currencies need supervision and governance, to build trust. Can the existing regulations and security controls ensure the safety of all participants in the metaverse?
In metaverse, there is a possibility of attackers replicating identities out of stolen avatars to steal digital assets. Thus, one of the crucial challenges will be to manage identity authentication and theft.
Additionally, it is widely assumed that the metaverse is dependent on blockchain technology to enable decentralized commerce. There have been several high-profile failures in blockchain based organizations recently (e.g., FTX & ASX) that are likely to slow down adoption and drive more regulation before the technology is trusted for mass adoption in financial services.
Consumers are hesitant to switch from traditional access methods like mobile apps and the internet. This means metaverse technologies are unlikely to replace traditional mobile apps and internet access for business services. So, creating and maintaining a metaverse presence will add an additional cost that must have an RoI to survive.
The world is witnessing the rise of metaverse where people and companies are increasingly looking to collaborate. The introduction of innovative technology and the emergence of new currencies will be distinguishing elements of the metaverse's financial markets. Here, the opportunity for banks is to bring benevolence back into banking by building trust. It is the newer, tech-savvy generation who are going to be the primary users of banking services. Banks must begin to position themselves as bearers of financial expertise, counselors, and specialists in client communication.
Peter McConville is the Senior Director and Global Head of Digital at Synechron.