How the Metaverse will impact the world of finance
Executive Summary & Overview
At its most basic, the metaverse is a three-dimensional virtual universe that combines augmented and virtual reality with social media to create a simulated digital environment. The technology offers users a greater sense of participation, autonomy, and boundlessness. For businesses, it is an opportunity to engage with stakeholders beyond the brick & mortar storefront and smartphone-based apps. With the acceleration of digital-based economies, the metaverse is expected to be a crucial digital platform for financial transactions. Consequently, major financial institutions around the world are exploring the platform in different ways.
In this article, we explore the many ways in which the metaverse will impact the world of finance. Although yet developing, the technology undoubtedly holds the potential to reshape the future of the industry to make it better connected, insights-led, and purpose-driven. But only time will tell if and how well the industry is able to harness the potential of this promising technology.
1. Introduction: Global Financial Institutions Enter the Metaverse
In November last year, KB Kookmin Bank, one of South Korea’s largest financial institutions, announced that it has developed the metaverse VR Branch Testbed [1]. It termed the initiative as an experiment that would allow customers to access its services in the metaverse.
Likewise, earlier this year, JPMorgan, the largest bank in the US, unveiled the bank’s suite of Ethereum-based services and released a report exploring how businesses can find opportunities in the metaverse [2].
At its most basic, the metaverse is a three-dimensional virtual universe that combines augmented and virtual reality with social media to create a simulated digital environment. The technology offers users a greater sense of participation, autonomy, and boundlessness. For businesses, it is an opportunity to engage with stakeholders beyond the brick & mortar storefront and smartphone-based apps.
For financial services, the metaverse holds the potential to transform the sector as we know it today. It offers a whole new reality by making financial transactions seamless, accessible and more secure than ever before.
Executive Perceptions on Banking in the Metaverse [3]:
2. Impact on Stakeholder Experience in Financial Services
As the examples cited above show, major financial institutions around the world are exploring the platform in different ways:
Financial Services in the Metaverse:
The elementary technology ecosystems of the metaverse – comprising of blockchain, cryptocurrencies, non-fungible tokens (NFTs) and decentralized finance (DeFi) – are all geared toward an open, decentralized and permissionless internet. Traditional financial products and services will be reinvented by these evolving technologies.
For instance, DeFi-enabled insurance and cryptocurrencies will reshape real-time data collection and claims automation. Another example would be that of banks – they can identify potential customers, onboard them through crypto wallets, and provide payments, lending and custody services.
Cryptocurrencies and NFTs as the Currency of the Metaverse:
A cryptocurrency is a digital or virtual currency that is secured by cryptography—an encrypted data string denoting a unit of currency monitored and organized by blockchains. On the other hand, NFTs are a special kind of digital file representing a single unit of value. They earn uniqueness from verifiable assets with identifiers and attributes giving them worth. They are an individualized digital commodity that cannot be exchanged for another asset, but only for themselves.
Given their inimitability, NFTs are one of the most promising payment solutions for the metaverse. The advent of cryptocurrencies and NFTs could enable monetization in the virtual world. For example, virtual real estate is likely to have profound consequences on the future of the tangible property market. The drastic increase in digital land trading has prompted a number of companies to plan virtual cities in the metaverse.
3. Blockchain Foundations for Metaverse Financial Security
Blockchain technology refers to a system in which a record of transactions is maintained across several computers that are linked in a peer-to-peer network. The technology duplicates and distributes the digital ledger of transactions across the entire network of computer systems – making it difficult to change, hack or cheat the system. Five core characteristics add great value to the metaverse:
Decentralized storage and data processing nodes enable safe storage, transmission, and instant synchronized transactions.
Synchronizing thousands of independent nodes allows all users to experience the same virtual world simultaneously.
Secure storage devices transmitting virtual content, personal data, and authorization keys in encrypted form.
Smart contracts regulate economic, legal, and social interactions seamlessly without central intermediary failure.
Facilitates frictionless operation across different interfaces, paramount for cross-metaverse NFT valuation.
Driving the Next Wave of Commercial Innovation:
By creating virtual points of presence, the metaverse enables financial institutions to connect with a new generation of customers, partner with new-age service providers, and tap into unexplored talent pools through new channels, services, experiences, digital goods, and assets. The technology will disrupt payment solutions, custodial services, forex, and liquidity management. Regulatory solutions relating to tax, compliance, and accounting—including cross-border and cross-currency transactions—will also be profoundly impacted.
Need for Caution: Given that it is an evolving technology, some key elements to support commerce and the meta-economy still need to be determined and scaled—specifically technology infrastructure, cyber security, and an overarching governing framework.
4. Ahead-of-the-Curve Thinkers: Institutional Virtual Deployments
KB Kookmin Bank (South Korea)
Simple transactions like remittances are managed at virtual teller windows. Employee avatars inside the virtual VIP lounge assist clients in analyzing risk-return profiles or designing investment portfolios. In the main hall, customers browse personalized financial data using head-mounted VR devices. The bank also uses its virtual branch to educate youth and train staff.
JPMorgan Chase & Onyx Lounge
The largest US bank unveiled its Ethereum-based Onyx lounge in Decentraland, releasing comprehensive research on commercial meta-economy opportunities [4]. JPMorgan emphasizes understanding client demand and establishing infrastructure to maximize virtual economic life.
Acorns & Westpac Banking Corporation
Fintech leader Acorns launched debit cards with smartphone-based Augmented Reality (AR) engagement. Australia’s Westpac Banking Corporation introduced AR-powered financial data visualization and budgeting interfaces directly via smartphones [5].
Diffusion Timelines: From Internet to Mobile to Web 3.0:
It took the internet 15 to 20 years to diffuse into mainstream banking. The mobile phone took 5 to 6 years. Now, as the world prepares for Web 3.0, 47% of bankers believe that customers will use AR/VR as an alternative transaction channel by 2030 [6].
“Supply and demand dynamics are driving people into the meta-economy. Over time, the market for metaverse real estate could evolve in a similar way as the real estate market in the analogue world. In time, the virtual real estate market could start seeing services much like in the physical world, including credit, mortgages, and rental agreements.” — JPMorgan Report [7]
5. Gauging a Brand’s Preparedness: The 6 Strategic Questions
Before investing in the metaverse, financial institutions will need to introspect on the technology’s strategic needs and potential benefits in the context of their brand. It would be prudent for financial institutions to remember that not everything in the metaverse will be relevant for every business. The six vital introspective questions include:
6. The Bottomline: The Path Ahead
The metaverse holds the potential to revolutionize the financial services industry. It offers immense benefits by collaborating with people, spaces, and services in both the virtual and real worlds. Although yet developing, the technology undoubtedly holds the potential to reshape the future of the industry to make it better connected, insights-led, and purpose-driven.
Progressive organizations that keep up with advances in technology and deliver to rising customer expectations will become leaders of the new digital reality. Leading financial organizations across the world have begun to acknowledge that creating a strong digital asset and meta presence early on will be critical to their relevance in the future.
This recognition is translating into huge investments in the metaverse by global brands. But only time will tell if and how effectively and efficiently the industry is able to harness the potential of this promising technology. ■■■