Banking in Metaverse
What Will the Banking Sector of the Metaverse be Like?
Since the COVID-19 pandemic, customers have become more interested in various ways to do things online rather than in person. Consequently, we have seen the revolutionary growth of neobanks and digital fintech startups in the banking industry. As if these are not enough for modern consumers, everyone is now talking about entering the metaverse.
Imagine appearing as an avatar in a virtual environment. You enter a virtual branch of your bank, approach a customer care representative, and make a loan arrangement. Then you use your digital currency to visit a virtual store and buy a pair of shoes without physically leaving your home. It sounds amazing, right? The metaverse functions in a similar manner.
Do not think that the future we just imagined is still far off. The metaverse is nearer than you think. Remember that Facebook changed its company name to Meta in October 2021, thanks to Mark Zuckerberg’s craving for a digital commerce empire in the metaverse. Some banks and financial service providers are considering going "meta," envisioning it as the future of the industry.
Although there are many promising opportunities for the delivery of goods and services in the virtual world, there are also potential downsides. Continue reading this review to learn more about banking in the metaverse.
What is the Metaverse?
The metaverse is a digital environment where people can come together and interact, and where illusory forms of land, buildings, goods, avatars, and even names can be created and traded using technologies like virtual reality (VR) and augmented reality (AR). It is the next generation of the internet experience called Internet 3D that lets users go beyond online surfing and engage in—or even inhabit—a shared experience. The metaverse spans beyond the real world to a completely virtual world and everything in between.
Why are Banks Entering the Metaverse?
Some people are concerned about whether there is anything for banks to benefit from entering the metaverse. There are a host of new opportunities for banks in the metaverse. Let’s look at the most important ones, which can explain the reasons why a few of them have already entered it.
Firstly, they are working with the idea that being the early adopters by entering the field before others will give them an advantage over latecomers in the future. That is why they are investing in potentially strategic locations in the metaverse.
Secondly, some digital banks imagine that the metaverse has the potential for the banking industry to reinvent transactions for a three-dimensional (3D) world. That is why they are experimenting with it. The primary objective has been to learn new ways of meeting the needs of their customers who are crazy about trending technologies. With metaverse, it could be possible to enable customers to pay bills, check balances, and transfer money using VR or AR channels.
Thirdly, as the younger generations are becoming more attracted to crypto-friendly banks, NFT marketplaces, and other blockchain-based platforms, digital banks are looking for unconventional ways to improve their brand image. So, a smart marketing strategy is to create the presence of their brands in the metaverse and win the hearts of their customers through their show of modernity.
Fourthly, the metaverse can offer new ways for banks to engage with their customers. A customer could stay at home and interact with an avatar concerning any business they have with their bank. This technology can be used to deliver personalised financial advice, product recommendations, and even financial planning.
Lastly, entering the metaverse is a way for digital banks to pool highly talented employees. It makes them attractive to professionals such as data scientists, developers, and other IT experts who have been working in this developing field and are looking for job opportunities that can bring out the best in them. For example, the metaverse has the potential for use in onboarding remote workers and training employees on safety and other aspects of their jobs using simulated environments.
How Banks Can Begin to Explore the Metaverse
Banks that want to enter the metaverse should start their explorations thoroughly. The market and technological environment should be scanned to gain an understanding of how they are changing, as well as the possibilities and partners that are now accessible. Also, as with banks, their technical preparedness for upcoming developments should be assessed.
Additionally, banks can look at metaverse use cases they might benefit from without incurring significant costs and high risks. For example, the use of VR in training has been studied for many years. So, banks can try to use 3D experiences in their interactions with their employees before extending them to their customers and other stakeholders through the metaverse.
The Necessary Skills for Banking in the Metaverse
Banks will need a new set of talents for a future dominated by metaverses, just as they did when they hired software engineers, cloud architects, and user experience designers to carry out their digital reforms. 3D artists, game designers, platform specialists, and experts in various blockchains are a few examples of these necessary new skills. So, banks interested in exploring the metaverse and tapping into its potential benefits must begin the creation of a talent pipeline immediately.
How Gamification Could Help Fintech Companies Boost Engagement
According to some industry experts, one of the biggest benefits of the metaverse for fintech companies will be an increase in engagement through the gamification of budgeting and financial management. This belief is based on the fact that generations entering the market as actors today were born and raised in the digital gaming era. Customers would be able to view and interact with a world where their financial ambitions come true.
Examples of Banks and Fintech Companies Rethinking Digital Finance by Entering the Metaverse
Today, if you need money or want to obtain some bank services in the metaverse, you can imagine it and get it, thanks to some banks and fintech companies that have entered into the virtual space.
Before we give examples of banks and fintech companies in the metaverse, it is necessary to introduce Decentraland, which is an Ethereum blockchain-powered virtual world. It is the virtual destination for buying and selling digital assets like land, estates, Avatar names, and wearables. It launched the first ATM for purchasing cryptocurrency in the metaverse.
Below are examples of banks that have officially entered or are leading in the process of entering the Metaverse:
- JPMorgan Chase – The first bank and lender to enter the metaverse; it opened a lounge in Decentraland in February 2022.
- American Express – Filed trademark for a marketplace in the virtual world so that it can offer real-world services like card payments, fraud detection, ATM access, travel benefits, as well as cryptocurrency services in the metaverse in March 2022.
- HSBC – Announced in March 2022 that it is planning to open an office in the metaverse on Sandbox.
- Siam Commercial Bank – In March 2022, this bank announced that it would soon launch a virtual headquarters on Sandbox.
- Quontic – An adaptive digital bank that has virtual offices for providing banking services, allowing customers to use its debit cards (launched in April 2022) to obtain Bitcoin and cash checking accounts as well as interactive ATM access and free NFT services.
- Cogni – Bought an NFT collection from Bored Ape Yacht Club and began creating a custom debit card for customers to enjoy a new range of Web3 experiences.
In addition, the following are some examples of crypto exchanges and blockchain-based fintech platforms rethinking digital finance in the direction of the metaverse and giving people more access to cryptocurrencies in the virtual world:
Coinbase
(is working to enable NFT username creation, avatar purchase tools, and more features in the metaverse)
Binance
(is working to provide links between crypto communities and gaming projects in the metaverse)
Nexo
(is investing in technologies for metaverse interoperability)
Crypto.com
(is studying the development of the metaverse)
Paxful
(is exploring how NFTs and crypto tie into the metaverse)
Choise.com
(is looking into the size and future impact of the metaverse)
Risks the Metaverse Poses to Banks
Similar to social media or interactions in the real world, banks may be exposed to a variety of reputational and legal risks by using the metaverse. Similar to how many people did not foresee the possible bad effects of social media, such as personal abuse, fraud, money laundering, support for violence and terrorism, a lack of privacy, and the spread of "fake news," it may be difficult to predict the extent of the risks of the metaverse for banks in this early stage.
As the boundaries between people's real and digital lives are progressively blurred by the metaverse, the problems mentioned above will only become worse. Moreover, banks should get ready for intense regulatory investigation of the metaverse and be prepared to act quickly when new regulations are introduced.
Does Banking in the Metaverse Need Regulation and Fraud Prevention?
The exciting new realm of the metaverse has enormous promise for both companies and consumers, as well as, regrettably, for criminals. The ability to be someone else there is one of the appeals of the metaverse, so how, for instance, can you safely validate an identity there?
Data collection and privacy are additional problems. You may be followed and analysed in a way that will appear intrusive in the real world if you make an avatar to live, work, and play in the metaverse. For both customers and corporations, this will result in privacy, security, and data protection concerns. Hence, regulation and the prevention of fraud are very important for banking in the metaverse.
FAQ
Many banks have invested in the metaverse, but the notable ones are JPMorgan Chase, American Express, HSBC, Siam Commercial Bank, Quontic, and Cogni.
The metaverse is a digital environment where people can come together and interact, and where illusory forms of land, buildings, goods, avatars, and even names can be created and traded using technologies like virtual reality (VR) and augmented reality (AR).
What banks can do in the metaverse is still being explored. However, using the metaverse, banks can try to use 3D experiences in their interactions with their employees and customers to boost engagement.
Virtual reality (VR) can assist banks in developing strong experiences that increase user engagement. They can also use it to teach customers about the stock market and investing.
Blockchain-based digital currencies, especially cryptocurrencies, are used to make payments in the metaverse.
JPMorgan Chase was the first bank to enter the metaverse. It achieved it in February 2022.
In open banking, the Sandbox is designed to reveal the APIs of a bank while preventing access to sensitive data. It essentially simulates the functions of the backend systems of a bank, employing a dummy data set for the purpose of carrying out tests only.
Fintech companies are embracing the metaverse by applying it in areas such as virtual interactions with employees, customers, and other stakeholders. They are also using it for virtual training, and virtual business transactions.
The Bottom Line
Although the metaverse represents a huge technological advancement, it is much more than that. Its potential magic rests in how it will allow banks to reestablish social networks and rekindle customer engagement.
In the metaverse, banks will be able to thrive by providing the degree of individualised service and intense emotional engagement that defined branch banking in the pre-digital era. The metaverse will develop new businesses, methods of communication, and social interactions during this process. If banks do not act soon, they are likely to one day end up working in societies totally new to them.
