‘Metaverse’ is the current buzzword in the virtual technology sector. Its mission is to transform our lives by creating a decentralised and immersive world. As we continue with our ordinary daily regime, there is another world that will allow us to perform the same functions in this digital environment.

The Metaverse is an evolution of where we have come from with Web 2.0 ­– the era of SMS, Web and Mobile. It will bring more collaborative and decentralised brand experiences to the end user in multiple industries and services. This means that the interactions, rewards and spend you have with one brand or product, can be utilised within other platforms. Analysis by Bloomberg Intelligence states that a large number of companies will enter this crusade by 2024 thereby pushing the market size to $800bn. The Metaverse is already here; it’s not the future. It is here today and will continue to evolve.

Immersive Capabilities

We are already witnessing industries like gaming, real estate, and retail entering the fold backed by advanced technological developments like blockchain and 5G. Immersive capabilities in Unreal Engine and Unity are challenging how big tech firms think about capabilities within their organisations to meet the demands of their customers.

Artists like Justin Bieber debuted a performance live in the Metaverse on a virtual music experience, Wave XR. BMW developed NVIDIA‘s Omniverse technology to create a digital duplicate of its factory floor and reduce the cost of production. The Metaverse is sparking interest and investment from some of the largest brands in the world.

The Metaverse is seeing transactions taking place between consumer and brands. But how will financial institutions in the real world prosper in this highly evolved digital arena?

Banking Before the Metaverse

Traditional bank experiences have been a nostalgic memory of a physical space where the involved parties are to be two-dimensionally present to avail and lend services. The transaction processes were heavily dependent on manual work. Customers needed to be physically present to take advantage of the bank’s services.

Then there was the change from traditional bank experiences to digital banking, where transactions became paperless via digital channels. A customer’s physical presence is no longer required. Digitisation of banking services caused an entire revamp of customer journeys, customer satisfaction objectives, and demand for decentralised and regulated data security.

Digital banking operates similarly to technological firms as they had to incorporate technology in improving their services and building customer relationships. However, despite their efforts digital banking, while being convenient for customers, is not personalised and engaging.

Customers have lost the personal touch with their traditional banks, which was largely human relationship management

Traditional banks are continually driving transformation programmes to deliver digital services to consumers, automate the back-office experience and meet continuous regulatory requirements. However, one could argue that the relationship between the traditional bank and the consumer is not personalised nor engaging, unlike the relationship a consumer would have with commercial or retail brands.

Customers have lost the personal touch with their traditional banks, which was largely human relationship management. The Metaverse’s immersive experience allows banks to potentially leverage new ways of engaging with their next generation customers, as well as extending their reach to decentralised platforms and communities.

Transition of functionalities and scope in the current system of operations vs. the Metaverse world

Rise of New Currencies

The emergence of blockchain has made currencies like cryptocurrency available for people to trade, invest and transact with. Furthermore, it enables Non-Fungible Assets (NFT) to be created and transacted. A system of decentralised networks eliminates intermediaries such as banks so that the customer directly accesses their financial assets.

A decentralised network would mean a lesser need for traditional banks. However, banks are trying to set foot into the Metaverse, make way for streamlining bank operations and replace traditional financial instruments with standardised digital assets. Banks must determine the roles they will play to use this opportunity to grow their brand.

The younger generations of GEN Z and Millennials are popularly utilising these newer currencies. It would be fascinating to observe how banks cater to a group of consumers who are well-versed in the latest technical breakthroughs and financial trends.

Opportunities for Banks in the Metaverse

In the starting phase, banks must identify their potential customers who already exist in the Metaverse. It can take a significant amount of time to understand their needs and provide financial services accordingly. It is not a surprise that real estate in the Metaverse is booming because of the demand for purchasing virtual properties. 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 services in terms of financial planning services, loans, creating depository accounts, and much more. Banks are leveraging customers to use AR/VR devices to check their account balances, make payments, transfer money, and transact. Banks have the opportunity to reconnect with customers and form meaningful relationships throughout the customer journey.

Banks in the Metaverse will be able to offer services available in the real world which include withdrawals from ATMs, depositing money, and interacting with representatives for help and advice. Customers will be able to view their accounts in 3D, as if they were a compact report, and transfer their data back and forth.

Prep for the Metaverse

Finally, banking professionals must equip themselves with the functioning, knowledge, and scope of the Metaverse. A market worth $800bn cannot be overlooked. Thus, banking professionals must be Metaverse educated. Banking executives around the globe must see this potential and prepare to enter the Metaverse market. We are already witnessing some footprints entering the field within the industry, whilst other industries like Gaming are well advanced.

JPMorgan Chase, KB Bank enter the Metaverse

JP Morgan, the largest U.S.-based bank, has entered the Metaverse and has set up a branch in Decentraland, a marketplace for digital assets called the Onyx Lounge. It is located in Metajuku, a virtual version of Tokyo’s Harajuku shopping district. The company also released a research paper explaining the opportunities they are exploring in the Metaverse, including operating like a bank in the virtual world much like it does in the real world. Similar to its role as a bank, it can facilitate cross-border payments, foreign exchange, financial assets creation, trading and safekeeping.

KB Bank of South Korea also introduced a VR version of its branch in the Metaverse where employees will be represented through avatars. Employees and consumers will be able to speak directly with each other.

Challenges Persist

Although the Metaverse is looking for a rapid adaptation of banks and financial institutions, the immersive virtual space holds questions that deeply need addressing. Since the core driving force behind Decentralised Autonomous Organisations is Web 3.0, transactions occur through digital currencies. Transactions, interactions, and experiences in the Metaverse need to be supervised and must be governed to build trust.

Some of the major challenges here are:

Governance and Security

In the traditional sense, attackers could represent themselves as someone else to utilise a customer’s credit card or other physical assets for malicious purposes. Can the existing regulations and security controls ensure the safety of all participants in the metaverse?

Identity

Similarly, in the Metaverse, attackers have the possibility to construct lookalike identities out of stolen avatars or hack others’ avatars to steal digital assets. Thus, one of the crucial challenges in the Metaverse will be to manage identity theft and authentication of these identities.

Blockchain

It is widely assumed that the metaverse is dependent on blockchain (Web 3.0) technology to enable decentralised commerce. There have been several high-profile failures in blockchain based organisations 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.

Accessibility

For the consumer to enter an immersive metaverse experience, it will require an additional hardware device to have at home. At present, these are relatively expensive and there are only a select few worth the investment – such as Oculus from Facebook and the upcoming PSVR from Sony — whilst there are rumors of big moves from Google and Apple in this space. This immersive experience can also cause nausea in some people which will deter them from using the metaverse.

ROI

Many people will not be willing 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 a Return on Investment (ROI) to survive.

The Bottom Line

The world is witnessing growth in the 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 market.

Here, the opportunity for banks is to bring benevolence back into banking by creating a sense of 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.

The introduction of innovative technology and the emergence of new currencies will be distinguishing elements of the Metaverse’s financial market.

At Synechron, we’ve been market leaders in some of the core Metaverse technologies such as Cloud and Blockchain since their inception. Now, these are everyday technologies that are common across many of our programmes. Our role is to consult and engage brands on their journey into the Metaverse, to find that sweet spot where investment into the space is more than just a public relations initiative, and instead create new revenue streams through immersive products and services.

Peter McConville is global head of digital, Synechron