Banking in the Metaverse

Banking in the Metaverse by Yvonne de Ville

What is the Metaverse?

For those of you who are not familiar with the latest buzzword “Metaverse”, let me quickly try to explain as there are many different opinions on the definition of this buzzword. A metaverse is a place where both the physical and digital worlds can exist at the same time. (1) The purpose of the metaverse is to enhance social connections through a diverse range of digital environments such as virtual worlds, augmented reality and blockchains. People can enter these visual worlds by using virtual reality headsets. The technology that is used to enhance the metaverse include (i) augmented reality, (ii) virtual reality and (iii) mixed reality.

The Present Situation of the Metaverse

Businesses - From a business perspective, as an example, there are metaverse platforms already in existence covering the virtual real estate that are tradable through cryptocurrencies or non-fungible tokens (NFTs). Businesses can use the metaverse to develop new products and enhance the customer experience. (2) Enhancing the customer experience will allow businesses to be able to interact with their customers and provide them with better information flow.

Banking institutions – It is common knowledge that banking institutions have been slow to take up and embrace new innovative technology for many reasons. Banking institutions are heavily regulated and are still using the old infrastructure. Banking institutions identify the potential systemic risk to financial stability arising from cryptocurrencies, hence their fear of exploring ideas to venture into the metaverse.

Examples of Global Banking Institutions that have entered the Metaverse

Here are four examples of how banking institutions are adapting to the metaverse.

(1)   Example 1 - The first ATM in the metaverse was launched in July 2022 by Decentraland. People can use this ATM to purchase cryptocurrency in the metaverse as they would use an ordinary ATM in the physical world. (3)

(2)   Example 2 - Leading bank JPMorgan Chase became the first bank to open a lounge and an office in the metaverse with Decentraland. (3)

(3)   Example 3 - American Express filed trademarks for a virtual marketplace and cryptocurrency services in the metaverse. (3)

(4)   Example 4 - UK’s Standard Chartered Bank has entered the Metaverse by acquiring a parcel of land. This land is hosted in The Sandbox. Mary Huen, CEO of Standard Chartered is quoted as saying “Our involvement in the metaverse allows us to reimagine our relationship with existing and potential clients on this new platform and our approach to enhance client journeys.” (4)

The Future Outlook of Banking in the Metaverse

It is expected that in the future, banking institutions are more likely to adopt the metaverse to develop new financial products. (5) But the banking institutions will need to be quick to react to the metaverse as fintech providers have entered and will continue to venture into this space. Some of the financial products may allow their customers to experience them virtually in the metaverse. The timing of the transition to the metaverse will depend on the banking institutions’ expectations of when their clients are transferring to the metaverse.

It is expected that banking institutions will need to transition into the metaverse otherwise they will lose customers to providers that offer better services. Banking institutions will need to increase their knowledge about digital assets, blockchains, and smart contract technology as this is the way that the metaverse is heading. (6) By gaining a better understanding, banking institutions will be able to integrate towards a decentralised, Web3 version of their services. If banking institutions decide to accept tokenization, smart contracts and blockchain technology to improve efficiency, it will mean a new era of finance.

Customers are enjoying the benefits of online banking, but they are transitioning to the metaverse. The presence of online banking (internet and mobile applications) has seen a slow reduction in the number of brick-and-mortar branches. The transitioning to the metaverse may see further branches close. There will remain plenty of physical brick-and-mortar branches in the future as there are still customers who still need to speak to a real person, but this can be replaced in the future with the metaverse with lounges. JPMorgan Chase became the first bank to accommodate this need by opening an office and a lounge (refer to example 2 above).

Therefore, banking institutions need to quickly respond to the metaverse by introducing new financial products to customers. Banking institutions can use the metaverse to improve internal operations and improve the customer experience.

“Technological innovations will be the heart and blood of the banking industry for many years to come and if big banks do not make the most of it, the new players from Fin-Tech and large technology companies surely will.” David M Brear -Mirror Review Quotes

References

(1)   Source – Servermania. What is the Metaverse and How Does it Work? https://blog.servermania.com/what-is-metaverse/

(2)   Source – TechTarget. 10 examples of the metaverse for business and IT leaders. https://www.techtarget.com/searchcio/feature/Examples-of-the-metaverse-for-business-and-IT-leaders

(3)   Source – WundermanThompson. Banking in the metaverse. https://www.wundermanthompson.com/insight/banking-in-the-metaverse#:~:text=Banking%20has%20officially%20entered%20the,without%20leaving%20the%20digital%20realm.&text=Decentraland%20launched%20the%20first%20ATM,on%20its%20platform%20in%20August.

(4)   Source – AltFi. Standard Chartered is the latest UK bank to buy a plot of ‘land’ in the Metaverse. https://www.altfi.com/article/9153_standard-chartered-is-the-latest-uk-bank-to-buy-a-plot-of-land-in-the-metaverse

(5)   Source – Euromoney. Imagine banking in the metaverse. https://www.euromoney.com/article/2a3r1fjj0aoaoy52yizuo/sponsored-content/imagine-banking-in-the-metaverse

(6)   Source – eweek UK. Financial Services Need to Be Retooled for the Metaverse. https://www.eweekuk.com/fintech/financial-services-need-to-be-retooled-for-the-metaverse/