Introduction
Metaverse has become synonymous with 3D gaming, as some of the online platforms have been providing virtual avatar enabled immersive gaming experience for close to 2 decades now. But with growing interest in this area, innovative use of such virtual spaces started emerging, and have now expanded to experience with retail stores, fashion, music, art, events hosting, virtual real-estate, marketplace and lots more! Digital natives like the Gen Y and Z are increasingly spending more time in metaverse as it stands today, so it may not come as a surprise that more and more businesses are planning to establish their presence where their target customers are – the metaverse.
Almost every industry is now looking at leveraging this virtual world for enhancing customer experience on one hand, and driving new business on the other. Banks and financial institutions (FIs) are also exploring this universe, as the meta-economy is predicted to touch between $5 tn to $13 tn by 2030 basis industry reports. This will unfold opportunities for financing options through innovative products and services as well as trust in payments to protect from frauds.
Banking on The Metaverse: Reimagining the Future of FinServ
The banking industry has witnessed several transitions – from branch and paper based banking in the last century to card and ATM based self-service, followed by web based online banking in the early 2000s, to mobile banking and eventually the current era of digital banking enabled by digital IDs and wallets. Several new generation banks are digital only, and do not operate in physical spaces. Adoption of changing technologies has enabled banks to attract new customers and also provide enhanced services to existing ones. A strong example is how in the last 2 years banks did not close down any activity inspite of the COVID induced lockdowns, rather moved all their remaining branch-based functions to cloud-based digital mode including new customer onboarding, KYC activities, loan processing and others.
The current generation, or the Gen Z, reportedly spend twice as much time in the virtual reality (VR) world on social interactions than in the real world. So for Banks and FIs planning to build a connect with this set of target customers, they need to follow Gen Z to the metaverse. Some banks viz. JP Morgan, HSBC and Union Bank of India have taken the initial steps of setting up virtual lounges in the metaverse, providing information on their traditional products and company information. This is enabling to build their brand as early movers among the VR world users, and footfalls in these premises are slowly rising.
As the metaverse itself matures, which is expected to take another 5-7 years, banks will look to tap this target population with innovative finserv products that suit the needs of an emerging VR world. Some such products and services could be mortgages for ‘virtual real estate’ to buy and develop virtual commercial or residential land & property, lending for purchase of NFT based digital assets (in art, music, wearables or even yachts and pets!), loans for running business in metaverse or for virtual tourism, virtual weddings, virtual training & education and so on. Virtual wallets from banks can help to store and trade digital assets, hold funds, provide a bridge between the physical bank account and the virtual one through currency conversion between fiat and metaverse currencies. Transactions in metaverse will primarily be peer-to-peer enabled by blockchain and may not require intermediaries like banks. However, as value exchanged on the metaverse rises, bad actors and financial crime will also rise. That is where banks, who have strong frameworks in identifying fraudulent actors and behaviours, can bring trust and security to payment transactions. Additionally, some of the services banks now conduct digitally, e.g. onboarding new customers, financial planning and advice for wealth customers, customer support and grievance redressal can be moved to the metaverse too, to reintroduce human touch in customer interaction which got lost during digitization.
Riding The Virtual Disruption Wave: Envisioning Innovation in FinTech
The last decade witnessed how digital transformation revolutionized the fintech ecosystem, from tools for digital identity verification to payments and remittances, Regulatory technologies, digital banks, real-time fraud detection, alternate lending & finance solutions, insurance tech, personal finance management, DLT and cryptocurrencies and so much more!
The next few years will propel innovation dedicated to Web3 and Metaverse development. While the AR/VR world now is dominated by gaming, this is expected to change dramatically by 2030, when we can expect a reflection of the real world in the virtual world as well, complete with residential and commercial spaces, brand stores, businesses, sports, leisure, education, global events, travel and tourism, and even family celebrations. Yet we have only seen the tip so far, and metaverse will evolve tremendously as standards, ecosystems, infrastructure, industry use cases, convenient and affordable hardware (headsets, gloves, devices etc.) are developed collaboratively by market participants for industry-wide adoption at a mass scale.
The next decade belongs to Web3 and Metaverse, and we will witness a digital era-like disruption in the fintech ecosystem in that space too. These could be around solutions for digital ID verification of avatars (both for customers and employees), virtual wallet providers, trading platforms, currency exchanges (between fiat-Metaverse currency, multi-meta currencies etc.), metaverse bridges (to move funds/value between 2 virtual platforms in metaverse), embedded finance, fraud and scam detection, RegTech, gamified trading of NFTs (along the lines of play-to-earn), insurance for digital assets (against theft, scams) and many more that we possibly cannot think of now! A whole new world of banking and fintech awaits us in Metaverse – will Gen Z ever know what physical banking was like?
