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The metaverse is open for business, and financial services have a role to play. How can payments providers and their technology partners help create more open, and more s
ecure, virtual environments – and what’s in it for them?
Facebook’s name change to Meta emphasizes the level of attention that the metaverse is attracting, with digital and financial companies vying for virtual real estate.
But we are only at the very beginning of understanding the short-term opportunities, long term potential and risks along the way in the development of the metaverse. Even though we call it the metaverse, it is not a single concept or vision, but a constantly growing, potentially infinite number of separate virtual reality worlds, designed variously for entertainment, commerce and social networking, often in combination.
A hitchhiker’s guide to the metaverse
Unlike our experience today of phones and 2D screens, the metaverse promises deeper immersion, giving us the ability to touch, view or interact with a 3D virtual environment. Think of visiting a castle with your kids. Not only can they see old walls, but by layering the real and the online world, they can experience what it was really like to live there, fight battles, and meet kings and queens. In the right hands, the metaverse is not only a place to experiment and experience alternative realities, but to understand our own better too.
The big bang for banking experiences
Both Goldman Sachs and Morgan Stanley MS have separately called the metaverse an $8 trillion opportunity, while Bank of America BAC sees it as a trigger for the wider, more lucrative use of cryptocurrencies. From a banking and fintech perspective, the metaverse is not only a new realm of experience, play and commerce but also of payments and financial services. Consequently, as the concept of the metaverse becomes a reality, its pioneers are looking at how to create – and monetize – their leadership position.
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Much in the same way mobile banking has changed our expectations of financial engagement, banks and fintechs will need to reimagine banking and payments in the metaverse. For example, while we expect payments to be an integral and seamless part of eCommerce today, the metaverse could enable a more tailored, personalized and crucially secure domain in which to deliver financial services for both the real and virtual world.
Open opportunities vs. proprietary worlds
One of the challenges for banks and fintechs – and their customers – today, is that most metaverses operate using proprietary digital currencies, wallets and micro-economies. However, as metaverses mature and users live in more than one virtual world, they need to be able to transfer wallets between worlds.
This requires an open-source approach akin to open banking. Plans are already underway to achieve this. Outlier Ventures, Europe’s first venture capital firm dedicated to blockchain, is currently working on an open metaverse operating system, while the Open Metaverse Interoperability Group is looking to make the metaverse an open and interoperable resource – a new internet that developers can build together. Metaverse pioneers are likely to be reluctant to support an open virtual space in which competitors can co-exist; however, a potential middle ground could be a marketplace or app store-type approach, in which one firm owns the environment but permits third parties to participate.
Financial services will shape the topology of the metaverse
The metaverse is still in its infancy, and the risks and opportunities remain largely unknown; however, I can think of three positive ways the industry might use its powers to help shape the metaverse, make it a safer place to operate, and drive freer movement from one parallel metaverse to another.
1) Embed financial services. Payments and banking services need to exist as part of every part of the metaverse, but they also need to be so seamlessly embedded that they become virtually invisible. Imagine a virtual concert. Attendees could pay for tickets, buy a t-shirt for their virtual avatar and purchase an NFT of the performance to revisit later. To do this, they instant access to a digital wallet that supports on-the-go transactions and stores their digital assets. Ideally, they can use this digital wallet across metaverses.
The potential for transaction fees, exchange rate fees, wallet fees and premium services exists in the metaverse, just as it does in the real world. But financial services providers can also think more creatively about how they integrate financial services into both the metaverse and real world, and the cross-over between the two.
2) Make safety your responsibility. The speed of innovation in the metaverse means that regulations will always be behind, however agile and collaborative regulators become. This means that there will always be opportunities for fraud and user exploitation. Banks and their fintech partners can work together to leverage their technology expertise and governance experience to deliver secure transactions and safe custody of assets.
3) Consider the user experience. While banks may rush to join HSBC HBA and JPMorgan Chase JPM in snapping up virtual real estate in the metaverse, their focus needs to be not only on what they deliver to potential users, but how. If the environment does not give users an intuitive, accessible and immersive experience they expect, their leadership position will quickly be eroded. In part, this will be drive by the means of accessing the metaverse – neither a 2D screen nor a VR headset are conducive to this, which is likely to lead to a new generation of wearables.
Safety and convenience are part of a rich user experience, so an open but secure financial infrastructure could accelerate the way to a more portable immersive future.
Ultimately, a large amount of wealth will be invested, spent and moved in the metaverse. By reinventing themselves and their solutions in a virtual world, real-life financial services providers can shape the way that wealth is created and transferred, and ultimately share in the profits.