“Why?” was the first thing my colleague said when I brought up the topic of banking in the metaverse. “Aren’t the online banks meeting all the banking needs of the average person?”
It’s a fair question. Why does there need to be banking in the metaverse? And if it’s needed, does it need to be different from what online banks currently offer?
These are questions I wanted to answer for my colleague, as well as for you, the reader.
What is the metaverse?
Before jumping into those questions, we first need to define what the metaverse is. It’s an immersive digital world that combines aspects of the real world with the internet. It allows you to experience the internet in 3D instead of viewing it through a flat screen, which creates more natural experiences.
Although digital worlds such as Second Life, VRChat, and The Sandbox exist already, many experts argue that a true metaverse hasn’t been created yet — that it’s still in its early stages of evolution.
Regardless of what stage the metaverse is in, people are socializing, playing, and transacting in digital worlds already through technologies such as virtual reality headsets. Realizing the opportunities this presents, brands are getting a foothold in these digital worlds.
Metanomics is the real deal
Economic systems within digital worlds are nothing new; EVE Online, a space-based massively multiplayer online role-playing game that’s been around for almost 20 years, has a bustling in-game economy that adheres to real-world economic models such as supply and demand. The economics of the metaverse, or metanomics, also resemble real-world economics. And though it’s still developing, the metaverse’s economy is based on the sale of digital goods and services and is enabled by blockchain technology.
The digital real estate market also resembles its real-life counterpart. Like the real world, plots of land in these virtual worlds are limited, and each plot is sold with a record of its coordinates and owner. Decentraland, for example, an Ethereum-based virtual world, sells plots of land as non-fungible tokens (NFTs). People can then develop on that land and decorate with digital assets.
The housing market frenzy wasn’t bound to the physical world, either. As JP Morgan reported, the average price of digital land doubled from June 2021 to December 2021, from $6,000 to $12,000. Those numbers may sound insignificant when compared to physical houses typically selling for 50x that, but virtual land development, like the metaverse itself, is still in its infancy.
To give you an idea of the potential of the metaverse economy, each year $54 billion is spent on virtual goods. NFTs have a market cap of $41 billion. And, according to Grayscale Research, the metaverse will extend beyond gaming in the coming years and represents a market opportunity of over $1 trillion in yearly revenues.
Companies such as Google, Microsoft, Verizon, and Walmart have already bought up virtual land in the metaverse so that they can create virtual stores. Furthermore, Everyrealm, a digital real estate developer, purchased land in Decentraland for $913,000 and turned it into a virtual mall. Its tenants include digital fashion brands, as well as the metaverse’s first bank, created by JP Morgan.
The metaverse will alter the economy and how we interact with brands
While the exact future economic impact of the metaverse is unknown, it is thought that the metaverse will greatly influence the physical world and its economy.
Skeptical? Just look at what the internet did. New enterprises had to be created. New job roles had to be created: web developers, digital marketers, cloud specialists. The list goes on.
I wonder what jobs will exist in five years that don’t exist today?
The metaverse will also introduce new ways of interacting with companies:
- You could put on a VR headset to try on clothing virtually before purchasing.
- You could walk down virtual grocery store aisles with the option to also see other shoppers around you.
- Need to resolve a problem? You could talk with a customer service agent’s avatar in the metaverse, where they will be able to help you better by showing you images or documents with ease, or even by doing a live demonstration.
There will be new ways of interacting with the company you work at, as well. In fact, virtual workplaces already exist. To address remote working challenges, NextMeet created an immersive platform that allows employees to walk around a virtual workplace, see their coworkers (represented by customizable avatars), and hold meetings.
As of now, the only way to fully immerse yourself in the metaverse is through a VR headset. Thanks to advances in computer-generated holography, this physical barrier could be removed. This technology would open up even more possibilities by making it easier to enter the metaverse and by creating seamless transitions from our physical lives.
It will also change how we interact with banks
With the metaverse changing how we game, socialize, shop, and work, we should expect it to also change how we interact with our banks.
In early 2022, JP Morgan was the first bank to move into the metaverse by opening the Onyx Lounge in the virtual mall mentioned earlier. In a report released by JP Morgan, they had this to say:
“We are building and scaling new emerging technologies to modernize infrastructure and business models including but not limited to tokenization and digital identity, as we strive for perpetual innovation and better ways to organize financial transactions and payments in the decentralized web.”
Realizing the importance of innovation and the implications of the metaverse, Bank of America launched virtual reality training for employees at every one of its nearly 4,300 financial centers. They announced that employees will use VR headsets to strengthen and deepen relationships with clients.
To conform to future standards, another opportunity for banks in the metaverse is to open up virtual branches, giving customers the option to visit them instead of a physical branch, a website, or an app.
Traditional banking as we know it is history now, and banks will need to keep up with fintechs to serve customers in the modern world.
Do you want to compete better with fintechs? Talk to our experts
Fiat is not the only asset of transactional value in the metaverse
Banks and cryptocurrencies have often been at odds with each other, particularly when crypto was first gaining traction. However, in July 2020, the Office of the Comptroller of the Currency issued a letter permitting banks in the United States to hold cryptocurrencies. This prompted banks to begin exploring how to best provide services concerning these digital currencies.
The metaverse is another opportunity for banks to be more friendly with crypto and other digital assets.
There will be an adjustment period, of course. It’s not yet known what the exact needs of metaverse banking customers will be. One thing is for sure, though: Banks will need to accept and transact in cryptocurrencies and other digital assets made possible by blockchain technology.
Virtual banks will promote financial inclusion
The reach of mobile phones and other technologies has put digital banking services in the hands of many of the previously unbanked. With the advent of Web3 technologies such as blockchain and cryptocurrencies, financial inclusion can be improved even further.
For example, Encointer, which began onboarding users in early 2022, provides a framework enabling people to pay fees in digital tokens that are adjusted to local purchasing power. This is especially important in developing nations, where people now pay transfer and other banking fees that are a much greater percentage of their income than those living in countries with more purchasing power. Services like Encointer could pave the way toward greater adoption of Web3 technologies and services, making them globally available and fostering greater financial inclusion.
Furthermore, the metaverse, which is supported by these Web3 technologies, could be another technological innovation that improves financial inclusion. Imagine walking into a virtual bank and seeing the avatars of those from Morocco, Nigeria, Vietnam, all getting the financial services they need, using their own crypto and fiat currencies, and with fees that make sense for their regions.
So, why does there need to be banking in the metaverse?
- There’s vast economic opportunity in this burgeoning digital world, with global brands moving in and fiat and cryptocurrencies alike flowing throughout the metaverse.
- Banks will need to facilitate the movement of money as well as to provide services specific to the metaverse economy.
- Banks will also need to keep pace with how people will prefer to interact with brands.
- The metaverse will be a way to reach the unbanked.
What Relevantz Can Do for You
With our Web3 service offering in Technology Acceleration, explore opportunities in the metaverse with Relevantz, and let us help you identify use cases of the technologies that underpin it, such as blockchain technology, virtual reality, and augmented reality.
Do you want to explore the metaverse opportunities?