Bonjour, Metaverse! Imagine you could meet your relationship manager (RM) anytime and anywhere. You could be lying on the beach and within minutes you enter a virtual office to discuss your investment goals. The RM brings you offerings of your choice; contract documents are e-signed; and investments are made – all in a matter of minutes.
The pandemic has fundamentally changed human behaviour – the way people socialize, interact, trust, care, and share. Customers now prefer getting things done remotely. This has led to the creation of a virtual space where people can socialize and work seamlessly, called the Metaverse. The term ‘metaverse’ was coined in 1992 (in the science-fiction novel ‘Snow Crash’ authored by Neal Stephenson) and it has a limited existence now, with Facebook renaming itself as Meta.
There are credible reasons why we are hearing about it so often and why there is a sudden high demand for Unity developers. As a $120 Billion opportunity today, the Metaverse is expected to grow at 40% CAGR until 2030 to become a $1.6 Trillion empire with the most daily active users engaging in social commerce, content development, hardware sales (Augmented Reality (AR) / Virtual Reality (VR)), and digital events.Transactions and banking are quintessential here, but banks are being replaced with decentralized autonomous organizations (DAOs) and crypto currencies. Huge money is being transferred from banks to the metaverse through crypto currencies, where Ethereum now processes $5 Billion in daily trade. FinTechs are facilitating metaverse investment funds for high-net-worth individuals (HNIs) as banks strengthen their digital and immersive capabilities.
Some banks, despite regulatory concerns, are testing the waters and are offering their customers a virtual banking experience. The metaverse is being rapidly adopted in South Korea, where IBK, KB Kookmin, NH Nonghyup, and Hana Bank are opening branches in the metaverse. In India, Union Bank recently launched a virtual lounge in the metaverse, while Kiyaverse has developed a metaverse banking platform. Sokin, a global payments company, has the vision of becoming an e-commerce channel on the metaverse with embedded payments. Zelf has become the first bank to bring digital assets, gaming assets, crypto currency, and ongoing banking operations seamlessly together.
Banking for the New HNI Segment There is a significant wealth transfer happening globally, giving new-gen the money to spend on virtual assets and brands. To the generation that values experience and wants things to happen quick, Metaverse offers all this and more, which is why it is dominated mainly by the new-gen (Gen Z’s) who socialize, work, and engage digitally. Today, brands like Nike, Disney, Tiffany & Co. and Coca-Cola have jumped onto the metaverse bandwagon to capture this new HNI segment and their virtual avatars are being preferred to the non-digital counterparts. So how can banks adopt digital-native practices and woo these HNI clients? Here are some suggestions in the image below:
Future of Banking in the Metaverse
Let’s imagine a day when the metaverse replaces the internet. Our virtual experiences will transcend from 2D to 3D, with virtual spaces offering immersive solutions for all our digital needs. With this future in the pipeline, why would banks continue to have physical branches or relationship managers meeting people in person? Even as you read this, many banking processes are being reimagined in the metaverse, be it onboarding or advisory services.
For instance, clients can walk into a space where RMs are readily available to address any concerns in a digital space. Clients can seek guidance on shortlisting and financing a house of their choice. They can take consultations within selected virtual properties and can make the buying decision then and there. The mortgage can be approved right away, and the client can start living in both the actual and the virtual homes. Similar ideas could be developed in the metaverse for different types of banking needs and clients. Wherever money is transacted in the metaverse, a bank can be involved too. Therein lies the potential of banking in the metaverse.
The business case for the Metaverse
Based on the analysis by Capgemini Invent India’s Banking team, a bank with balance sheet size of $150 Billion and a customer base of 20 Million, enabled by transactions held on the metaverse, is expected to churn a billion dollars or 10% in additional revenues by 2030. As customer transactions evolve, there will be a huge opportunity to capture data on customer preferences. The metaverse offering will be strengthened by the increase of tech-savvy clients looking for advanced services with simpler means of procuring them. And the bank will be able to operate with lower operating costs to deliver personalized services on a digital platform.
Challenges in implementation
With banking in the metaverse, some fundamental concerns arise around data protection, privacy, digital rights, and crypto policies. Currently, people visiting the metaverse are experiencing potential issues such as:
There could be multiple versions of an individual in the metaverse, with the same name and avatar. How can banks resolve the identity and access management issues and prevent theft of the actual individual’s identity? Banks wouldn’t want virtual impersonators tampering with client money or credentials. Additionally, each movement can be captured by the metaverse, it could gather customer preferences, gender, moral ideals, and brand preferences within minutes, by capturing human emotions through facial expressions, body movements, and eye gazes. But this feature needs to be protected to prevent misuse and ensure privacy for individuals.
And, as new regulations for data, blockchain, and cryptocurrency (such as: Markets in Crypto Assets (MiCA), Europe; Intermediary Guidelines and Digital Media Ethics Code, India; Crypto in Payment Services Act, Japan ; General Data Protection Regulation (GDPR), Europe) and rules and agencies (such as: OECD’s Global Blockchain Policy centre, UAE’s TMRW Foundation, MIT’s media lab, and US Treasury’s FinCEN) emerge, the fundamental means of transactions on the metaverse are on the way. Banks need to stay informed on these developments.
The way forward
To avoid delays and ride the wave, it is recommended that banks test the waters by having the right metaverse adoption policy and safe, ethical practices in place. This new channel of customer engagement is fast developing, and banks need to understand its nuances before the customers beat them to it. Huge revenues are surely a few years ahead, but the time is ripe to engage with the metaverse and develop the positioning to take advantage. And in all probability, it will be a “winner takes all” scenario for banks, where seamless channel integration and mastery of digital asset transactions will be key.
