The opportunity for banks in the Metaverse

Blockchain needs no introduction. The technology that was nothing more than a concept a little over a decade ago is now the backbone of the $1 Trillion crypto market with an estimated 300+ Million users or owners. It’s a remarkable feat given that it is built on the premise of decentralization and doesn’t warrant involvement of intermediaries. This itself, is perhaps a testament of its potential and is further evidenced by the transformative impact it has had across multiple industries, be it increased transparency in global supply chains or improved efficiency of governments. 

Given its promise of disintermediation, inherent trust, and immutability it was easy to see why Blockchain might have appeared as a threat to the Banking and Financial Services industry. However, once the initial skepticism and apprehensions subsided, the BFS industry eventually warmed up to Blockchain. Several financial Institutions emerged as trailblazers and leveraged the technology in the areas of payments, trade settlements and custody services to name a few. And not long after that, governments and central banks got involved and those of many countries are now actively working on developing their respective Central Bank Digital Currencies aka CBDC. 

But Metaverse, opens up a new chapter for Blockchain and before we go further, it might be worth talking about a bit about it.

The Metaverse can broadly be defined as an ever evolving and expanding virtual world that offers collaborative, immersive, and interactive experiences for users. While the user experience is being revolutionized by a new breed of AR/VR devices, holographic and haptic technology, the underlying infrastructure for driving commerce and economy is being built by leveraging Blockchain technology. If some of the recent analyst predictions, supported by massive investments being poured into this space, is anything to go by, it looks like we would soon be spending a lot of our time in these virtual worlds, interacting with each other as our avatars, spending on virtual goods, and perhaps operating out of our virtual homes built on virtual parcels of land. While Media & Entertainment, Retail and Gaming industries are at the forefront of the adoption curve, Banks too have a tremendous opportunity here. 

For starters, Banks can setup virtual branches in the Metaverse and provide engagement touchpoints for their customers, for eg. the ability to interact with a financial advisor’s avatar in a secure environment without having to visit the branch. As a matter of fact, many Banks have begun doing so, knowing well that their customers of tomorrow are already spending their time in the Metaverse. And as we continue to work remotely, the other obvious applications would be around employee training and onboarding, hosting of collaboration and engagement sessions, even town-halls and investor presentations, all within the Metaverse.

At the same time, these virtual worlds are driving an immense amount of commerce on these platforms which would need a reliable and resilient infrastructure to support related transactions. Much of the value exchange on the decentralized Metaverses such as Decentraland and Sandbox leverages Blockchain. Users need to convert fiat currency to cryptocurrencies native to these platforms and use these for executing transactions. Their ownership of both digital and real-world assets can be represented as Non Fungible Tokens aka NFTs, which provide a means of authenticating ownership as recorded on the underlying Blockchain ledgers. The rise in adoption of these virtual worlds will lead to accelerated usage of crypto. 

Some Banks and financial institutions are already leading the charge by offering crypto wallets and custodial services, access to crypto markets for trading and investment, and advisory services to Wealth Management clients. While NFTs are seen as speculative assets by many, Banks can work with regulators and position these as mainstream asset classes. Taking it one step further, Banks and financial institutions can perhaps also offer lending against collateral such as virtual land or digital art and even provide insurance against losses arising from cyber-attacks. As the user experiences for these virtual worlds are being built, the time is ripe for Banks to ensure that they are a part of that journey. For instance, Banks can use NFTs to not only validate their clients but also represent pre-authorization loans, the clients in turn can use these NFTs to conclude purchase of digital and real-world assets, eliminating a bunch of paperwork and making the whole process seamless. 

Agreed that Metaverse might still be in its infancy, but Blockchain presents itself as a cornerstone for the development of this new realm by facilitating payments, recording asset ownership, and powering new forms of economies and commerce. Banks can partake in the development of this new realm while ensuring that they understand the evolving needs to their customers and adjust their models that might have worked in the past but would now need to undergo a paradigm shift.

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