Over the last few years, cryptocurrencies have grown tremendously. Hundreds of tokens already exist, and more are emerging every day, and they have grown into a trillion-dollar industry. However, due to the instability underlying these expanding assets, established financial institutions were slow to adopt them. Banks and other financial institutions are increasingly demanding the incorporation of cryptography into their business strategies due to the rapid spread and institutional adoption of digital currencies.
Non-fungible tokens (NFTs), decentralized apps, and the Metaverse are just a few of the related products and technologies that are emerging. Each of these can confuse the financial industry, but the Metaverse is the most interesting and exciting. The virtual world has the potential to completely transform banking operations for both customers and financial institutions.
At present if any industry that has come near to the metaverse is the gaming industry where we choose an avatar and go to the virtual world and connect with our friends. But in reality, the metaverse is something that is far beyond that. Recently in 2021 gaming industry has gained around $154 billion in global revenue which is not a small feat for a newly gained popularity industry.
However, experts predict that the banking industry could be possibly the next frontier to the metaverse technology. It is believed that metaverse technology will change the perception of banking. It’s easy to understand why you do not need to stand in line or visit the bank, you just have to grab your VR set and within seconds you will be in your respective bank.
According to Goldman Sachs, an investment giant predicts that in the coming years the metaverse will be an $8 trillion industry, and getting to know about this opportunity, many banks have already begun exploring metaverse and blockchain technology. An American FinTech company already provides a debit card with AR technology. Seeing the opportunities in the coming future one-on-one consultations between customer and employee avatars has been implemented by the Kookmin Bank of South Korea. JP Morgan is the most recent company to enter the metaverse, with the introduction of its virtual lounge, Onyx, on the Decentraland virtual world.
Metaverse is a combination of various emerging technologies for example VR, AR, Artificial Intelligence, Machine Learning and blockchains. They are an integral aspect of the metaverse and make it possible for people to interact in a 3-D virtual space. The issue is that we are still in the early phases of developing AR and VR accessories for general use. These devices must be inexpensive, have powerful micro processing capabilities, a better battery life, and be of manageable size. These gadgets must achieve the accessibility of today’s smartphones, which will be a long and difficult path. But, the vision of these technologies seems to be here, with many VR devices on the market and performing well. The changes metaverse will bring to the banking structure.
Impact of metaverse in Banking
There are opportunities for banks to tap into the burgeoning economy of the metaverse with new banking products and services as a source of growth.
Digital Payments: facilitate secure wallet functionality and payment rails for metaverse products, services, and economies.
Digital Assets: Banks can extend their role as custodians of customer assets into the metaverse by insuring and lending against cryptocurrencies, NFTs, and virtual real estate.
Digital Twins – Recreate a virtual twin for an asset or property such as a home or bank branch.
Imagine walking through a seamless VR recreation of a home you might be interested in buying instead of just browsing 2D photos and video. A bank employee could use the digital twin to underwrite the loan. How will the metaverse transform the relationship between banks and their customers?
The metaverse brings together people, places, and things in both the virtual and real worlds, offering banks the opportunity to evoke a sense of community and collaborative engagement among their customers. Adding a third dimension and sense of presence to digital banking experiences could bring a more personal and human feel to remote and virtual interactions with customers. For example, a customer might have a more engaging experience with a service representative or advisor represented by a realistic avatar than with a chat app screen or even a video call.
With metaverse there are few more technologies that are emerging for example, NFT(Non fungible tokens), and cryptocurrencies.
If these new technologies merge together that can create many more new advantages. For example if someone wants to apply for a loan in metaverse bank and suppose he has an NFT token. Banks can easily accept the NFT token and provide the loan to the customer.
Talking about NFT tokens NIKE has released their first collection of virtual shoes which sold for $134,000 and there are many more companies which are creating their virtual products. Along with that in Decentraland people can buy virtual plots with the help of cryptocurrencies.
Most global banks already offer a digital asset / exchange / storage platform that can be scaled to support the requirements of the virtual world. Banks can consider developing their own virtual world platform (private metaverse) to enable new products and even markets and connect them to traditional infrastructure. Metaverse identity management is another area that banks should focus on. NFT-based identities with standards such as ERC 725 help banks better understand their customers’ Web3 activity, thereby improving risk management, compliance management, data protection, and fraud management. You may want to dismiss Metaverse as yet another fad, but opportunity cost can mean becoming obsolete in a rapidly evolving market. Banks need to streamline their strategic use cases, both short-term and long-term. Given the speed of progress, devoted efforts will be required to ensure early identification and action.