Banks have begun to take tentative steps into the metaverse, exploring how they can bring their services to this fully-digital channel. With questions around the use of cryptocurrencies and the form regulation may take, there is still some way to go before banks are offering a full metaverse experience. Kimberley Long reports. 

Facebook’s announcement that it was rebranding to ‘Meta’ was arguably the moment the metaverse was brought into the spotlight. With a demonstrative video and an open letter in October 2021, Mark Zuckerberg outlined how the company was changing direction from a text- and video-led service towards the world of Web 3.0, the next iteration of the internet, underpinned by blockchain, virtual reality (VR) and artificial intelligence. 

While Meta only made the headlines late last year, the metaverse was long into the process of being built. For example, after being initially launched as a mobile game in 2012 and following its acquisition by Animoca Brands in August 2018, The Sandbox has evolved into a blockchain-based version that allows users to monetise their in-game creations. It was further expanded and an alpha version of the metaverse platform went live in November 2021.

In another example, Decentraland — a 3D virtual world where users can buy and sell digital real estate — was first launched in 2017. It has benefitted from the surge in interest in non-fungible tokens (NFTs), which increased the value of the land parcels sold within the platform from $20 at launch to up to $100,000 during 2021. 

The surge of metaverse platforms has caused a flurry of excitement and speculation about the possibilities of a new digital world among banks across the globe. This is not least due to Morgan Stanley forecasting the metaverse in China alone could eventually be worth more than $8tn. JPMorgan, meanwhile, predicted that the metaverse would provide market opportunities estimated at more than $1tn in yearly revenues. 

Michael Abbott, global banking lead at Accenture, says: “The fear of missing out has never been higher. There is tremendous opportunity, but as a bank you’ll have to experiment your way into it.” 

Moving into the metaverse is not as simple as a bank updating an app or developing a new website. To begin with, the nature of the metaverse needs to be understood. 

Lam Chee Kin, group head of legal, compliance and secretariat at DBS Bank, says the space is suffering from definitional issues. “One segment equates the metaverse to Web 3.0 [and] decentralised finance, and believes that everything can be tokenised and powered by blockchain,” says Mr Lam. “But there are at least three other perspectives of the metaverse. First — which is the direction Facebook/Meta is heading towards — is that the metaverse is an evolution of social media towards greater human collaboration and workplace transformation. 

“Another perspective is where the worlds are virtual, but the underlying economies are not based on Web 3.0. These are the likes of gaming platforms, in particular the massively multiplayer online role-playing games (MMORPGs),” he explains. “Lastly, you have to ask what would China do? In forming a strategic response to the metaverse, it is important not to be wedded to just one view of the metaverse, but to understand the various perspectives that could eventually define the future.”

Using the metaverse 

Some banks have been eager to explore the possibilities. JPMorgan became the first bank to move into the metaverse with the creation of a digital lounge within Decentraland under its Onyx branding. While visitors can see a portrait of CEO Jamie Dimon and a tiger that prowls the premises, it is not possible to speak with any bank consultants or conduct transactions.

Thailand’s Siam Commercial Bank (SCB) has also launched its own lounge through its SCB 10X technology arm on The Sandbox. During an ‘Open House in the Metaverse’ event, the bank showcased how it will use the space to host workshops and discussions. Like JPMorgan, there is not yet any clear outline of how banking services will be provided.

South Korean banks are also experimenting. KB Kookmin Bank has developed a VR test branch and Hana Bank has established a specific metaverse taskforce. While these banks have gained headlines and possibly a first-mover advantage, their actual banking plans are not solidified. 

As banking operations remain minimal, other sectors are finding a way to make the metaverse work for them and providing insights into the areas banks may benefit from focusing on. In February, Samsung Nordic teamed up with online shopping company Bambuser to host a hybrid physical and metaverse shopping event for its Galaxy S22 mobile phone. The event included an appearance from metaverse virtual influencer Zero to promote the physical mobile phone to viewers. 

In forming a strategic response to the metaverse, it is important not to be wedded to just one view of the metaverse, but to understand the various perspectives that could eventually define the future

Lam Chee Kin

Sophie Abrahamsson, chief commercial officer at Bambuser, says this is just the beginning for commerce, and there is broad scope for how the metaverse can be used for purchases across segments as diverse as food and restaurants to automotives and travel. “Our customers also use the experience for interior design, for example to plan decoration and how to place furniture. Key to success here is about bringing added value to the end consumer and their online experience,” she adds. 

Providing an improved service to the end-consumer is the crux of the metaverse shopping prospect. “There are endless possibilities for the digital commerce experience of the future. It is possible to have multiple human touch points involved in the customer journey online, which will add a human touch and enrich the experiences, says Ms Abrahamsson. 

While the process of shopping online has become digitalised, making purchases through the metaverse is yet to reach the same level of sophistication, as seen with the existing JPMorgan and SCB offerings. “The way purchases happen in live video shopping depends on the retailer check-out,” explains Ms Abrahamsson. “It is an interactive layer on top of the experience, and you have the classic e-commerce experience once you’ve added to a cart and go through the payment gateway to complete the transaction.” 

Finding a way of closing this loop to keep each step of the process — from browsing to adding items to the shopping cart and making the payment — could be the next natural step for banking in the metaverse. 

Establishing banking services 

While commerce is finding a use case within the metaverse, banks are still finding their feet in a digital world dramatically accelerated by Covid-19. The pandemic pushed more people towards using online banking services as they could not visit branches in person, which in turn directed banks to offer more services than ever digitally. How this change in behaviour will manifest in the metaverse is up for debate. 

One option could be providing the human touch in relationship-driven banking services. Matthew Williamson, vice-president, global financial services at digital consultancy Mobiquity, says: “A likely use case is across wealth management and private banking. There is the next generation of high-net-worth individuals coming through who aren’t interested in the traditional service model, and expect digital services and quick interactions.” 

Mr Williamson believes augmented reality (using a real world setting) could be used to easily display a portfolio, highlighting data points and provide real-time information updates. 

The wealth management sector is also the banking segment most likely to have the disposable income to purchase the VR headset needed for the fully immersive metaverse experience. “At present, obtaining a headset can be prohibitively expensive, and people are not going to obtain one just to speak with their bank,” Mr Williamson cautions. Indeed, the Meta Quest 2 headset (formerly known as the Oculus Quest 2) retails for $299. Apple is reported to be working on its own headset, with the price point placed between $2000 and $3000. 

Rather than trying to convert existing bank customers to the metaverse, banks may be better placed to offer services to users who are already making transactions virtually. 

Eric Anziani, chief operating officer at cryptocurrency exchange, says: “In the short term, banks aim to provide an easy point of entry for existing customers to the metaverse, while gaining first-mover advantage in building internal internet protocols, stress-testing business models and identifying ecosystem partners. In the longer term, the aim is bridging the gap between fiat and crypto products to allow users seamless connection between the physical and virtual financial systems.” 

“What has not been decided yet is which opportunity is the biggest and when it will manifest,” Mr Lam adds. “Banks could look at online gaming or the e-sports space, which is already a massive economy. Or perhaps the market for branch transformation is a bigger opportunity and the societal contribution of branch transformation could bring a purpose-driven layer to the conversation.” 

In addition to offering existing banking services within the metaverse, the evolution of the platform opens up the opportunity for new forms of payments and services to emerge. 

Masumi Hamahira, head of global collaboration at the Japan Metaverse Association, says: “Banks will explore how they can provide their existing services within the metaverse, but in addition they need to be thinking about how they can use central bank digital currencies, blockchain and NFTs to optimise their business. It is here that there will be good opportunities for the fintechs and the banks to work together.” 

As users look to make higher value purchases within the metaverse, this could lead to a need for sophisticated banking tools. Elliot Goykhman, founder of in-app banking service provider Zelf, says: “There is scope and growing demand for more complex financial tools, possibly mortgages for the construction of virtual real estate, or buy now, pay later or payday loans secured with in-game inventory.” 

As the metaverse matures, banking may take on forms that are not yet anticipated. “There is a need for new forms of utility to emerge,” says Mr Abbott. “There needs to be a depository that keeps record of who owns what digital assets, in the way the capital markets typically do. How are these spaces going to develop for the gathering, holding and trading of assets? I think the land grab is going to be around payments and who operates this segment. Based on what we’ve seen in the past, it might be a new player we aren’t even thinking of today.” 

Defining payment formats 

Crucial decisions on the form payments will take and the rails to be used within the metaverse are still to be worked out. Peer-to-peer (P2P) transactions within MMORPGs between developers and players have provided a use case for P2P crypto-payments within the metaverse. But for the transactions to reach critical mass requires guaranteed low fees. 

Daniel Fernandez, CEO of payments platform Transact365, says: “The costs to transact in the metaverse need to be very low. Currently, costs to convert from fiat to digital currency can be expensive for the individuals and having to pay metaverse fees for transacting may hinder commerce. There is a high priority for companies to make these fees competitive with traditional fees like transactional interchange and banking costs.” 

The costs to transact in the metaverse need to be very low

Daniel Fernandez

Which metaverse platform is being used has a bearing on how payments can be made, and whether they are in fiat or cryptocurrencies. 

Paul Claudius, co-founder of open-source oracle platform DIA, says: “The payments infrastructure being used will really depend on the metaverse [platform] you are using, and if it is closed. For closed platforms, it would be possible to use a provider like PayPal or a credit card to make payments. But I think we are more likely to see open-source platforms, which will more likely have a digital currency.”  

Should the open-source platform model emerge, it is likely it will be possible to transfer funds between metaverse platforms, even if the platforms retain a tight grip on their intellectual property. 

“There is some interoperability for blockchain payments between the different platforms, as the payment rails are the same,” Mr Claudius says. “If you have mana, which is the native currency of Decentraland, or sand, which is the currency of The Sandbox, you can exchange one for the other. These financial primitives of today’s virtual worlds are interoperable, while an avatar can be ported less fluidly.” 

The potential of cryptocurrencies have found a home in the metaverse, but suffer from low adoption globally. It is likely, according to Accenture’s Mr Abbott, that the process will continue to be using fiat currency to buy crypto, which will then be placed in a virtual wallet. However, he cautions that it is to be considered more as a security than a currency due to the fluctuations in value. Further, the transaction costs associated with cryptocurrencies can be very high. 

These costs are proving to be prohibitive to more people exploring cryptocurrencies, according to Mr Goykhman. “For an NFT that is $25 there could be over $100 in three or four separate types of fees,” he explains. “We want to simplify the process of crypto onboarding and bring NFT purchasing to the general public. To let people around the world make purchases with fiat we have applied for a crypto exchange licence in the EU, which would allow us to do the currency conversation on our end.” 

While it is not known which payment type will become dominant in the metaverse, there is an expectation it will be instant. “The move by financial institutions and central banks to digital currencies shows the current blockchain payment rails are where the future will more than likely go,” Mr Fernandez says.

“I also believe if you look at the success of virtual in-game currencies to make purchases, it seems this adoption of fiat to a metaverse-enabled payment rail works to the demand of the individuals using VR realities. Legacy banks and systems will need to make it simple to adopt this transfer of physical to digital currencies if they want to be a part of the metaverse’s future.” 

Regulatory and legal grounds 

A significant area lacking from the metaverse, and possibly tempering banks’ enthusiasm to set up transactional services, is that of a regulatory framework. 

“Right now, the metaverse is the Wild West,” says Mr Abbott. “There are no borders, no controls. As it matures, you can almost guarantee that will change. The regulators will step in, but it remains to be seen if it will be controlled country by country, with data contained within each country’s borders.” 

For crypto-based payments, there will need to be a definition of whether they are a payment or a digital asset. If it is a payment, then existing regulation could be applied. If it is a digital asset, then new legal framework may need to be developed. 

“As a simple illustration of the underlying complexity, smart contracts on the blockchain may establish the transfer of assets from A to B,” DBS’s Mr Lam says. “But they may not address the competing interests of an insolvency trustee, a security interest or a competing equitable interest, for example, especially if these have not been defined in the smart contract.

“Some of the litigation in this area is starting to emerge, especially in the area of insolvency, and as that continues we may well see tension between the legal result and the intended blockchain result.” 

Should transactions in the metaverse be based on exchanging fiat currencies for crypto, a level of compliance checks would have already been applied, which may give the smaller fintechs and neobanks an edge. Vroon Modgill, founder and CEO of currency transfer service Sokin, says: “On payment products, we comply with local regulations. We are fiat-led so have to comply with local e-money licence rules. Regardless of where the money is moving from or to, we are guided by the baseline measures, which are quite restrictive anyway.

“We are a closed ecosystem, which means every individual in Sokin is know-your-customer (KYC) and anti-money-laundering (AML) compliant. Whatever metaverse customers are using, they have been checked if they are coming through our rails,” he adds.

Regulators are beginning to outline their plans for the metaverse. Margrethe Vestager, commissioner for competition at the European Commission, has called for greater understanding of the metaverse in order to know the best way to apply regulations. The Markets in Crypto Assets (MiCA) bill looks to tighten the rules around digital assets through licensing and rules for EU member states. However, until the regulations come in, those developing in the metaverse will continue to move forward with their plans. 

“The regulation coming through with MiCA from the European Commission may also impact payments in the metaverse, but this is more of an afterthought now as people are just building what works,” says Mr Claudius. “It is possible that, as regulation comes in, you will only be able to interact with someone who has provided credentials to meet AML and KYC requirements. However, by then, there will be regulated institutions which will be able to whitelist these wallets.” 


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