Does the future of finance lie in the metaverse?
The hype surrounding the metaverse has increased again in the past year. This is mainly due to the renaming of Facebook to Meta: With this move, Mark Zuckerberg has unambiguously positioned his company as a key player in the metaverse. Other companies have set their sights on this market, such as Roblox, Nvidia, Microsoft, and Apple.
The metaverse is a three-dimensional implementation of the internet: a digital, interactive, and creative environment where people can buy and sell virtual objects, real estate, and other assets using digital currencies. The three-dimensional environment uses state-of-the-art technologies to incorporate the virtual and the analog worlds in equal measure and merges them together. Sandbox, Decentraland, and Somnium Space are some of the more popular virtual reality spaces that make up the metaverse. Even if that all sounds really futuristic, the potential of that virtual parallel world is huge. Experts estimate that the Metaverse will be worth $679 billion by 2030.
Above all it’s Generation Z that spends a lot of time online and is exploring the possibilities of the metaverse—these are the people who were born between 1997 and 2012. These young people are digital through and through. The internet is their default option when searching for products and services.
Now the opportunities and potential of the metaverse have also been discovered by banks and financial service providers who are investing in the technology of the metaverse. Virtual reality can and will transform the way customers engage in financial transactions and manage money. Metaverse banking allows consumers to navigate the virtual world of finance and interact with a human agent over video calls, for example. The global market will grow as financial services and solutions continue to develop, and as virtual reality (VR), augmented reality (AR), and blockchain technologies are adopted. Attempts to improve customer experience and to integrate financial services and businesses into the metaverse will further drive this growth.
Interesting opportunities are already available for investors to bet on the metaverse: by investing in companies involved in building the infrastructure for Web 3.0, for example, ones that are developing related applications or designing the digital worlds. And many global brands now have their own stores in the metaverse. Banks and other financial service companies have launched special metaverse funds over the past year, including Invesco, Fidelity International, Franklin Templeton, Legal & General Investment Management (LGIM), Allianz Global Investors, and Axa IM. In February 2022, BNP entered the metaverse with the launch of a VR app where customers can conduct banking transactions, including opening an account. JP Morgan Chase has set up a lounge area called Onyx in the Metajuku virtual mall, where visitors can learn about blockchain technology and the bank’s other tech-oriented initiatives. Swiss banks UBS and Julius Baer have tested offering financial advice to billionaire customers in the metaverse using headsets and avatars, the Financial Times reported. The Result: There are still too many problems with the security of confidential and sensitive data, and the technology is still developing.
Alongside an array of privacy and cybersecurity issues (for example, how to obtain user consent or to protect avatars from identity theft), there are also issues regarding merger regulations and antitrust law. Cryptocurrencies and non-fungible tokens are raising issues of ownership, misuse, interoperability, and transferability. And there is plenty of potential for illegal and harmful behavior and practices (such as misleading advertising, and theft of intellectual property) in the metaverse. Not least of the potential concerns is how to protect vulnerable groups such as minors. The EU Commission has announced its intention to work out ways to address these issues. Initial legislation is planned for this year.
The metaverse should not be underestimated as a part of the global megatrend of connectivity. The Zukunftsinstitut, an institution based in Frankfurt and Vienna whose name means “Future Institute,” describes connectivity as the principle of networking based on digital infrastructures. The Zukunftsinstitut anticipates that this trend will be the primary pattern of societal change in the 21st century. These new networked communication technologies are fundamentally changing the way we live, work, and do business, and are bringing about new lifestyles, behavior patterns, and business models. Pressure on financial service providers to keep adapting to this new way of interacting is increasing. They must adapt if they want to remain future-ready and interact in the way tomorrow’s customers want.