The virtual technology sector is abuzz with the term "Metaverse" as the latest trend. Its purpose is to revolutionize our lives by creating a decentralized and immersive world. While we go about our daily routines, there exists another realm that enables us to carry out similar functions within a digital environment.
The Metaverse represents a progression from Web 2.0, which encompassed the era of SMS, Web, and Mobile. In this new paradigm, users will enjoy more collaborative and decentralized brand experiences across various industries and services. This means that interactions, rewards, and expenditures associated with one brand or product can be utilized within other platforms. Bloomberg Intelligence's analysis suggests that numerous companies will join this crusade by 2024, propelling the market size to a staggering $800 billion. The Metaverse is not a distant future—it is already a reality today and will undoubtedly continue to evolve.
Immersive Capabilities
We are already witnessing industries like gaming, real estate, and retail entering the fold backed by advanced technological developments like blockchain and 5G. Immersive capabilities in Unreal Engine and Unity are challenging how big tech firms think about capabilities within their organizations to meet the demands of their customers.
Artists like Justin Bieber debuted a performance live in the Metaverse on a virtual music experience, Wave XR. BMW developed NVIDIA‘s Omniverse technology to create a digital duplicate of its factory floor and reduce the cost of production. The Metaverse is sparking interest and investment from some of the largest brands in the world.
The Metaverse is seeing transactions taking place between consumers and brands. But how will financial institutions in the real world prosper in this highly evolved digital arena?
Banking Before the Metaverse
Traditional bank experiences have been a nostalgic memory of a physical space where the involved parties are to be two-dimensionally present to avail and lend services. The transaction processes were heavily dependent on manual work. Customers needed to be physically present to take advantage of the bank’s services.
Then there was the change from traditional bank experiences to digital banking, where transactions became paperless via digital channels. A customer’s physical presence is no longer required. Digitization of banking services caused an entire revamp of customer journeys, customer satisfaction objectives, and demand for decentralized and regulated data security.
Digital banking operates similarly to technological firms as they had to incorporate technology in improving their services and building customer relationships. However, despite their efforts digital banking, while being convenient for customers, is not personalized and engaging.
The Erosion of Personal Touch: Traditional Banks and the Diminishing Human Relationship Management
Traditional banks are constantly implementing transformation programs to offer digital services, streamline backend operations, and comply with ongoing regulatory demands. Nevertheless, it can be argued that the connection between traditional banks and their customers lacks personalization and engagement, unlike the relationships customers develop with commercial or retail brands.
The once prominent aspect of traditional banking, the personal touch facilitated through human relationship management, has unfortunately diminished. However, with the emergence of the Metaverse and its immersive experiences, banks now have the potential to explore novel methods of engaging with their next generation of customers. Moreover, they can extend their presence to decentralized platforms and communities, opening up new avenues for interaction and collaboration.
Rise of New Currencies
The advent of blockchain technology has brought forth the availability of cryptocurrencies for trading, investing, and conducting transactions. Additionally, it has facilitated the creation and exchange of Non-Fungible Assets (NFTs). By utilizing decentralized networks, intermediaries such as banks are eliminated, allowing customers direct access to their financial assets.
With the rise of decentralized networks, the necessity for traditional banks diminishes to some extent. Nevertheless, banks are actively exploring opportunities within the Metaverse to streamline their operations and replace conventional financial instruments with standardized digital assets. To leverage this potential, banks must carefully determine the roles they will play in order to enhance their brand and adapt to this changing landscape.
The younger generations, particularly Gen Z and Millennials, have embraced these newer forms of currencies with enthusiasm. It will be intriguing to observe how banks respond to the needs of these tech-savvy consumers who are well-versed in the latest technological breakthroughs and financial trends.
Opportunities for Banks in the Metaverse
During the initial phase, it is crucial for banks to identify potential customers who are already present in the Metaverse. Understanding their unique needs and tailoring financial services accordingly can be a time-consuming process. The burgeoning demand for virtual properties has unsurprisingly led to a booming real estate market within the Metaverse. Banks can gain a clear advantage by providing loans and leveraging mortgage services to individuals seeking to invest in these virtual assets.
Younger customers, particularly those interested in art, gaming, and entertainment, are actively participating in the Metaverse marketplace. There is a great opportunity for banks to offer them an array of services, including financial planning assistance, loans, the creation of depository accounts, and more. Banks are also leveraging the use of augmented reality (AR) and virtual reality (VR) devices, enabling customers to conveniently check their account balances, make payments, transfer funds, and conduct transactions. This provides banks with a valuable chance to reconnect with customers and foster meaningful relationships throughout their entire banking journey.
Within the Metaverse, banks will be able to offer services mirroring those available in the physical world. This encompasses features such as ATM withdrawals, money deposits, and the ability to interact with representatives for assistance and advice. Customers will have the immersive experience of viewing their accounts in three-dimensional representations, resembling concise reports, and seamlessly transferring their data back and forth.
Prep for the Metaverse
In conclusion, it is imperative for banking professionals to familiarize themselves with the workings, intricacies, and possibilities of the Metaverse. With a market projected to reach a staggering value of $800 billion, this opportunity cannot be overlooked. Therefore, banking professionals must proactively seek Metaverse education to stay ahead of the curve. Across the globe, banking executives should recognize the immense potential of the Metaverse and prepare their organizations to enter this emerging market. While some players within the banking industry have already made their initial foray into the Metaverse, it is worth noting that industries like Gaming are significantly further along in their Metaverse endeavors.
JPMorgan Chase, KB Bank enter the Metaverse
JP Morgan, the largest bank in the United States, has made its entry into the Metaverse by establishing a presence in Decentraland, a digital asset marketplace. They have set up a branch called the Onyx Lounge, which can be found in Metajuku—a virtual rendition of Tokyo's vibrant Harajuku shopping district. Additionally, the bank has published a research paper outlining the various opportunities they are exploring within the Metaverse. Their objective is to operate as a bank within this virtual realm, mirroring their real-world operations. This includes providing services such as cross-border payments, foreign exchange, creating financial assets, facilitating trading, and ensuring secure asset storage.
KB Bank, based in South Korea, has also taken a step into the Metaverse by introducing a virtual reality (VR) version of their branch. In this immersive environment, employees will be represented by avatars, and both employees and customers will have the ability to engage in direct conversations with each other, enhancing the interactive experience.
Challenges Persist
While there is a growing push for banks and financial institutions to quickly embrace the Metaverse, it is important to acknowledge the pressing questions and concerns associated with this immersive virtual space. At the heart of the Metaverse, decentralized autonomous organizations (DAOs) operate within the framework of Web 3.0, where transactions are conducted using digital currencies. To establish trust and ensure a safe environment, supervision and governance mechanisms must be in place to oversee the various transactions, interactions, and experiences that take place within the Metaverse. These issues require careful consideration and resolution to build confidence among participants in this evolving landscape.
Some of the major challenges here are:
Governance & Security
In a traditional context, attackers had the ability to assume false identities to exploit a customer's credit card or other tangible assets for malicious intent. However, as we venture into the Metaverse, it raises the important question of whether existing regulations and security measures can effectively safeguard the well-being of all participants involved.
Considering the unique nature of the Metaverse and its immersive digital environment, it becomes crucial to evaluate whether the current regulatory frameworks and security controls are equipped to ensure the safety and protection of individuals engaging within this realm.
Identity
Likewise, within the Metaverse, potential attackers possess the ability to create counterfeit identities using stolen avatars or compromise the avatars of others to pilfer digital assets. Consequently, one of the most critical challenges in the Metaverse revolves around effectively managing identity theft and ensuring the authentication of these virtual identities.
The unique nature of the Metaverse necessitates robust measures to tackle the risks associated with identity-related crimes. Safeguarding the integrity of digital identities and implementing reliable authentication systems will be paramount in establishing a secure environment within this immersive virtual realm. Finding effective solutions to manage and verify identities will be crucial in mitigating the threat of identity theft and ensuring the safety and protection of participants in the Metaverse.
Blockchain
The widespread belief is that the Metaverse relies on blockchain technology, specifically Web 3.0, to facilitate decentralized commerce. However, recent instances of notable failures in blockchain-based organizations, such as FTX and ASX, have raised concerns. These high-profile incidents are likely to impede the pace of adoption and drive demand for increased regulation before blockchain technology can gain the trust necessary for widespread adoption in the realm of financial services.
The challenges faced by blockchain-based organizations have highlighted the need for a cautious and measured approach to ensure the technology's reliability and security. The setbacks experienced by FTX, ASX, and other similar cases have underscored the importance of establishing robust regulatory frameworks and building trust in the technology before it can be embraced on a larger scale within the financial services industry. These events serve as reminders that thorough scrutiny and meticulous oversight are necessary to address the vulnerabilities and risks associated with blockchain technology, paving the way for its wider acceptance in the future.
Accessibility
To fully immerse themselves in the Metaverse experience, consumers currently need to invest in additional hardware devices for their homes. However, these devices come at a relatively high cost, limiting their accessibility to a select few. Notable options worth considering include the Oculus devices from Facebook and the upcoming PSVR from Sony. Furthermore, there are rumors circulating about significant developments in this space from tech giants like Google and Apple.
It's important to note that while the immersive experience offered by these devices is captivating, it can also induce feelings of nausea in some individuals. This potential discomfort may discourage certain people from fully embracing and utilizing the Metaverse. As technology advances, addressing issues related to motion sickness and providing more affordable and user-friendly hardware options will be crucial in broadening the accessibility and appeal of the Metaverse to a wider audience.
ROI
While the concept of the Metaverse continues to evolve, it's important to acknowledge that a significant portion of the population may be hesitant to transition from their familiar access methods, such as mobile apps and internet browsing. This implies that Metaverse technologies are unlikely to completely replace these traditional means of accessing business services. As a result, organizations must carefully consider the costs involved in creating and maintaining a Metaverse presence, ensuring that the investment generates a viable Return on Investment (ROI) for sustainability.
The coexistence of the Metaverse alongside existing technologies means that businesses should approach their Metaverse strategies with a realistic perspective. While embracing the Metaverse can offer unique opportunities for engagement and innovation, it is essential to strike a balance between leveraging its potential and maintaining a presence on more established platforms. By carefully assessing the potential ROI and considering the specific needs and preferences of their target audience, businesses can make informed decisions about incorporating the Metaverse into their overall digital strategy.
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