A Comprehensive Guide to Metaverse Banking

It has been 30 years since the term ‘metaverse’ was coined by Neal Stephenson in his science fiction novel, Snow Crash.?

The reintroduction of the ‘metaverse’ came with @Facebook’s rebranding to its new name — Meta — which garnered plenty of criticism. But, even if you think the new name is a lousy idea (most commenters agree with you), don't let that keep you from seriously thinking about the so-called metaverse banking environment.

If anything, because the metaverse has permeated banking.

What is the metaverse banking?

A J.P. Morgan report defines banking in the metaverse as a collection of virtual worlds that enable people to “deepen and extend social interactions digitally” in “an immersive, three-dimensional layer to the web, creating more authentic and natural experiences.

Bankers are already looking at the new virtual reality concept as a route to new customer touchpoints. Research by the Digital Banking Report in the fall of 2021 found that almost half of financial services executives polled believe that one out of five consumers will use virtual or augmented reality technology for daily transactions — not just for gaming, in other words.

J.P. Morgan made headlines claiming to be the first to set up metaverse banking. To steal an old marketing slogan from another company, J.P. Morgan is bullish on metaverse banking. They’re hardly alone. There is a veritable flood of investment money pouring into this new virtual world.

Does that mean that your bank or credit union should be too?

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The Financial Interest Behind Banking In the Metaverse

While a seamless metaverse banking experience may be years away, financial institutions can't ignore the massive resources being spent by tech giants of immersive technology and experiences. While the timing can be debated, virtual engagement will be a big part of our future.

Remember, the financial institutions that innovate through new omnichannel engagement strategies have a higher rate of customer loyalty and engagement. Besides standing out from the competition, metaverse banking is an engagement tool that can generate lifetime value.

Banks and credit unions that have tested new technologies and have already done scenario planning will be in the best position to provide a metaverse banking customer experience in the future.

According to the Constellation Research report, Monetizing the Metaverse Economy, there are five components of the 'metaverse economy', including the combination of the intelligent web, new forms of value exchange via cryptocurrencies and NFTs, new governance models, interactive experiences in digital worlds and the use of artificial intelligence (AI) and mixed-reality technologies.?Constellation estimates that the value of the metaverse economy could be $21.7 trillion by 2030, with a compound annual growth rate (CAGR) of 38.6%.

The numbers may prove to be optimistic but there is potential for banking in the metaverse given the sheer growth and investment dollars being poured into the space.

Ron Shevlin, Chief Research Officer at Cornerstone Advisors, explains in a blog that he believes the future opportunity for banking in the metaverse will be lending. He notes that J.P. Morgan expects that virtual real estate will in time drive credit, mortgages and other services much like those used for genuine real estate.

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Takeaways from Megabanks Already Into Metaverse Banking

Recall that banking in a virtual environment is not new. One of the original 3D virtual worlds with avatars for social interactions was Second Life, which was around for nearly two decades, and still exists. ABN Amro and ING, two European banks, opened virtual financial centers in Second Life only to shut down a few years later — likely as it didn’t serve any meaningful purpose for customers.?

Now, one of the newest ‘metaverse’ realm is called Decentraland, which comes complete with its own currency and approximately 500,000 monthly active users at the end of 2021. (The name derives from "decentralized," one of the applications of blockchain technology. It is run by a "DAO" — decentralized autonomous organization.)

J.P Morgan is already set up in Decentraland. Onyx by J.P. Morgan — to use its full branding — was founded in late 2020 to take the company into blockchain and related products and services. While J.P Morgan Chase Chairman and CEO Jamie Dimon grabbed a lot of headlines badmouthing Bitcoin, the organization sees potential in many other aspects of digital assets and related spheres.

The Financial Brand visited the lounge after building a temporary avatar in the banking metaverse and learning (more or less) how to make it walk around. On the ground floor, the visitor may see other visitors’ avatars, followed by their screen names and a tiger who constantly paces around the room. Just what the beast is doing there isn’t explained.

VR and AR doesn’t just mean potential changes for the customer experience, but also how banks train their staff. Bank of America is already utilizing metaverse banking concepts and technologies in order to train staff, including using AI-powered conversation simulators that enable enhanced role-playing opportunities and platform simulators that allow teammates to train in a real-world practice environment on the systems, software and technical tools they use in their day-to-day jobs.

Research and analyst firm Medici notes that virtual on-the-job training is seen as both an implementable and cost-efficient way of upgrading the services bank employees deliver customers.

Building a Metaverse Banking Strategy

Here are three things financial institutions should do to prepare for banking in the metaverse:

1. Define a purpose, strategy and value proposition.

2. Take baby steps.

3. Experimentation is a must — but make it meaningful.

So, should banks join the metaverse or not? This emerging ecosystem cannot be ignored. However, taking baby steps, building a meaningful strategy, communicating value to customers and building basic defi products is far more fruitful than going all in on metaverse.

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