Banking in the Metaverse

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Science fiction has a knack for becoming science fact. Whether it be the postulations of Copernicus that changed astrology forever, to the concept of cyberspace first envisioned in Gibson’s Neuromancer ten years prior to the birth of the internet, human advancement is primed on bringing ideas to life via technological innovation. This process is known as hyperstition, the techno-scientific practice of turning fictional ideas into empirical reality.

Neal Stephenson’s Snow Crash originally coined the term ‘metaverse,’ referring to the convergence of physical, augmented, and virtual reality spheres in a shared online space, fostered in the backdrop of an anarcho-capitalist dystopia. Much like in Stephenson’s universe, the Metaverse today refers to a decentralised, interactive 3D environment. New modes of thought, production, and exchange interact to contribute to the continual development of Web 3.0. Within this new space, financial services will need to engage with the metaverse to remain relevant and continue to provide more innovative user experiences.

Some institutions are already exploring and innovating within this space. It provides a perfect entry point for the proliferation and fruition of crypto-banking and blockchain economics. The dawn of the metaverse require that financial services immerse themselves within this new space, harnessing its potential to optimise service design and deliver positive customer experiences.

The Metaverse

‘Metaverse’ is a portmanteau of ‘meta’, meaning ‘transcendental’ or ‘more comprehensive’, and ‘universe.’ Presently, it refers to the ever-expanding virtual multiverse, comprised of numerous ‘metaverses’, compartmentalised into a single, digital space, and accessed through physical entry points.

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The concept of the metaverse permeated the public conscience with Mark Zuckerberg’s announcement that Facebook would be change its name to Meta. He revealed it would increase research into and funding for the development of the Metaverse. He stressed that the Metaverse is not merely the immersive digital space, but also encompasses the ways in which society currently engage with it. Flattening the virtual onto the real, virtual meetings, social gatherings, uploads, and downloads all build upon the strata of the Metaverse. The Metaverse is the “stitching together” of disparate physical and digital spaces to form a cohesive whole, with the aim of enveloping the sense of continuity throughout. It is both the immersive reality itself as well as the coalescence of each of these realities into a singular accessible space.

Already-existing technological developments both coagulate within and allow access to the Metaverse. The ‘meatspace’, the physical world, is the crucial site for technological innovations like Augmented Reality (AR), Mixed Reality (MR) and Virtual Reality (VR). The most developed examples of the Metaverse are found in VR gaming. Fortnite, for example, allows players to enter its own digital space to enter its digital universe through an avatar, and make purchases through its own currency, V Bucks.

In its hypothetical completed state, argues Ball, the Metaverse could be applied to anything. Any service can be replicated and streamlined once it accesses the Metaverse. His Metaverse Primer anticipates the infinite potential applications of the Metaverse — one that allows the user to do any activity, participate in any experience, or address any needs via a specific entry point into it. Any service can be replicated and streamlined once it accesses the Metaverse. Current manifestations of the Metaverse are already being utilised despite the lack of access to its fully immersive aspects.

Microsoft MESH allows employees to attend video meetings via virtual avatars without the need for a VR headset. More immersive meetings would allow users to display animated versions of oneself without the need to display one’s physical appearance through a webcam. Facebook’s Horizon Workshops created a virtual office space, with employees collaborating in real-time using 3D avatars. Moreover, businesses can build their own spaces, their own metaverses, inside their own applications, contributing to the overall development of the Metaverse itself.

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Of course, the Metaverse is not immune to limitations. The project will raise many important regulatory and legal questions, particularly with questions of intellectual property transporting assets, commodities, even skins between spaces within the Metaverse. Cross-industry collaboration methodologies are going to be big challenges. However, Facebook’s rebranding to Meta in the face of its monopolistic criticism has meant that they have put themselves in a position to focus on the Metaverse’s utilitarianisation.

They announced a 2 year multi-million-dollar investment fund to elicit global support for the project, working with start-ups across Africa and funding universities in South-East Asia to research safety protocols and data ethics. The development of the Metaverse will require collaboration across all sectors, with benefits and opportunities for all actors involved — particularly the financial services industry.

Banking in the Metaverse today

Why is it important for banks to incorporate the Metaverse into their business structure? Some may dismiss it as hype, but this itself is an important indicator for opportunity. Lee provides stakeholders with insights for implementation based on hype for the Metaverse. Whilst interest and searches for the term really peaked in the third quarters of 2020 and 2021, attention was already being paid to the development of the metaverse as early as 10 years ago.

Research predicted that it would be the next-generation environment that replaced contemporary e-commerce and e-learning. As such, there has been a consistent investigation into the technical opportunities and issues of the Metaverse’s construction, and the expansion of high-quality services for different industries.

Shoolapani, B. & Jinka, P. et al (2011)

Richer user experience and cost reduction have been identified as the primary objective for banks to ease the challenge of servicing the next generation of clients. A study in 2011 explored the potential of banking in virtual reality to better understand the industry’s future needs. Pre-empting Covid-19, they illustrate how the financial crisis of 2008 challenged consumer behaviour, suggesting that banks move towards self-service channels to reduce operating costs and repositioning expensive services. Utilising virtual payment rails and envisaging virtual branches, banks can develop new products and solutions whilst keeping physical infrastructure expenditure down.

The user experience can be optimised with additional social plug ins, the option for customers to interact with customers or even friends in the branch. The authors also anticipate that virtual simulation implements can assist with the challenges of providing experiences for the growing generation of millennial customers.

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Today, some financial services have brought this vision to life. A major Korean bank, K Bank, has created a virtual ‘financial town’ that has been operational since July 2021. It consists of a virtual financial and business centre that has branches and public relation offices, a telecommunication centre to facilitate communication between the offices, and a virtual ‘green space’ designed as a resting area.

Customers can enter the virtual branch, with virtual employees available for assistance to offer different services such as loan guidance. Dually, employees of the bank can hold meetings within the same environment. Having a VR headset in-store both bridges the digital divide and reduces the operational costs of running lesser used branches.

The authors anticipate that virtual simulation implements can assist with the challenges of providing experiences for the growing millennial customer base.

The Metaverse provides a platform for the financial services industry to expand their services and deliver richer user experiences. Mistry states that opportunities for banks include a streamlined customer/client interaction base to explore engaging virtual wealth management dashboards, as well as collaboration on a single platform for financing operations and customer engagement. Going further, it provides a platform for the proliferation for blockchain-based crypto-banking. The future of money will inevitably involve digital currency amongst a diverse customer base. The Metaverse is the prime site for this virtual evolution.

The Metaverse provides opportunities for the crypto-finance industry to flourish. The blockchain as a primer for the growth of the metaverse can enhance developer profits over time. Fuelled by values of trustlessness, users can invest time and capital into the Metaverse via the blockchain, with confidence that the latter’s policies won’t suddenly alter. The programming is wired into the network’s cryptography such that no single monopoly can assert dominance over or decide who can be included.

Presently, the financial service industry is caught in a flurry of differing, restrictive payment rails that compete with one another for prominence. Wire transfers are tied solely to banks; credit card payments charging merchants transaction fees of up to 1.5%; the fees associated with PayPal. Each payment rail has its own merits and downfalls.

Crypto-Banking in the Metaverse tomorrow

Similarly, VR gaming in the Metaverse is seen as inefficient. You can only buy proprietary currencies in set amounts, without no option to convert unspent currency back into cash. This can lead to decreased investment and fewer products entirely. Cryptocurrencies, however, can be entirely programmable to payment rails.

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Bitcoin is designed to automatically compensate those who build on its network using its own cryptography. It is possible now to purchase virtual real estate in the Metaverse via Decentraland, providing a base for cryptocurrency to increase its long-term value. Ethereum has created its own programming language to build ‘Dapps’ (Decentralised Apps) across the blockchain, issue crypto-tokens as rewards, which can then be used or converted for any purpose other than mining. This has the potential to endlessly repurpose virtual assets and exponentialize consumer spending.

The surge in crypto’s utilisation in gaming, through NFT and blockchain-based studios means that the ‘crypto-metaverse’ undergoes less currency fragmentation than those of Minecoin and V Bucks. Crypto payments in gaming support two-way exchanges between fiat and crypto-currency. Axie Infinity allows you to buy NFT digitised virtual creatures which you can breed and use to fight. If a player does well, they amass an in-game currency that can then be exchanged for a crypto.

A Forbes investigation states that people in the developing world are playing Axie Infinity as their key source of revenue in areas where financial services are inaccessible and expensive. The crypto-finance industry is evidently marking its territory within this space.

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The technologies of the Metaverse have clearly opened new spaces through which services and experiences can be projected. Whilst there has been some progress is launching such initiatives in South Korea, the financial services industry is still yet to fully connect with these new ways of conducting banking.

The metaverse presents exciting opportunities for all services to revolutionise their business models. Access to the Metaverse is already possible, pioneered by software development companies, compounded by the blockchain’s achievement in nesting itself in this space.

However, there is a long way to go before a more accessible fully immersive environment can be reached. Many aspects of the technologies need to be considered and require more research. Cyber-security and compliance ethics are areas that require further research before the services can become confident in increased adoption.

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It is not the case that banks can’t access this space; it’s more of a question of how they can harness the space to deliver positive outcomes.

Financial services must innovate in new ways without being incumbered by archaic operating models. The financial services industry should begin to think about how they can begin to incorporate their services within the Metaverse. Rather than replicating current practices in a virtual world, the financial services industry must seek ways to add value to this new ecosystem that cater for services in this virtual world. Looking to the proliferation of crypto assets, the financial services industry should be banking on the Metaverse to take experiences to the next level.

References

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