Here’s how banking metaverse will change the way we bank
Publication: Times Of India
Author: Prof. Meera Aranha & Srinivasa Reddy
The Metaverse is a virtual reality environment in which users interact with a computer-generated environment and other users. VR (virtual) and AR (augmented) reality headsets enable this virtual world. Gartner forecasts that by 2026, 25% of people will spend at least one hour per day in the Metaverse. According to Bloomberg, metaverse technology platforms will become commercially viable, with transactions totalling $800 billion by 2024.
The most successful metaverse applications have been gaming systems, in which the immersive nature of the game increases young customer engagement. Young users are willing to spend a significant amount of time online to interact with others. With such a strong trend, several businesses are eager to attract the Metaverse’s younger users. Decentraland and The Sandbox are the two biggest players in the Metaverse. Several major banks, including JPMorgan and HSBC, are represented on these platforms.
The initial stage for banks in the Metaverse would be to set up a virtual lounge where any walk-ins from the Metaverse could obtain information on bank services and goods. Banks should take care to create engaging lounges, as half-baked forays into the Metaverse with digital information lounges are redundant – in an action-oriented platform (most young customers would arrive at your location after a thrilling game), offering a virtual reality brochure of products does not help customer journeys. Before creating a plain vanilla lounge, bankers must recollect the last time a millennial asked for or read a brochure. What services and products can the bank provide walk-in customers now that they have drawn them to its lounge?
Some of the used cases for metaverse walk-ins would be: first, a crypto-to-dollar exchange-If a game user has won prize money in Mana (Decentraland cryptocurrency) and wants to convert to dollars. Similarly they could be looking for funding for the purchase of Non Fungible Tokens in the Metaverse, or for providing investment banking support for cryptocurrency NFOs.
The challenges that banks would face to meet these expectations are listed next. Know your customer: – Banks have a fiduciary legal responsibility to know their customers before providing any customer service. This critical component ensures banks stay on the right side of the law. Verifying customer information in the digital world through OTP and KYC integrated UPI payments has been crucial to India’s deep payment infrastructure development. India’s payment infrastructure is an emulatable system for developing countries. On the other hand, customer verification is a complex act in the virtual world and immersive environments. The iris cannot be scanned with VR sets, nor can thumbprints be taken with VR gloves. Customers may be reluctant to remove their VR set to check OTPs on their mobile device. As a result, alternatives such as voice prints or the use of unique cyber tokens may be considered to confirm that the customer is indeed at the banks’ lounge.
Crypto first: – The most exciting feature of metaverse platforms is that they are blockchain-first environments that host their own cryptocurrencies. In the case of Decentraland, it is Mana, and in the case of the Sandbox, it is Sand. As a result, any banking or a financial player looking to expand on these platforms must invariably host cryptocurrency as an offering. Otherwise, it makes no sense to be present here: if customers walk into the metaverse branch and you inform them that only dollars are accepted, the metaverse walk-in receives little value. Indian regulators are still creating roadmaps for cryptocurrency, so it is best to place a hold before entering.
Crypto-Asset funding: – The acquisition of virtual land and NFT-related assets is part of the allure of the Metaverse. Customers are eager to buy non-fungible tokens in cyberspace. Customers have purchased digital art, blockchain game components, music, and even digital movie posters. Assets have been purchased for millions of dollars in some cases. Can banks provide funding for these assets? Certainly. These assets are blockchain-backed, and ownership or lien rights can easily be transferred to the bank’s wallet. Because of blockchain technology, the asset is relatively safer than border-jumping billionaire borrowers. The more important question is whether banks have an appetite for NFTs. The growth of NFTs is assured and newer lenders could rise who would engage in NFT funding but are banks ready for this opportunity is a moot question in today’s regulatory landscape.
Advertising challenges:- The new web3 model based on utilising aspects of the blockchain seeks to reduce the web’s algorithmic and advertising focus and more on authentic user access of information. One crucial trend noted by JPMorgan is that customer data will be decentralised. Instead of Twitter or Facebook holding customer social graph data on their server, if customers were to store their personal data in a cyber-wallet, the advertising power of these giants vanishes. Facebook’s algorithm would lose its predictive power as data is not on its servers but in the customer’s wallet. In the future’s tough digital advertising world, it is vital that every brand builds a presence in all possible cyber fronts, including Metaverse. Customer engagement:- There is a growth in the younger demographics focusing on virtual interactions using the Metaverse, particularly on gaming platforms. Customer engagement by banks on the Metaverse could mimic Metaverse games by creating immersive worlds. For example, immersive game-based financial literacy and financial planning instructions could aid young customers to visualise their lifespan and inspire them to plan.
Though Metaverse is attracting the millennials, until the existing regulations, such as on acceptance of cryptocurrency change, the Indian banks for the present, will not be able to function as efficient financial intermediaries in the Metaverse.