In a future metaverse, data is the currency and people stand as avatars between role-playing and reality. The question arises as to how the financial sector can and will position itself there.
The idea of a digital representation of the real world, in which people are embodied by avatars, has been around for decades. But the days when a full-fledged “metaverse” was fiction are rapidly changing. Big tech companies (e.g. Meta and Google AR), DLT companies (e.g. Ethereum), and the gaming industry (e.g. Fortnight and Minecraft) are driving innovation in this area. Together, they brought the concept back into public discourse with concrete visions of how the Metaverse would work, look, and feel.
While public interest peaked when Facebook announced its name change to Meta (searches for “metaverse” increased 20x between August and October 2021), the financial industry is still interested in the future potential of the metaverse . After all, the Metaverse economy is expected to be worth up to $13 trillion by 2030, according to research by Synpulse8 and the Institute for Financial Services Zug.
This makes it all the more important that we examine what finance professionals need to know about the current state of affairs and how this innovation is impacting the industry – from avatars to investing.
The Metaverse: Evolution of the Internet
The Metaverse is not a revolution. Rather, it should be understood as a further development of the Internet as we know it today. The concept builds on a shift that already happened with the advent of Web 3.0, when users (and their data) became the content itself (another example would be YouTube). However, the potential flexibility and scale of a metaverse is far greater – it’s a complex virtual world with no specific purpose. Here, real experiences merge with unlimited creativity. Moreover, it is complemented and supported by social and economic systems, which creates a stronger connection with the real world.
One of the defining factors of a metaverse is that it is not made up of isolated platforms. It promises greater decentralization and therefore easier control and marketing of user data. With the help of Distributed Ledger Technology (DLT), ownership and disposition rights of personal data, but also of digital or digitally represented physical assets can be strengthened – for example in the form of tokenization (or NFT).
How avatars are changing the interaction between customers and businesses
Avatars represent real users in a metaverse. These virtual self-portraits create a whole new distribution and communication channel to satisfy needs based on well-known social aspects: a sense of belonging, appreciation and status.
Avatar design and user buying behavior in a virtual world are therefore directly related. With avatars, a certain image is created by users who buy digital goods such as real estate or artwork, which ultimately aims to satisfy their social needs.
It is important for businesses to explore the potential of this new channel of interaction, as it provides a continuous option to expand business offerings. This also applies to the financial sector. Many products and services offered in the real world could well be (or are already) used in the virtual world.
Financial services – a rare commodity in the virtual space
Financial services are still rare in the metaverse, but their use cases are growing. In DLT-based virtual worlds, new means of payment have been introduced by developers to enable the exchange of goods and services. Meanwhile, mainstream financial institutions are starting to create Metaverse-related thematic ETFs (exchange-traded funds) – for example, the Roundhill Metaverse ETF ($METV).
The latter have also increasingly pushed for the development of hubs in different virtual worlds. However, this currently applies mainly to the provision of financial information in the form of games or education and not to the provision of specific financial solutions and advice to customers embodied by avatars. The goal of companies that engage early in the metaverse is often to gain expertise, identify collaborators in the new ecosystem, and develop hypotheses about future business models.
In the field of deposits and loans, no concrete financial solution has yet been proposed. Considering that the metaverse will be a virtual representation of reality and therefore of the business activities taking place today, traditional financial service providers should start exploring possible applications in the metaverse. This is the only way to prepare them for future business models, applications and trends.
New world, new investment opportunities for the financial sector
While a full-fledged metaverse doesn’t yet exist, its potential shouldn’t be ignored – it’s an interesting time for investors looking to capitalize on the development.
Investing in relevant technology (rather than a metaverse itself) can be a good way for investors to get involved. Especially since a direct financial commitment to the metaverse is often not possible, indirect investments in the providers of the required technologies are a good idea.
This is especially useful for solutions that are necessary for a realistic (often interactive) metaverse experience, but are not yet mature or haven’t hit the mainstream. Examples include investing in DLT platforms that could serve as the accounting layer of the metaverse, or in VR or AR device developers, NFT marketplaces, or avatar development tools.
Early Engagement as a Cornerstone of Metverse’s Success
For the metaverse to prevail, certain challenges must be overcome: from optimizing the infrastructure, to a uniform system for creating avatars, to adopting the necessary laws and regulations to regulate the virtual world. A coherent global system must be put in place, allowing the exchange of goods and services and mapping the value of the different offers (interoperability of the metaverse)
Financial services are therefore an essential part of the development and functioning of the metaverse. It is therefore all the more important that they dare to venture into the metaverse early, so that they can start testing services and technical approaches and be better prepared for future applications and trends.