In a sense, the metaverse’s impact on the financial services sector embodies the next evolutionary stage in banking and fintech industry. Starting from the era of traditional banking where one-to-one customer interactions at the branch were de rigueur, with nil or very little customisation – with a one-size-fits-all approach in terms of customer offerings – banking moved on from physical branch interactions to online or internet banking, with all banking transactions conducted through the mobile and internet. Even cash withdrawals didn’t necessitate a visit to the branch since automated teller machines (ATM) became the new normal.
Then came the advent of open banking allowing customers to access their bank accounts via third party apps, which allowed direct linkage of bank accounts and related services with apps using application programming interfaces (APIs), which even cut down on the visits to ATMs. The fourth (r)evolution was the dawn of fully digitalised finance banking involving web 3.0, or in other words, using blockchain that gave rise to NFTs and cryptos.
Metaverse represents the fifth stage of the evolution in the banking and fintech industry, offering customers the experience of virtual banking. In a sense, one can say that the metaverse allows for the return of personalised banking with the help of virtual or augmented reality (VR/AR).
By the end of this decade, it’s widely expected that about 50% of banks globally will be using AR/VR as an alternative channel for customer transactions as well as for employee engagement. For instance, Bank of America has launched a VR training programme for its employees that simulates real life customer interactions while
has launched an app that allows customers to conduct banking transactions using VR.
But why would customers adopt the metaverse? According to the findings of a survey, more than half of the respondents – 52% – wanted some fun in their banking transactions, which had become mundane or boring. Having their own avatars in the metaverse will enable them to not only interact one-to-one with the avatars of the bank employees but also view their balance, pay their bills and make money transfers.
In fact, this not only opens up new segments of customers – the younger crowd, many of whom wouldn’t have seen the inside of a bank branch in their life – but also enables customers who may find it physically taxing or well nigh impossible to do routine physical banking transactions, such as extremely senior citizens who may have restricted physical mobility and may not be even very tech savvy to conduct online banking transactions, especially in a country like India, where, despite a billion plus mobile phones, digital financial literacy and even internet access has not quite proliferated or percolated to each and every citizen.
For banks, apart from becoming a useful medium to interact with their customers and retain them, it also opens up new avenues of revenue, such as cross selling insurance policies, crypto investments and investing in NFTs.
Instead of having different points of customer interface, as it typically happens in the physical world, in the metaverse, all these activities can be undertaken by one banking employee avatar, which has the potential of saving a substantial amount in transaction costs for the banks and fintech companies.
Moreover, since the metaverse is technically a 24×7 platform, banks don’t really need to close and customers can access their accounts at any time of the day and across time zones.
So, how big of an impact is the metaverse expected to have on the banking and fintech industry? According to one research report by Goldman Sachs earlier this year, metaverse could give rise to a virtual economy that could be as huge as $12 trillion, with the chief usage being for cross-border payments, financial assets creation, safekeeping and trading.
There are of course certain challenges that metaverse banking faces, such as the problem of identity theft, especially for protecting the avatars, theft of biometric data, which can be further misused to steal someone’s identity, no standards of interoperability among different metaverses, given that there’s a proliferation of multiple metaverses and it’s only going to increases further.
Moreover, just as in internet banking and digital payments platforms, there needs to be a secure payments system in the metaverse, which ideally should be customised for the metaverse.
One way to prevent financial frauds in the metaverse is to conduct transactions only in cryptocurrency. However, that too has its limitations and in countries like India, there’s a legal impediment to using cryptocurrency and crypto wallets for metaverse transactions. The coming of 5G technology and web 3.0 is expected to decentralise the web and mitigate the risks of financial frauds in the metaverse.
(The author is COO, CertOnce)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)