Traditional financial institutions are spending substantial sums on digital ‘plots of land’ in a bid to establish a presence in the virtual world. But are the rewards worth the risks?
Imagine a world where you, in avatar form, step into a bank branch, meet a customer service assistant, arrange a mortgage and sort out a query about your current account. No queues, no issues around business hours. Then you visit a virtual mall and buy a pair of trainers with your crypto wallet.
Welcome to the metaverse.
This vision of the future may not be that far away. Now is the time for savvy financial services brands to decide whether to get metaverse-ready. The virtual world of products and services offers great opportunities but there are potential bumps in the road ahead, not least regulation and risk.
Which fintech players are readying for the metaverse?
There are two areas that fintechs are focusing on in the metaverse: first, allowing banking customers to virtually meet and communicate with bank staff, as well as transact, invest and purchase banking products. The second is experimenting with the gamification of financial services to enhance customer engagement.
The large, traditional financial institutions are spending substantial sums to establish a presence, says Owen Wheatley, lead partner for banking and financial services with technology research and advisory firm ISG. “These include Citi, BNP Paribas and Fidelity,” he says. “They’re trying to tap into new customer segments and, frankly, attempting to look ‘cool’.”
Other big names looking to capitalise on the metaverse potential are JPMorgan, which became the first bank to enter the metaverse, opening a lounge in Decentraland, a blockchain-based world, in February this year. A month later HSBC, which is closing bank branches in the physical world, bought a digital plot of land in The Sandbox, a digital gaming platform.
“There’s a land grab under way in the metaverse,” he says. “Some have likened it to a digital version of the 19th century westward expansion in the US. Real estate seems to be one of the areas gaining the most traction.”
For fintechs and neobanks, the metaverse offers them an opportunity to expand their products to existing customers (who tend to be more tech savvy Gen Z or Millennials). Examples include crypto services, financing digital store fronts, digital investment advice and loyalty programmes in conjunction with metaverse retailers.
Gamification could increase engagement
One vision of the metaverse sees a new realm where global businesses offer parallel virtual experiences – including banking, insurance and mortgages – selling digital products and enhancing their brand.
Dave Pattman is managing director of customer services at Gobeyond Partners, part of the Webhelp Group, which already delivers services in The Sandbox. He believes that a big benefit for consumers will be the gamification of budgeting and financial management to drive engagement.
“For many consumers, money management can seem confusing and stressful,” he says. “The immersive nature of the metaverse creates opportunities for people to engage with their money in a more visual and personal way. In a virtual world, your savings objectives and life goals can be visualised in ways that provide more impactful motivation and behavioural change.”
That might mean being able to see and walk around in a world where your pension dreams are realised, or you already own the car of your dreams, which you are currently saving for in the physical world.
“Generations coming into the employment market today have been born and raised in the world of gaming,” he says. This will change the way they choose to interact with brands.
“People find it hard to budget and visualise their savings goals,” he says. “This is a really interesting space where you can see people gamifying real-life finance.”
Another key development in the metaverse will be the wider adoption of digital and cryptocurrencies, although for these to be accepted, they will need to become more reliable and less volatile, Pattman adds.
What role will regulation and fraud prevention play in the metaverse?
The brave new world of the metaverse offers huge potential for businesses, consumers and, unfortunately, criminals as well.
“Wherever money goes, crime follows,” says Pattman. “We already understand the sophistication of cyber criminals.”
How, for example, do you reliably verify an identity in the metaverse when part of its appeal is that you can be somebody different there?
There are also issues around privacy and data collection. If you create an avatar to live and work and play in the metaverse, you may be tracked and analysed in a way that would seem intrusive in the physical world. This will raise data protection and privacy issues for consumers and a privacy headache for businesses.
Wheatley says the other risks for fintechs are over-expansion (trying to offer too many products to too many people through too many channels too quickly), which can easily become unsustainable, and becoming a “me too” player, with insufficient focus on creating differentiation.
In fact, the very regulations that ensure financial services companies are trusted in the real world may be a barrier for them to enter the currently unregulated metaverse, says Pattman.
If a trusted and known bank appears in an unregulated environment, there is the potential for its brand to be harmed in the process. He suggests that metaverse start-ups have the advantage here because they are not regulated and do not have an existing real-world reputation to protect.
In addition, cybersecurity challenges are very different in the metaverse compared with the digital and online world, and businesses would do well to bear this in mind, says Kevin Gosschalk, founder and chief executive of Arkose Labs.
“Attacks targeting metaverse pioneers have significantly increased in the first half of 2022,” he says. Fintechs will be trying to grow as quickly as possible and, in doing so, they want to have the lowest friction in their onboarding process and the lowest checks that are necessary. This often exposes them to cybercriminal behaviour and risk of fraud.
The most sophisticated category of fraudsters – the master fraudsters – are already attacking consumers who are active in the metaverse, he says.
“Fintechs investing in the metaverse must put a premium value on trust and safety. They must ensure the security of their account login, registration and in-platform actions to protect avatar identities in the world where real-time virtual, augmented and 3D merge, and become an experience like we’ve never seen before.”