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What is the Metaverse and what does it mean for financial services?

, Leonardo Alves

You’ve heard the name and you’ve heard the hype but what does it all actually mean? The Metaverse is being touted as the best big thing, the future of the web, the future of your business.

As with all the next big things, there’s the fear of missing out. You've been told that you need to start thinking about and investing in the metaverse now before competitors gain an advantage. 

Accenture reports that 71% of global executives consider that the Metaverse will positively impact their organisations, and PwC states that 82% of executives expect the Metaverse to become a part of their business activities within three years.

But what is the Metaverse exactly, what does it do and what will it mean for financial services?

Defining the Metaverse

Many people think the Metaverse is all about avatars and games, but it’s much more than just that. Think of it instead as cyberspace or as the evolution of the internet. It is not ‘a thing’ or ‘a technology’ but a new way to interact with the world. 

The Metaverse - with a capital M - does not exist… yet. That is a possible future state, where there is seamless convergence of our physical and digital lives (phygital). And, despite what Mark Zuckerberg might want to think, this Metaverse is a world not owned by a company. It is persistent (it continues on even if you are offline), interoperable, it has an unlimited number of users engaging in real-time with one another, and supports both communications and payments. 

What currently exists are versions of this vision which have elements of it but not all and exist in parallel to each other. They’re not quite interoperable, have a limited number of users and often, but not always, are owned by an entity.

What could it mean for financial services?

Even though we’re still at the birth of the Metaverse, people in the banking and FS industries should certainly start to familiarise themselves with concepts such as programmable money, smart contracts and peer-to-peer networking.

And although there is limited adoption and regular user base - compared to the broader FS market - there is already money to be made in the metaverse, and that is in the financing of it. 

Some of the world’s most prominent financial market companies are already in the metaverse, with varying levels of maturity and diverging goals. The list of the top 8 by revenue is: 

  1. JPMorgan Chase & Co. 
  2. Bank of America
  3. HSBC 
  4. BNP Paribas 
  5. Shinhan Bank Co. Ltd 
  6. NH Investment & Securities Co. Ltd
  7. Kookmin Bank
  8. Mogo Inc

Advising on investments

An amazing opportunity that is already possible is to provide metaverse users with the services they need to buy, sell, and hold digital assets ranging from concert tickets, to NFTs, digital art, and even digital real estate.  

FS can help clients with expert advice and help them avoid costly mistakes. The Metaverse is new to everyone, and there is high investor demand for experts who can help. Building metaverse expertise can help FS firms to support their clients on their own investment strategies, such as how to capture value from the growth in VR/AR spending and where and in which metaverse to invest.

Real estate opportunities

Another very hot area is metaverse real estate. Global businesses, such as PwC, JP Morgan, HSBC, and Samsung, have already snatched up plots of virtual land, which they intend to develop for a variety of purposes. 

The Metaverse real estate world may start to be similar to what we see in the real world, and demand for services such as mortgages, rental agreements, and credit lines will also emerge. It appears that there will be a need for a metaverse real estate credit lender. 

This is something banks and financial institutions can position themselves to facilitate such transactions. Some will say that this is diametrically opposed to what the Metaverse stands for, but others will see the value of having a third-party arbitrator or a lender stepping in and supporting a large transaction. For context, Sandbox is the largest virtual world in terms of transaction volumes, in 2021, it had 65,000 transactions in virtual land totalling $350 million. In the same year, Decentraland had 21,000 real estate transactions worth $110 million. In 2021 alone, we saw the price of virtual real estate increase by 700%. 

How to get started

If the Metaverse is still just a vague concept to you and your business, then it’s time to get educated and then make the most of the opportunities available.

  • Become the enabler and facilitator of the backstage of the Metaverse. Providing the muscle, the capital, and the services to allow the people facing side to develop.
  • Become the asset owners and managers of digital real estate. Providing the kidneys and filtering out hype and speculation from shrewd investments.
  • Become the expert adviser to clients. Providing the eyes and vision, advising on investment strategies, and NFT tax law (advising on what is considered a collectible, and thus, at higher tax rates and what is not). Hand-holding clients to navigate the incoming changes in regulations which will certainly happen as regulators around the world take a closer look at finances across the metaverses. 

Need to know more about the Metaverse, its opportunities for FS and what you should be doing to make it happen? We can help, talk to us here.

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