In the futuristic 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 in this.
The idea of a digital representation of the real world, where people are personified through avatars, has been around for decades. But the times when metaverses were full on fantasy are changing fast. Large technology companies (such as Meta and Google AR), DLT companies (such as Ethereum) and the game industry (such as Fortnight and Minecraft) are drivers of innovation in this field. Together, they brought the concept back into public discourse with concrete insights into how the Metaverse works, looks, and feels.
While public interest peaked when Facebook announced its name change to Meta (searches for “metaverse” increased 20 times between August and October 2021), there is continued interest in the financial industry to understand the future potential of metaverses. After all, the Metaverse economy is expected to be worth $13 trillion by 2030, according to a study by Synpulse8 and the Zug Financial Services Institute.
So it’s so important that we take a look at what financial professionals need to know about the current situation and how this innovation is impacting the industry – from avatars to investing.
Metaverse: Evolution of the Internet
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 occurred with the advent of Web 3.0, when users (and their data) became the content themselves (another example is YouTube). However, the potential flexibility and scale of the metaverse is much greater – it is a complex virtual world that has no specific purpose. Here, real experiences fuse with limitless creativity. In addition, it is complemented and supported by social and economic systems, creating a stronger connection to the real world.
One of the determining factors for metaverse is that it does not consist of isolated platforms. It promises more decentralization and therefore easier control and marketing of user data. With the help of Distributed Ledger Technology (DLT), it is possible to enhance property rights and dispose of personal data, but also of digital or digital physical goods – for example in the form of tokens (or NFT).
How avatars change interactions between customers and companies
Avatars represent real users in the metaverse. These virtual self-portraits create a whole new channel of distribution and communication to meet needs that are based on well-known social aspects: a sense of belonging, appreciation, and status.
Thus, the design of the avatar and the purchasing behavior of users in the virtual world are directly related. With avatars, a specific image is created by users who purchase digital goods such as real estate or artwork, which are ultimately intended to satisfy their social needs.
It is important for companies to explore the potential of this new channel of interaction, as it provides an ongoing option to expand their corporate offerings. This also applies to the financial sector. Many of the products and services offered in the real world can be used (or are already being used) in the virtual world.
Financial services – a rare commodity in the virtual space
Financial services are still few and far between in the metaverse, but their use cases are growing. In virtual worlds based on DLT, developers have introduced new means of payment to enable the exchange of goods and services. Meanwhile, major financial institutions are starting to create Metaverse-related thematic ETFs (exchange-traded funds) – for example, the Roundhill Metaverse ETF ($METV).
The latter also increasingly pushed the development of hubs in different virtual worlds. However, this currently applies mainly to providing financial information in the form of games or education and not to providing specific financial solutions and advice to clients avatars. Often the goal of companies that participate early in the metaverse is to gain experience, identify collaborators in the new ecosystem, and develop hypotheses about future business models.
In the field of deposits and loans, tangible financial solutions have not yet been presented. Given that the Metaverse will be a hypothetical representation of the reality and thus of the businesses that take place today, traditional financial service providers should start exploring possible applications in the Metaverse. This is the only way to prepare for future business models, applications, and trends.
A new world and new investment opportunities for the financial sector
While the full Metaverse doesn’t exist yet, its potential shouldn’t be overlooked – it’s an exciting time for investors looking to cash in on development.
Investing in related technology (rather than the metaverse itself) can be a good way for investors to get involved. Especially since direct financial commitment to metaverses is often not feasible, indirect investments in required technology providers are a good idea.
This is particularly useful for those solutions that are required for a realistic (often interactive) metaverse experience, but are not yet mature or have not yet reached the mainstream. Examples include investing in DLT platforms that can serve as an accounting layer in the metaverse, VR or AR device developers, NFT marketplaces, or avatar development tools.
Early participation as the cornerstone of Metverse success
In order for the Metaverse to prevail, certain challenges must be overcome: from improving the infrastructure, to a unified system for creating avatars, or passing laws and regulations necessary to regulate the virtual world. A coherent global system must be developed that allows the exchange of goods and services and mapping of the value of the different offerings (interoperability of metaverses)
Thus, financial services are an essential part of the development and operation of Metaverse. This makes it all the more important that they dare to venture into the metaverse early on, so they can start testing technical services and methods and better prepare for future applications and trends.