JPMorgan made headlines claiming to be the first bank to set up shop in the metaverse. Amid all the hype about this emerging virtual world, questions are beginning to surface about what this means for the banking industry overall.
What makes the metaverse interesting for banking is that these modern virtual worlds are built on top of blockchains, cryptocurrencies and decentralized finance (DeFi). They offer many exciting new opportunities. For example, virtual real estate is one area where we could eventually start seeing banks and credit unions offer services much like in the physical world, including credit and debit cards, mortgages and loans.
Hence ignoring the sheer potential the metaverse and defi have to offer could be costly for financial institution.
A Visit to Decentraland
Given that potential, I was very interested to check out JPMorgan’s lounge, Onyx, which the bank opened in Decentraland, a virtual platform where users can buy or sell digital property, play games, exchange collectibles, socialize, interact and explore. First I had to open an account in Decentraland, which was easy to do, but you need a crypto wallet to get started. Luckily, I already had an account at MetaMask, one of the wallets that is accepted in Decentraland.
After a smooth onboarding experience came the friction — I could not find the lounge! I was lost in a virtual environment with no search bar, no viable help function, no customer service to interact with. Confused, I turned to Reddit for help and was finally able to find my way to the Onyx Lounge. (Hint: go to Metajuku, co-ordinates 94, 21 and you’ll find the lounge there).
All this made me wonder if a digital savvy consumer myself had trouble navigating the metaverse, what about the average Joe? Perhaps the metaverse will not be a place where the average consumer will go open a checking account. Bottomline: Unless you’re a gamer, expect some challenges navigating the environment.
Sure, the metaverse holds potential for the banking industry. However, if most consumers can’t quickly access and navigate through it, frustration will result.
Finally in the lounge, I was disappointed as there was nothing ‘banking’ in the lounge. The lounge had a picture of the CEO and a tiger bot that served no purpose. I wondered aimlessly in there for some time and left thinking what a horrible experience, possibly never to come back again. I wondered what purpose did this serve JPMorgan beyond a PR stint to promote its recent research report.
I believe JPMorgan could have done much better. But don’t let that turn you off to the metaverse.
The Potential for Banking in the Metaverse
Several consulting firms and analysts claim metaverse could represent a substantial new market for banking with PwC estimating the global metaverse market growing from $45.5 billion in 2019 to $1.5 trillion in 2030. Goldman Sachs amps it even higher: a $12.5 trillion opportunity, based on roughly 33% of the digital economy shifting to the metaverse and 25% market expansion. Morgan Stanley claims a $8 trillion metaverse opportunity – in China alone. Bloomberg projects metaverse revenue opportunity to be $800 million in 2024. You get the idea.
The numbers may prove to be optimistic but there is potential for banking in the metaverse given the sheer growth and investment dollars being poured into the space.
Recall that banking in a virtual environment is not new. One of the original 3D virtual worlds with avatars for social interactions was Second Life, which was around for nearly two decades, and still exists. ABN Amro and ING, two European banks, opened virtual financial centers in Second Life only to shut down a few years later — likely as it didn’t serve any meaningful purpose for customers.
Much has changed since then, however. Metaverse platforms are now built on top of technologies such as blockchains, crypto exchanges, and NFTs (non-fungible tokens), making them functioning digital economies. Virtual digital assets such as land and collectibles are represented as NFTs and traded using cryptos, while blockchains provide digital proof of ownership for these assets.
What to Do to Get Up to Speed
Here are three things financial institutions should do to prepare for banking in the metaverse:
- Define a purpose, strategy, and value proposition. Communicate the approach to customers, employees and investors. Use the metaverse and other digital environments to communicate the strategy and approach. Take lessons from ABN Amro and ING’s experimentation in Second Life that with no clear value proposition banks risk losing customers possibly to never come back even in the physical world.
- Take baby steps. Instead of going all-into the metaverse, demonstrate capabilities in fundamental elements of what constitutes the metaverse. For example: build a bank-grade crypto wallet that lets customers access the metaverse; launch a credit card that customers can use in metaverse, etc. There’s nothing a financial institution can’t do in the metaverse today using DeFi products that facilitate payments, lending, credit and investing activities.
- Experimentation is a must — but make it meaningful. Instead of pictures and bots that serve no purpose, introduce new DeFi products; build educational billboards and interactive ads where customers can learn about products, or even games customers can play that help with learning a product. In other words, “make it meaningful for customers” to visit the virtual environment, even during the experimentation phase.
Wherever there are exchanges of goods, even in virtual spaces, there will be opportunities for banking services. However, the ecosystem needs to develop further, products need to be more mature, trust needs to be built, and the metaverse needs frameworks and guidelines to satisfy banking and financial demands, including a clear value proposition for customers.
So, should banks join the metaverse or not? This emerging ecosystem cannot be ignored, but taking baby steps, building a meaningful strategy, communicating value to customers, and building basic defi products is far more fruitful than going all in on metaverse.