How Real Is the Metaverse and Web 3.0 for Banking?

These overlapping cyber worlds are a headscratcher for many banking institutions and some of what they've done just looks like planting flags. But both trends have to be somewhere on your watch list.

The following is an excerpt from a bank job description on LinkedIn:

“This individual must be comfortable paving a path, creating frameworks, and working with extremely fast moving companies amongst ambiguity. … We are looking for curious and dynamic leaders who will take it upon themselves to learn, grow and lead in this sea of technological change.”

It was posted by J.P. Morgan Payments, part of JPMorgan Chase, for a business development manager to handle the needs of the “Web3, Crypto, Fintech, and Metaverse” industries.

If you feel you fit the bill, unfortunately the listing stated in late September that applications were no longer being accepted. The good news is that someday there may be lots of opportunity for you with banks that decide to serve the needs of Web3 and the Metaverse.

For most banks out of JPMorgan Chase’s league, this day is not that day. In fact, spending much time on these issues may seem like a complete waste of time. But does that mean they can be ignored?

“Personally, I think the Metaverse could be the most important tech trend to hit banking since the internet,” writes Michael Abbott of Accenture on “Make no mistake we are still in the early days but that doesn’t mean banks should sit tight.” Abbott is Senior Managing Director and Global Head of the company’s banking group.

The Metaverse in the Public’s Awareness

In the summer of 2022 Forrester released a report titled “Most Consumers Are Not Familiar With The Metaverse.” With all kinds of hype going on, including JPMorgan Chase opening a Metaverse branch in Decentraland in early 2022, there’s a fear of missing out in some quarters. But Forrester found that in eight countries, most people surveyed had almost no idea what the Metaverse is. In the U.S. 57% of people survey were not familiar with term.

Research among U.S. adults by YouGov found a strong level of awareness — 55% had heard the term and levels were stronger the younger the consumer was. However, YouGov also found that less than half of the U.S. sample could confidently actually explain what the metaverse is.

Delving deeper, YouGov broke Americans into four segments:

  • Trialists: 15%— people who say they have already been in the Metaverse, 15%. Of this group, seven of ten also think cryptocurrency will someday be a medium of exchange online. 25% think you can earn money in the Metaverse.
  • Curious: 51%— those have not been there but find the Metaverse interesting. Only one in five of the Curious favor using crypto for online payments. 28% think you can earn money there.
  • Uncertain: 15%— those who have not been there who are not sure they would be interested. Only one in ten of this group would like to use crypto for online transactions.
  • Rejecters: 20% haven’t been there and have no interest. Interestingly, their desire to pay with crypto is about the same as the Curious consumers.

Shopping in the Metaverse was of interest to 13% of the sample. Handling finances there was not mentioned in YouGov’s results. However, 39% worry about having crypto stolen from them in the Metaverse.

“Financial services and technology companies need to establish more credibility in securing a safe environment so all prospective users can feel comfortable interacting with other parties in the Metaverse.”

— YouGov

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How Does Web 3.0 Fit in Here?

Still evolving is the difference or the convergence, of the Metaverse and Web 3.0. The latter is expected to replace the current internet and to decentralize much of what goes on there now. Web 3.0, also called Web3, is a blockchain play and part of its appeal, to some, is that it would return more power to users. Backers see this as taking back power from big firms. On the other hand, some big money is putting chips on Web 3.0.

As explained in an extensive article about Web 3.0 by McKinsey:

“The disruptive premise of Web3 is built on three fundamentals: the blockchain that stores all data on asset ownership and the history of conducted transactions; ‘smart’ contracts that represent application logic and can execute specific tasks independently; and digital assets that can represent anything of value and engage with smart contracts to become ‘programmable’.”

Things get pretty complicated once you get into the “how-to.” The McKinsey paper, “Web3 beyond the hype,” sketches out how the equivalent of decentralized deposits would work.

Instead of going through intermediary institutions — banks and credit unions — depositors would make deposits to the web. These funds would be borrowed and smart contracts would handle collections of payments. (As described, borrowers would have to post adequate collateral to be allowed to borrow.) According to sources cited by McKinsey, over $200 billion in loans were made via Web3 lending platforms in 2021, with only $1 million in bad debt.

In some ways this method of lending somewhat resembles the original concept of peer-to-peer lending, which eventually became marketplace lending as investors and even financial institutions began to use the platforms, rather than individuals lending to individuals. In the wake of the “crypto winter,” would this ever have appeal to savers who consider deposit insurance sacrosanct? It’s an open, long-term question.

Overall, McKinsey projects that Web 3.0 could have significant effects on financial services as we know it, though what it will wind up as is hard to say.

“Web3 is still a world in the throes of creation,” state authors Anutosh Banerjee, Robert Byrne, Ian De Bode and Matt Higginson.

Read More: Explainer: What Is Web 3.0? (And Why Should Banks Care?)

What Should Banks and Credit Unions Do?

Can traditional financial institutions afford to wave all this off and concentrate on more immediate concerns?

Once a standing-room-only crowd at a community bank conference listened to a consultant talk about a beginning phenomenon called “social media.”

One bank CEO told this reporter that he thought the whole thing was “a load of baloney! It’ll be over in a year.”

Roughly a decade later, some of those fledgling companies are big businesses, whether you like what they do and who runs them or not. The banker? Within five years of that conference session he had sold his large family-owned bank to another institution that absorbed it. Then he retired.

During an interview with The Financial Brand about mobile banking apps, U.S. Bank’s Damian Warren, SVP and Head of Consumer Digital Channels Experience, was asked if he cared much about the Metaverse. Was it worth spending any time on it?

“It’s definitely part of our innovation agenda,” he said. “Think about how people make payments in the Metaverse, which I think is a very legitimate use case. We will certainly want to make sure we’re relevant from a payments perspective.”

However, he added this: “We characterize this as a future thing to think about, not necessarily something we’re actively executing or delivering on now.”

Ultimately this is an issue to monitor but for most traditional institutions there are more immediate issues to act on and to get the board of directors excited about.

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