How the Metaverse Will Revolutionize Retail Banking

By Owen WheatleyLead Partner for Banking & Financial Services, a global research and technology consulting firm ISG

The metaverse presents exciting opportunities for banks when it comes to customer experience and transaction management.

It will go beyond existing digital banking opportunities to create an immersive experience using technologies such as Augmented Reality (AR), Virtual Reality (VR) and Artificial Intelligence (AI) – in addition to other technologies such than blockchain and NFTs.

This will revolutionize the way banks interact with their customers, both in the products they offer and in the new markets they can explore. Given the demographics of the metaverse’s likely users, it also has great potential to reach new customer segments.

Financial services companies are already starting to explore the metaverse

In December 2021, Bloomberg Intelligence predicted that the metaverse’s “revenue opportunity” could be worth $800 billion as early as 2024.

We see financial institutions taking their first steps towards banking in the metaverse.

JP Morgan, for example, has its Onyx Lounge in Decentraland, an open-world metaverse environment built on the Ethereum blockchain. The Spanish CaixaBank also has a version of its ImaginCafé the.

HSBC and Standard charter purchased virtual land in a metaverse environment called The Sandbox.

To avoid disintermediation, card providers are also exploring opportunities, with American Express file patents to provide metaverse payment services, for example.

This is just the beginning of the metaverse journey for traditional retail banks, which are beginning to think about how they can use the metaverse to achieve business goals (such as customer experience and service). But first, they need to understand what the metaverse is, how it works, and how financial services can play a role. They need to know the platforms, technologies, and ecosystems at play and how they can use them to shape a metaverse strategy that has customer experience at its core.

How will the metaverse revolutionize retail banking?

While the introduction of so many new technologies will disrupt traditional retail banking, they also present a huge opportunity. As cryptocurrencies become more mainstream and people want to trade digital assets as easily as physical assets, they will need banking services that facilitate and protect their transactions.

The metaverse will allow banks to differentiate themselves in several ways. Here are three core services that retail banks might want to think about and how the Metaverse could improve them.

  1. Use immersive and virtual experiences to attract and engage new customers

As the Metaverse becomes more mainstream and more consumers begin to use it, those consumers will begin to need financial products and services designed with the Metaverse in mind.

Younger generations are already spending a lot of time playing games and socializing digitally. As more of them start embracing NFTs and the metaverse, they will likely be more predisposed to using virtual goods and buying digital assets.

The metaverse will allow retail banks to reach new customer segments like creators, gamers, and creatives who create multiple streams of income for themselves and seek help — like instant loans — from banks as they seek to improve their presence in the metaverse.

An emerging strategy for retail banks is to create educational experiences and engage and connect with customers by setting up virtual lobbies and showing demonstrations on financial wellness and planning. Quontic Bank has started doing this in Decentraland, for example.

  1. Offer innovative products and services

In addition to providing the necessary metaverse-specific products and services, we could see banks developing virtual world platforms, allowing their customers to seamlessly transact between the physical and virtual worlds.

We are already seeing financial services companies developing metaverse-specific products. For example, TerraZero Technologies claims to offer the first-ever Metaverse Mortgage to customers looking to purchase virtual real estate. This “virtual land grab” is one of the hottest trends we’re seeing in the metaverse.

Decentralized finance (DeFi) facilitates the borrowing and lending of cryptocurrency against collateral (which could be a digital asset based on an NFT or blockchain token). As more and more consumers and organizations join the Metaverse, we will see more Decentralized Autonomous Organizations (DAOs) making the Metaverse increasingly accessible, creating fairer ways to invest and monetize digital assets. Again, this type of ethical investment environment is likely to attract younger clients.

Banks are also considering supporting digital payments by launching credit or debit cards that customers can use to make secure payments in the metaverse. They could also enable loans secured against NFT assets and help facilitate the metaverse real estate market.

  1. Shaping the future of the workplace

Retail banks, like all financial institutions, are looking for innovative ways to attract and retain talent now that hybrid and remote work models are becoming the norm.

Immersive technologies such as augmented reality and virtual reality will become standard ways to foster creative, collaborative and inclusive environments for employees. We are already seeing custom avatars, for example. These will include services such as Microsoft Mesh for Teams and Meta’s Horizon Workrooms.

The Metaverse will provide retail banks with a great way to deliver an engaging employee experience and promote an overall sense of “oneness.” It will help attract and retain talent and provide new ways to train employees through virtualization and gamification.

We could even see on-demand, AI-powered digital coaches training employees and providing interactive and immersive learning experiences based on the metaverse.

Bank of America already offers immersive and engaging training using virtual reality, where employees can learn through scenarios played out in a simulated environment.

It’s clear that the metaverse will provide banks with powerful new ways to connect with their customers. At present, it is perhaps difficult to imagine the benefits that banks and customers could derive from this new virtual world – it is still in its infancy and many people remain skeptical of its potential. The truth is, we don’t yet know the full potential of the metaverse (in the same way that we didn’t really know the full potential of the internet in its early days).

However, now is the time to start thinking about it and planning for your success. We are already seeing financial institutions take calculated risks by innovating in this area. Banks that start thinking about metaverse products and services now will find themselves in a very competitive position as consumers are ready to fully embrace this brave new world.

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