Metaverse in banking – How is technology changing the future of banks?

In the old days, banks were used to deposit and withdraw banknotes. Then ATMs came into the picture with debit and credit cards, and electronic payments soon followed, eliminating the need to visit ATMs or even carry cash.

As the banking industry is one of the primary sectors affected by each wave of digitization, what if the next change around the corner is the introduction of metaverse technology in banking?

Imagine virtually walking into a bank branch and taking the help of customer representative avatars to enter the vault and digitally deposit or withdraw money. Imagine having the option to pay with dollars in your savings account or a digital currency issued by the bank or even through tokens from a digital wallet like Ethereum. All of these far-fetched theories have the potential to come true on the back end of banking in the metaverse.

In this article we will go into facets like – the business opportunity for metaverse in banking, the benefits of metaverse banking, the banks that have already entered the space, and how banks should plan their metaverse entry.

At Appinventiv, when someone asks us what metaverse is in banking, we answer with our view of Metaverse as a new paradigm powered by a culmination of multiple next generation technologies. Technologies that are a combination of decentralized and immersive technology stack. While decentralized technologies such as NFT, DLT and Web3 provide a resilient infrastructure and secure exchange approach, immersive technologies such as AR/VR create an enhanced virtual experience.

In order to truly understand the potential of metaverse use cases in banking it is necessary to look at the evolution of banks – something that has brought them to a point where the industry is now ready to launch a new chapter.

The evolution: What led to metaverse in the banking industry

At the time of writing this article, the banking industry has entered the fourth phase of evolution, with NFTs and cryptos coming to the fore. At the same time, a handful of banking institutions entered the fifth – the metaverse stage.

Let’s look at the evolutionary stages of metaverse banking and the issues that have built up to it.

Traditional banking

It was a two-tier banking phase governed by central banks that relied on one-on-one interactions with customers in a physical space. The stage was known for being paper-based and highly manual, with an absence of financial product customization and personalization.

Internet banking services

Digitization of the banking industry has come into full force in the last decade. This was divided into two categories – one where the existing processes were digitized to access through mobile and the internet and the second phase was where new customer journeys were created to address the digital-first demand of customers.

Open banking

In the last three to five years, the banking industry has opened itself up to it connected to third-party services via APIs. This has led to the emergence of a number of neo-banks, cross-industry market offerings by banks (for example: health services, buying and selling cars, energy services, etc.).

Digitized financial banking

With the advent of Web3, blockchain has given birth to a new safe, borderless and fast banking economy. A big role in this is played by NFTs and cryptos, which have added entirely new assets to the financial market, such as art, gaming and real estate.

Metaverse in the banking sector

In the last one-two years, the metaverse has gained great traction among a range of industries, with banking being one of them. With virtual banking experience taking center stage, the industry is poised for another massive revolution.

Now that we have looked at the evolution of banks leading up to the metaverse financial serviceslet’s dive further into the concept.

The metaverse opportunity for banks

Morgan Stanley and Goldman Sachs found that the metaverse domain will be as large as $8 trillion in the coming time. In this market valuation, banks have a critical role to play. Use technology like AR/VR and cryptocurrencies, banks will be able to reimagine how they interact with their customers and with what offers.

Although the technology holds great potential for the banking industry by answering the numerous issues faced by customers, the banks that have entered the domain are still finding their space. Let me explain by giving examples of the current metaverse use cases in banking.

JP Morgan – They opened an Onyx lounge Decentralized metaverses where they facilitate cross-border payments, creation of financial assets, safe custody and trade. HSBC – They invested in a plot at The Sandbox metaverse, which will be developed to engage with the gaming and esports fans. Standard Chartered – The bank has also acquired land in The Sandbox, which it plans to use for experimentation and creating new experiences for customers on the metaverse. Siam Commercial Bank – They are the first banking group to build headquarters in The Sandbox. The space comes with three zones: a) A virtual hub: A space for events and knowledge sharing. b) Virtual country: A space for partner companies to communicate about project development activities. c) Hub: It helps promote local artists via the NFT Gallery, NFT Market and virtual concerts.

While these are only a few of the top names in the metaverse banking space, there are a number of other banks entering the domain as we discuss this revolution. But what do banks gain from investing in metaverse efforts? After all, they’ve gotten to a point where they’re irreplaceable, so why change? Here’s why.

[Also Read: How Much Does it Cost to Develop the Metaverse?]

The benefits of metaverse in banking

Banking in the metaverse has a range of advantages for the traditional industry. Benefits that not only impact customer experience, but also open up new financing models.

Augmentation of existing functions in 3D

With 47% of bankers rooting for AR/VR as an alternative transaction channel by 2030, a number of banks have started training their employees on VR. For example, Bank of America has developed a VR training program for its 50,000 employees that will simulate real customer scenarios. Further, BNP Paribas even launched a VR app that allows users to conduct banking transactions using VR.

Enabling 3D employee and customer experiences will open up banks to increased offerings where they can engage with a new target audience and establish their prominence. To summarize, here are the benefits of using 3D for banks.

Metaverse banking services: Offers customers the ability to view their balance, pay the bills and make transfers through AR/VR platforms.Employee experiences: Delivers an immersive learning experience through simulated customer scenarios and onboarding remote workers with a sense of community.

Multi-level customer engagement

Banking in the metaverse gives institutions the opportunity to rethink how they interact with their customers and what they can do to provide empathic service through avatars. The experience-focused answer to how metaverse will affect financial services is twofold:

Personal connection: In the metaverse, banks can provide high-touch service to the customers by giving them a virtual view of the portfolio and expense income, conducting virtual financial planning sessions and making well-strategic product recommendations. Brand extension: Banks can extend their physical experience into the virtual world by simulating events such as ATMs cash withdrawals, branch placement and layout, and more. This will help customers feel connected with the bank.

Discover new products

Banking in the metaverse comes with numerous opportunities to leverage the space with innovative banking products like –

Digital paymentsDigital assets such as NFTs and cryptocurrency Digital twin

What this results in is – a) Creating a sense of connection between physical and virtual banks and b) Opening new sources of income for banks.

So here were the three critical metaverse advantages in banking. But from a bank’s perspective, entering the space can be very challenging. After all, it takes them in the direction of full virtualization – an area that is largely unexplored. While it has now been relatively easier on finance in metaverse, banking institutions require planning and milestone-wise goals to approach metaverse technology in banking.

How does Appinventiv approach banking in the metaverse?

At Appinventiv, one of the leading bank software development company, when we work for financial institutions on metaverse development services, we often suggest our clients take a milestone-based approach to the technology. Here’s what it looks like for banks.

Short term strategy – We advise banks to focus on the existing metaverses where they can find potential customers, offer lending and payment services, and onboard them. digital wallets.

We also suggest that they target new customer segments such as artists, gamers and creators via services such as instant loans, financial planning and concierge services.

Medium-long term strategy – By the time banks reach this stage, they would already have digital assets, custody platform to support the needs of the virtual banking world. So now the banks may even consider building their own digital world and launching financial products that can be linked to their traditional offerings

Achieving these strategies will require the banks to hire people with future-driven skills such as game designers, 3D artists, metaverse platform experts and dedicated blockchain developers. The catch here is that not only is it expensive to invest in, but it will also be difficult to manage resources once the platform is set up.

This is the reason why banks and financial institutions choose to work with us. In addition to having all the necessary skills, we have working knowledge of connecting the virtual and real world of banking through AI, NFTs, AR/VR, and digital twin architectures. We use the technologies to streamline ownership of data, perform risk management and create an architecture for a security-first basis of finance in metaverse.

Parting Notes

Banking is on the brink of a never-before-seen digital transformation. Metaverse in fintech is much more than a technological shift that would open up new sources of income. It is a platform that banks can use to reconnect with their customers in a new space and build emotional, personal connections with them.

What banks do today, especially with some of the world’s leading banks already entering the metaverse, will define their openness to digitization. Banks that do not take the leadership position today will eventually find space in others’ ecosystems.

The time to enter the space is now and we can help. Contact me with our team of blockchain and fintech experts today.

THE WRITER

Sudeep Srivastava

Co-founder and director