By Rajashekara V. Maiya, VP, Global Head for Business Consulting, Infosys Finacle

Although still in the early stages, gaming, media and the entertainment industries have already started to branch out into the metaverse. However, the heavily regulated and data-intensive banking industry has lagged behind with adoption of this new platform. But now, banks are also trying to tap into the huge potential that the metaverse can offer them.

While the banking industry has come a bit late to the metaverse, it has the opportunity to lead, as digital interactions and adoption of digital fintech solutions have massively increased since the pandemic. Gartner’s report on digital transformation for finance organisations echoed this with nearly 70% of business leaders stating that digitaisation initiatives are accelerating, with a further expectation that the industry their businesses operate in will be ‘dramatically transformed’ by 2026. It will be worth the time and effort too, as a recent report by JPMorgan estimated that market and business opportunities for companies in the metaverse will  be worth over $1 trillion in yearly revenues.

There are some banks that have already started to do join the new online community. JP Morgan has opened a virtual lounge in Decentraland, a 3D virtual world browser-based metaverse platform. In Asia, South Korea’s biggest financial institutions, KB Kookmin Bank, is working on the KB metaverse VR Branch Testbed, that will allow customers to access financial services in the metaverse, as well as being used for training and education purposes as well. HSBC also announced its foray into the metaverse earlier this year with its partnership with The Sandbox to “create innovative brand experiences for new and existing customers”.

This new model for banking has benefits not only for them, but also their customers. Retailers can sell goods in the bank’s metaverse, such as cars, clothes, furniture and even houses. It would also allow customers to access ‘Buy Now Pay Later’ and insurance schemes to help them manage their finances. Activities like these taking place in the metaverse are set to become the norm in the not too distant future as Gartner predicts that by 2026, 25% of people will spend an hour of their day in the metaverse engaging in such as activities as shopping, work and education.

Banks could also use the metaverse to improve their customer engagement, which ultimately will lead to better customer attraction and retention. With non-digital interactions having long been on the decline across the industry, as detailed by PwC,  metaverse technology can offer a worthy alternative with immersive, experiences such as virtual centres for training and development, which will allow banking staff to build relationships with customers to resolve real-life banking problems. While not only being a novel and unique experience for the customer, it will also provide them with the convenience of not having to travel to their bank branch to deal with their financial issues and queries.

The metaverse could also be an opportunity for traditional traditional banks to compete against their challenger competitors and catch up on innovations. Making the most of the higher degree of trust they already have in comparison to neobanks as reported by EY, this can be in relation to how transactions are done on this new platform. They will obviously need to be secure, and banks will benefit if they are able to develop and implement solutions that will serve these transaction and investment needs.

Yet a secure system will need to be put in place for these transactions. Blockchain seems to be the answer to this, as it will allow individuals to have rights over their own data and involve fewer intermediaries, thereby cutting the cost of each transaction. The implementation of blockchain here appears even more likely to become a reality given that according to insights by Deloitte, the banking sector is leading in blockchain adoption with global spending on the technology also potentially rising from US$5.3 billion in 2021 to US$34 billion in 2026.

Banks are only now starting to understand what the metaverse can bring them. Be that new ways to attract customers with new and interesting methods of engagement or financial services that will offer them more choice and convenience. However, there will be quite some time and effort on the part of banks to be able to become a player in the metaverse. This will call for a monumental transformation of not only their legacy technologies, but their entire marketing strategies and business models.