How the metaverse will revolutionise retail banking

By Owen Wheatley, Lead Partner for Banking & Financial Services, a global technology research and advisory firm ISG

The metaverse presents exciting opportunities for banks when it comes to customer experience and managing transactions.

It will go beyond existing digital banking opportunities to create an immersive experience using technology like augmented reality (AR), virtual reality (VR) and artificial intelligence (AI) – in addition to other technologies such as blockchain and NFTs.

It will revolutionise the way banks engage with their customers, both in the products they offer and the new marketplaces they can explore. Given the demographics of likely metaverse 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 “revenue opportunity” could be worth $800bn as early as 2024.

We’re seeing financial institutions take 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. Spain’s CaixaBank also has a version of its imaginCafé there.

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

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

This is just the beginning of the metaverse journey for traditional retail banks, which are starting 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 about the platforms, technologies and ecosystems in play and how they can use them to shape a metaverse strategy that has customer experience at its core.

How will the metaverse revolutionise retail banking?

While the introduction of so many new technologies will be disruptive to traditional retail banks, they’re also a massive opportunity. As cryptocurrencies become more mainstream and people want to trade digital assets as easily as they do physical ones, they’ll 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 may want to think about, and how the metaverse could enhance them.

1. Using immersive, virtual experiences to attract and engage new customers

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

Younger generations already spend a lot of time playing games and socialising digitally. As more of them start to embrace NFTs and the metaverse, they’ll likely be more predisposed to using virtual goods and buy digital assets.

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

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

1. Providing innovative products and services

As well as providing the needed metaverse-specific products and services, we could see banks developing virtual world platforms – allowing their customers to seamlessly complete transactions between physical and virtual worlds.

We’re already seeing financial services companies develop metaverse-specific products. For example, TerraZero Technologies claims to offer the first-ever metaverse mortgage for customers who are looking to buy virtual real estate. This “virtual land grab” is one of the hottest trends we see within the metaverse.

Decentralised finance (DeFi) facilitates borrowing and lending of cryptocurrency against collateral (which could be an NFT or blockchain token-based digital asset). As more consumers and organisations join the metaverse, we’ll see more decentralised autonomous organisations (DAOs) make the metaverse increasingly accessible – creating fairer ways to invest in and monetise digital assets. Again, this kind of ethical investment environment is likely to appeal to younger customers.

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 allow for secure lending 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 working models are becoming the norm.

Immersive technologies like AR and VR will become standard ways to foster creative, collaborative and inclusive environments for employees. We’re already seeing personalised avatars, for example. These will include services like Microsoft Mesh for Teams and Meta’s Horizon Workrooms.

The metaverse will offer a great way for retail banks to provide an engaging employee experience and promote a general feeling of ‘togetherness’. It will help attract and retain talent as well as offer new ways to train employees through virtualisation and gamification.

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

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

It is clear that the metaverse will give banks powerful new ways to connect with their customers. Right now, it might be hard to imagine the benefits that banks and customers could gain from this new virtual world– it’s still in its very early stages, and a lot of people remain sceptical of its potential. The truth is, we don’t yet know the full potential of the metaverse (in the same way we didn’t really know the full potential of the internet in its very early days).

However, now is the time to start thinking about it and planning for success. We’re already seeing financial institutions taking 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 by the time consumers are ready to fully embrace this brave new world.