Do banks need a strategy for the metaverse?


Regulated financial services providers could face a particular challenge in the metaverse because they will need both new service ideas and a way to meet the demands of regulators.

Predictions suggest that all businesses, at some point, will need a presence in the metaverse. Research by Citi Global Insights says it will attract around five billion users and have an addressable market of over US$10trn.

What is the metaverse?

‘Web 3.0’ has brought us big data and decentralised services on the blockchain. The next iteration, ‘Web 4.0’, is expected to be fully decentralised and to blur the line between the digital and the physical.

For some, a full-blown metaverse would have no distinct online platforms, or centralised control, and no-one would need any proprietary devices to access it.

That would be a radical development for many businesses. If it comes, it won’t happen overnight. Some see the metaverse growing out of more complex massively multiplayer online role-playing games (MMORPG), and/or out of an online 3D world that peopled with avatars.

But if the metaverse is as transformative as some suggest, businesses could face a cliff edge: before the metaverse and after. How steep a cliff? Ericsson, the telecom equipment vendor, argues there will be a new ‘internet of senses’.

It says, “Imagine an immersive experience of a beach where you can feel the wind blowing on your face, the heat of the sun on your back, …and experience the fresh smell of the ocean breeze – right in your living room”.

Holograms, rather than people, would show up for ‘in-person’ meetings.

All that might sound a bit unlikely – and irrelevant to what firms have to tackle now. Nonetheless, significant sums are already being spent on staking a claim to it.

The CEO of Microsoft, Satya Nadella, said that the firm’s recent US$75bn acquisition of video game maker Activision-Blizzard will “provide building blocks for the metaverse”.

Banks in the metaverse

Banks, too, are moving to try to ensure that they help shape the metaverse.

HSBC, for example, has a “plot of land” in the Sandbox, a virtual world where it can engage with gamers and e-sports fans. It also runs a fund that helps investors put money into five different aspects of the metaverse:

  • infrastructure
  • computing
  • virtualisation
  • experience and discovery, and
  • interface.

JPMorgan has an online lounge in ‘Decentraland’ a popular metaverse platform. Like Citi, JPMorgan expects the metaverse to generate a lot of revenues – around US$1 trillion annually – because it will “infiltrate every sector in some way in the coming years”.

In Asia, cities like Singapore have the world’s highest penetration ultrafast broadband. Jimmy Ng, CIO of DBS Group Holdings, recently told Nikkei Asia that the bank is “actively exploring [the metaverse] even as it evolves”.

He expects the new use cases to be “game changers” for financial services.

Bank regulation and the metaverse

Though regulators want banks to innovate to provide better and cheaper services, they tend not to like ‘game-changing’ developments that bring additional risk.

So, regulators are likely to intervene as genuinely new metaverse services come onstream.

Technology developed for one sector can also be disruptive elsewhere.

Digital twins, for example, are real-time, virtual replicas of physical objects and processes. Large manufacturing companies currently use digital twins to help them optimise complex systems like engines. But some trade banks are looking at building digital twins to get deep insight across supply chains.

Trade banks that offer digital twins would be “game changers” in a sector that still relies on many paper processes and works cross-border.

What will the metaverse bring?

No-one knows yet. But if it holds promise for disruptive new financial products, it also holds challenges for a bank board deciding what to do about it.