Five facts about the Metaverse from a banking perspective

In simple terms, the metaverse is a series of 3D worlds in which real people are depicted as avatars and interact with each other digitally. Virtual conversations in the metaverse differ from those we have in online meetings today because of the realistic ways you can interact with other participants. You can move around and interact with others as if you were actually at a real live event together. And banks can use this, too. For example, one European banking association is already planning to set up a metaverse of its own to act as a networking platform, providing a space for meetings and events. The metaverse could also serve as a space for banks to provide investment advice to clients anywhere in the world – offering a better and more interactive environment than today’s video or telephone calls.

Banks have begun making initial attempts to offer a variety of services in the metaverse. It remains to be seen whether this will become a widespread and effective business tool, as there are still a number of legal uncertainties to clarify. J.P. Morgan was the first bank in the world to open a branch in the metaverse – in February 2022 this major US bank opened an online lounge in Decentraland. The services it currently offers there include classic banking activities, such as asset management and lending. This was followed, in March 2022, by HSBC acquiring a virtual plot of land in The Sandbox. The idea is to generate new ways of retaining customers and to create opportunities for growth. Deutsche Bank has also bought a plot in the metaverse and opened a 3D visitor lounge. At this metaverse branch, visitors can watch videos in an interactive space and get information on a variety of topics.

Digital goods are now being traded in the metaverse, from cryptocurrencies and NFTs to clothing for avatars and tickets to (virtual) concerts. Banks can offer advice to businesses looking to purchase, sell or finance such transactions. They could also provide them with the benefit of their experience with loans and, for example, take care of checking creditworthiness for borrowers in the metaverse. In future, banks could also be responsible for ensuring the transfer of money between cryptoassets and normal analogue money.

For digital goods, such as NFTs and cryptoassets, that can be bought in the metaverse, banks could use their expertise to safeguard such assets. Digital wallets will be needed to do this. Since banks demand the highest standards in terms of cyber security, they could develop an insurance model that would strengthen consumer confidence in this new technology. It is also conceivable that banks could reduce complexity with a user-friendly wallet that also allows them to manage a variety of different assets for users.

It is not yet known how payments between the metaverse platforms are going to be processed. However, it is vitally important for the economic infrastructure of the metaverse that transactions are efficient and inexpensive. This is usually determined by the operator of the platform – but it’s not so clearly defined for transactions between different platforms within the metaverse. As things currently stand, it is assumed that micropayments will be the most important type of payment in the metaverse. Banks could meet customers’ demands here and offer efficient transactions.

As with many digital developments, the metaverse still lacks legal and political validation. If a legal dispute between users from different parts of the world were to arise after a transaction in the metaverse, how should it be settled? What data protection rules apply? How can users be clearly identified in order to prevent money laundering or the financing of terrorism? Banks, in particular, who always assume the role of the dependable authority, need reliable legal frameworks in the metaverse in order for them to operate.