Three’s Company: Metaverse, Cryptocurrency, and Banks

One of the many definitions of the metaverse is that it is “…a network of 3D virtual worlds intent on social connections and provides a simulated digital environment that uses augmented reality (AR), virtual reality (VR), and blockchain, along with social media, to create spaces conducive for rich user interaction not unlike the real world.” Dennis Gada, Industry Head, Financial Services at Infosys, delineates how banks, cryptocurrency and the metaverse are all connected in the shared future we’re all headed towards.

So, while the metaverse may seem like a digital fantasy because it mimics the real world so closely, it is also about real money. Metaverse commentators may differ on how big and how fast it will get, but they all agree that it’s a serious opportunity in the making that could reach anywhere between – US$ 800 billion and 1.6 trillion by 2030. One analystOpens a new window even predicts that it could create a value worth US$5 trillion in the stipulated timeframe. 

Metaverse and Cryptocurrency: Natural Allies?

Use cases across industries will drive metaverse adoption. For example, playing games with friends, clothing for avatars, training, conferences, buying virtual property, NFTs, focused group ideations, virtual banking services, commercial real estate services, and personalized advisory services can all happen in the metaverse. Commerce in the metaverse is powered by using cryptocurrency, but each metaverse platform (such as Decentraland) uses a unique coin (Mana) which is powered by the Ethereum blockchain. Shoppers convert their fiat currency into crypto coin via a crypto exchange to buy goods or services. However, in the not-so-distant future, there will be interoperability across different metaverse platforms so that there is a seamless transaction. 

Broadly, the metaverse is a cryptocurrency training ground where consumers can learn how to acquire, manage, and store it efficiently. And as users cross seamlessly from the physical to the virtual world and from physical to virtual currency, their next logical demand will be to use their virtual currencies to pay for physical goods in the physical world. From there, it’s a short hop to (crypto) money transfer, cross-border payments, peer-to-peer financing, and so forth. 

See More: Big Tech is Betting Big on Metaverse: Should Enterprises Follow Suit?

Banks: The Third Partner

This mainstreaming of cryptocurrency, so to speak, will open new possibilities for banking institutions. Given the high volatility, regulators are coming up with a strong governance framework. Banks that adopt new financial models and establish the foundational building block to handle cryptocurrency will slip seamlessly into the future world of payments and finance – a world that the likes of Mastercard and Paypal have been inhabiting for a while. Many opportunities await banks making a play in cryptocurrency. Low-hanging fruit to jumpstart efforts could be to allow customers to receive financial education, training, and personalized advisory services. This can be further extended to an authenticated zone with real estate services and virtual ATMs.

Customers will link their accounts to a virtual ATM in the metaverse, where they would do exactly what they do in a real-world ATM – enter their ATM pin (the same one) to withdraw money in more than one fiat currency and tuck it into their digital wallet. BNPL is another use case in lending, in which Decentraland and Binance have partnered to enable customers to buy virtual land and other assets using Binance’s BNPL pay service to pay back in installments. As the metaverse economy flourishes, banks might be able to expand into other adjacent financial opportunities, such as lending or insurance. 

Banks as Reform Agents

While this is good, as highly regulated and trusted institutions, banks are ideally positioned to play a stewardship role in creating a secure and well-governed metaverse economy. Consider this:

Banks are the best custodians of digital money and assets in the metaverse. Customers have been entrusting them with their money and valuable assets for centuries. Banks can leverage this advantage to hold cryptocurrencies and digital assets in trust. 

In their treasury operations, banks deal with multiple currencies every day. They have the infrastructure and relationships to move money within and across borders, the expertise for forex trading, and the systems to comply with all regulations. No single entity has this expertise in the meta-crypto-verse, where using a mix of real-world money and cryptocurrency is quite cumbersome. Additionally, there are a very large number of virtual currencies in circulation, which cannot be interchanged. It is most inconvenient for customers to transact and manage and for merchants to accept so many currencies, many of which do not have actual value. 

There is a clear need to establish formats, standards, regulations, and support services to allow seamless and secure flow of currency and digital assets. It is also necessary to rationalize the currencies in circulation to a manageable number. All these initiatives require a governing entity that can envision the structures, standards, rules, rights, and responsibilities, along with checks and balances, to ensure the smooth functioning of cryptocurrencies in this world and the other. Who better than banks to fill that role with their expertise in such matters?

From being enablers of the metaverse, banks could evolve into active adopters. Some banks are experimenting with augmented reality/virtual reality tools to help customers manage their accounts and make financial decisions or train customer-facing staff by simulating “lifelike” scenarios. Others have gone further – right into the metaverse, to create virtual lounges or have relationship manager avatars meet clients. 

The Way Ahead

Ultimately, success in the metaverse will depend on whether users can move between their physical and virtual worlds with ease. That also implies the ability to make frictionless transactions. Banks can play a key role by setting up the necessary financial infrastructure and, most importantly, creating a conducive environment by suggesting “reforms” such as cryptocurrency rationalization, standardized, interoperable formats, rules and regulations, governance processes and structures, etc. Given their expertise in managing foreign currencies, international remittances and payments, custodianships, and regulatory compliance, they are the right candidates for the job. 

Do you think banks could help regulate cryptocurrency and the metaverse economy better? Share your thoughts with us on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .

MORE ON METAVERSE AND CRYPTOCURRENCY: 

• Interoperability: Why the Metaverse Needs to be Cloud-native
• The Business Metaverse and the Future of Work
• Everything You Need to Know About Metaverse and Web3
• The Power of Three: DLT, Cryptocurrency and CBDC
• Why Crypto Payments Could Strengthen Your Creator Partnerships
• Why Distributed Ledger Technology Is the Next Battleground for Hackers

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