Despite unprecedented growth in both value and use in 2021, cryptocurrency remains volatile, and, for the most part, outside of the financial mainstream. But the emerging metaverse is about to change that.
It will be this new generation of the internet—encompassing VR, AR and other immersive technology—that finally leads to the regulation, wide-scale adoption and stability of cryptocurrencies.
With signs that this is already underway, financial institutions need to secure their place in this potentially huge new part of the economy by integrating crypto and the metaverse into their business models and services. And it will be their long-established brands and large customer bases that will help guide them to the crypto-fueled metaverse economy.
The metaverse economy saw more than $20 billion in retail sales in 2020 and is growing by around 40% annually. Many of these transactions have been limited to digital art and virtual luxury fashion items or skins—Dolce & Gabbana recently sold a collection of mostly virtual-only items for $5.7 million—but this is just the beginning of the exploding use of digital assets as a store of value.
As the number of people using digital assets in the metaverse increases, so will the number using it to send money between friends, pay for physical goods or back up real-world assets. This explosion of crypto use, including in the metaverse, is driving discussions around regulation. And regulation will help stabilize crypto and bring it closer to the financial mainstream.
But banks should not wait for regulation; they should be embracing the metaverse economy now. Here are three ways they can be doing this.
Leverage trust and brand recognition
Banks are some of the most trusted institutions, with a majority of consumers trusting banks more than the government. There is, therefore, huge potential for them to tap into their customers’ growing interest in crypto and in storing value in digital assets. And it’s not just younger generations using crypto; in fact, 45% of crypto holders in the baby boomer generation used it to make a purchase in 2021, compared to just 30% of Generation Z.
By processing crypto payments, Mastercard is showing how a traditional financial institution can cater to crypto demand while keeping consumers within the existing network and brand. And by becoming the latest leading player to offer custody services, U.S. Bank is demonstrating that there is a strong desire for funds that deal in bitcoin to have a bank’s name backing them up.
Breaking into crypto by processing payments and offering custody services will help banks prepare for the future, when digital assets are fully involved in traditional financial transactions—like mortgages, loans, and the trading of equities.
Another opportunity for banks to leverage their brands may lie in the field of risk management and user verification, especially as more people rely on peer-to-peer cryptocurrency transactions and want to trust sources of payment.
Embrace metaverse payment platforms
As the metaverse and its shopping options grow, so does the need for digital platforms to process these financial transactions—both in that world and in the real world. For example, Meta, formerly known as Facebook, has recently launched a pilot that lets people use WhatsApp to send value from a digital wallet to others, offering benefits like international transfers without fees.
There is an opportunity for the financial sector to provide these platforms or to allow users to connect their bank accounts to existing payment apps by opening their APIs. But these emerging apps will not be confined to phone or laptop screens; they will need to be integrated into the various VR and AR systems that will make up the metaverse.
In the traditional fintech world, banks are behind many payment apps that don’t have their own banking licenses, and they can benefit from taking a similar white-label approach in the metaverse. There is too much value being moved in the metaverse for banks to ignore it.
Integrate with VR and AR platforms
In addition to providing payment platforms in the metaverse, banks need to think about ways to increase their presence in this world and how to better serve customers who will be spending more time there. Communications with customers should include AR and VR where appropriate. For example, with the use of VR glasses, customers will be able to manage their banking and finances anywhere and in a much more immersive way than is possible on a phone app.
Banks and financial institutions should also realize that millions of people are spending time on metaverse platforms, whether in games, virtual concerts or real-estate sales channels. These are all extremely visual and immersive and create new advertising opportunities, from digital billboards to partnerships with celebrities, whose avatars will speak to potential customers.
Trying to predict what exactly the metaverse will look like, or how it will affect us, is impossible. For financial institutions, the key to success in this new world is not in waiting for regulation but in determining how they can leverage their unique attributes—brand recognition and trust—now. Using these attributes to meet customers’ needs, including their desire to participate in the crypto and metaverse economies, will help banks successfully navigate the transition, no matter what this new world looks like.
This article originally appeared on FinExtra. You can read the original here.
