Unlocking the Potential of the Metaverse: How Banks Can Thrive in the Virtual World

By Philipp F. Holetzke, Industry Executive Banking, Microsoft Deutschland GmbH

25. January 2023

Tags
Virtual reality

As the Metaverse continues to evolve, banks and financial service providers must look for ways to leverage the new opportunities it presents while also addressing the challenges it poses.

Modernes Glas-Atrium eines großen Gebäudes.

While it is difficult to estimate the exact business potential of the Metaverse for financial institutions and banks as it is a relatively new concept and the technology is still evolving, it is widely believed that the Metaverse will deliver significant revenue for the industry in the future.

According to a report by Goldman Sachs, the Metaverse could generate $3 trillion in annual economic activity by 2030. The report suggests that the Metaverse will create new revenue streams for companies across various industries, including financial services and banking.

The Metaverse can offer several opportunities for the financial services industry, such as new revenue streams through virtual goods and services, increased customer engagement and loyalty through immersive experiences, and improved financial inclusion through virtual banking and digital currencies. Additionally, it can provide new opportunities to improve operational efficiency, for example, by using virtual reality for employee training, or blockchain technology for secure and transparent transactions.

However, it’s important to note that the potential of the Metaverse will depend on how well financial service providers can navigate the challenges it poses, such as ensuring security and compliance in a decentralized digital environment, keeping pace with rapid technological advancements, and managing digital identity and protecting personal data in a virtual world.

Overall, while the exact potential of the Metaverse is difficult to estimate, it is clear that it presents a range of new opportunities for growth and innovation in the industry.

The Opportunities …

Opportunity 1: New revenue streams through virtual goods and services
The Metaverse presents a range of new revenue opportunities for banks, including the ability to sell virtual goods and services, such as virtual currency and in-game items, as well as providing financial services to virtual world economies. As these economies continue to grow, banks can tap into new revenue streams and create new business models by participating in the virtual economy and collaborating with virtual world operators.

Opportunity 2: Increased customer engagement and loyalty through immersive experiences
The Metaverse also provides an opportunity for banks to increase customer engagement and loyalty through immersive experiences. Banks can create branded virtual spaces and experiences that allow customers to interact with their products and services in a more engaging and personalized way. This can lead to increased customer retention and acquisition, as well as improved customer satisfaction and brand awareness.

Opportunity 3: Improved financial inclusion through virtual banking and digital currencies
The Metaverse also presents an opportunity to improve financial inclusion by providing access to virtual banking and digital currencies for individuals who may be underbanked or unbanked in the physical world. Banks can leverage the Metaverse to reach new customers and provide them with access to financial services, regardless of their location or economic status.

… and the Challenges

Challenge 1: Ensuring security and compliance in a decentralized digital environment
Securing the Metaverse is a key challenge for banks as it is a decentralized digital environment, and it requires a new set of security protocols to protect customers and their assets. Banks will need to invest in robust security measures to protect against hacking, fraud and other cyber threats. Banks will also need to ensure compliance with regulations and laws that apply to the metaverse and virtual currencies.

Challenge 2: Keeping pace with rapid technological advancements and shifting consumer behavior
The Metaverse is a rapidly evolving technology and banks will need to stay up to date on the latest advancements in order to stay competitive. This includes being able to quickly adapt to changing consumer behavior and preferences in the virtual world. Banks will need to invest in research and development to stay ahead of the curve.

Challenge 3: Managing digital identity and protecting personal data in a virtual world
As the Metaverse evolves, banks will need to find ways to manage digital identity and protect personal data in a virtual world. This includes ensuring that customer data is protected and that customers have control over their own digital identity. Banks will also need to comply with data privacy regulations and laws, such as GDPR and CCPA.

Companies have started their way to the Metaverse

By focusing on key areas such as new revenue streams, customer engagement, and financial inclusion, while also addressing issues of security, compliance, and data privacy, banks can position themselves to thrive in the Metaverse. Financial services are key to make the Metaverse work. It is crucial to start planning and experimenting with the Metaverse as soon as possible.

In fact, some banks and financial service providers have already started to explore the Metaverse, such as JPMorgan Chase, which has been experimenting with blockchain technology and virtual reality to improve customer engagement and operational efficiency. Another example is BBVA, that has been testing virtual reality to offer financial education and services to customers in an immersive and interactive way. Citi Bank also has been experimenting with virtual reality to train their employees and improve the customer experience. These examples demonstrate that there is already a growing interest and momentum in the financial services industry to explore the opportunities that the Metaverse presents.

Strong partnerships for the industry

As the Metaverse continues to evolve, banks will require a partner with a deep understanding of the technology, as well as the ability to provide the necessary infrastructure and security to navigate this new digital landscape. Microsoft’s extensive experience in technology, particularly in areas such as cloud, blockchain and artificial intelligence, makes it well-positioned to support banks along their journey to the Metaverse.

With Azure, Microsoft provides the scalability, security and compliance capabilities that banks require to operate in the Metaverse. Additionally, Microsoft’s commitment to innovation and its investments in the Metaverse, such as its acquisitions in virtual reality and gaming, positions it as a leader in the space. Furthermore, Microsoft’s focus on trust and privacy aligns with the needs of financial institutions when it comes to secure and transparent transactions in the decentralized digital environment.

Banks can leverage Microsoft’s expertise and strategic approach to the Metaverse, to capitalize on its opportunities while overcoming its challenges. By partnering with Microsoft, banks can access the tools and resources they need to thrive in the Metaverse and build upon its potential for growth and innovation.