The Metaverse is the latest in a long line of ‘next big things’ and has attracted interest from the Swiss banking and wealth management community. Described as the next iteration of the internet, the Metaverse is an immersive and interactive experience – users become a part of a digital world, as well as the physical one. Current examples include Decentraland, Fortnite, Minecraft, Roblox, and The Sandbox.

The Metaverse could have massive implications. As the digital native generation matures, the virtual world will become the norm across a number of sectors. Much like clients now expect Netflix and Amazon-like personalised experiences, banks will need to meet the challenge head-on by incorporating the Metaverse into their future offerings. Tomorrow’s clients will demand an immersive and engaging experience whenever they deal with their bank or wealth manager.

The potential is vast
Bloomberg Intelligence expects the market size to be US$800 billion by 2024. And associated markets are also a work in progress; the NFT market cap is currently above US$41 billion, and US$54 billion has been spent on virtual goods in 2021. McKinsey research predicts the value of the Metaverse will be US$5 trillion by 2030.

Gartner, meanwhile, predicts that by 2026, 25% of people will spend at least one hour a day in the Metaverse for work, shopping, education, social, and/or entertainment.

Luka Müller, Co-Founder and Chairman of Sygnum, comments: “The Metaverse is really just the next stage of the internet where a bank or wealth manager can interact with potential or existing customers to provide information or functionality online.”

“What is new about it is that instead of going to a specific IP address for a bank or wealth manager, the user accesses the wealth manager via the online equivalent of a shopping mall – the user walks through the Metaverse and accesses the companies they need. The interactivity and the access are the points of difference,” he continues.

Indeed, internet-wise, the current iteration, Web2, has been characterised by the emergence of social networking and user-generated content. But Web3 will introduce new and exciting elements. According to McKinsey: “Web3 heralds a new decentralised ecosystem, in which users begin to own, monetise, and utilise their data for their own benefit, and creators can monetise their content and talents in different ways.”

Digital assets are a core component of the Web3 technology stack. Suppose users can connect their wallets to digital assets such as cryptocurrencies, digital equities, stablecoins, and NFTs in the form of skins, tools, and even virtual real estate. In that case, they can use those assets to access digital possessions.

Use cases in financial services
Not surprisingly, the immediate use case within banking and wealth management is for payments and other transactions. Blockchains interact with Metaverses by providing digital currencies for commerce and NFTs to prove ownership of the digital objects contained within these virtual spaces. Trusted digital services, including payments, digital IDs, and signatures, are already in place, and one bank, Lombard, is already lending with digital collateral.

Swiss-based Fiat24, meanwhile, wants to take banking into Web3, to use smart contracts and automate many of the tasks currently managed by banks or tech giants, like Apple or Facebook. To do this, it created an NFT that acts as a personal eID or digital passport. The NFTs remain in the direct control of holders and can be attached to any crypto wallet to prove their identity.

McKinsey sees the potential of the Metaverse as huge, saying that as it gains traction, digital versions of more sophisticated banking services could emerge to serve users. It cites examples such as: “Embedded bank-like services for wallet owners in native Metaverse venues, such as multicurrency cash management — back-end servicing for financial services, like virtual real-estate mortgage origination and warehousing — funds and investing services for Metaverse projects, such as Metaversespecific investment funds — customer engagement enhancements, like gamified credit education and unique loyalty experiences.”

But more broadly, the Metaverse can fit well with a renewed focus on client experience and communication. Indeed, Covid-19 forced change. Banks and wealth managers have now largely moved to a hybrid model where client and adviser interact and communicate face to face and over digital channels; remote meetings, client portals, and exchanging messages via WhatsApp are all commonplace.

Banks are already experimenting with how the Metaverse could add to experience and communication. Bank of America and UBS are looking at VR training, creating virtual ‘financial towns,’ telecommuting centres, and interaction spaces. Some, like NH Investment, offer virtual investment services, and JP Morgan is trialling its Onyx virtual lounge in Decentraland.

And Swiss bank Sygnum has created a three-storey hub in the virtual equivalent of New York’s Times Square in Decentraland. HSBC, meanwhile, has purchased virtual land in The Sandbox dedicated to engaging with e-sports enthusiasts.

Müller comments: “There is a lot of discussion about how useful the Metaverse will be. The truth is that no one knows yet, but just as in the past, there were no websites, only paper brochures. Simple websites came next, and functionality and transactional ability then came along. Now we also have chatbots to provide interactivity, so we can assume that Metaverse will find its place.”

He warns that regulatory restrictions as regards what can be sold and to whom will need consideration. “Passive solicitation is tolerated, but active selling and anything contractual is not. This will need to be looked at when setting out a Metaverse strategy and presence. Another issue is how to permission a Metaverse offering in line not just with regulation, but also in line with whether someone is a prospective or existing client, what level of service they get, etc.” Müller says.

What could come next?
Going forward, more institutions will create digital branches in the Metaverse. Doing so serves several purposes; it serves as a brand and credibility builder and shows the bank or wealth manager is looking to innovate and build on its hybrid and opti-channel offering.

But all of this relies on people engaging with the Metaverse concept and actually using it. Current levels of visitor traffic to Decentraland, for example, are low.

Müller comments: “We think that today’s Metaverse is a nice marketing tool as things stand. Our experience was that by entering the Metaverse, we attracted more attention than we ever could have hoped for with, say, a product launch. Another element that we like is the gamification element. This theme is important within banking and wealth management as it enhances the user experience and makes it more fun and easier to use and navigate. Thirdly we think it is an interesting thing to be able to offer now, but with one eye on the future and our aim to capture digital natives as they acquire wealth.”

This article is from The Wealth Mosaic’s Swiss WealthTech Landscape Report 2022. Access the full report here.