"What is the Matrix?”

While Keanu Reeve asking this question in the movie was an act of fiction, in our real world today there are many who are asking the same question referring to metaverse. For most, the extent to which they can stretch their imagination is thinking of it as a virtual space conceived on augmented reality and built for socializing. While much is being discussed on metaverse based products and frameworks in the last few years, the fact still remains that so far it still is being associated mostly with AR or VR based gaming platforms. Which is only partly true because while the first few use cases on metaverses have been associated with gaming and social ventures, however the applicability of it is much wider. So how exactly is the idea of a metaverse being extended to use cases beyond the obvious? We shall explore the same in this article with specific focus on banking domain.

BANKING ON THE MATRIX !

In a target metaverse ecosystem (not so much in the future) its envisioned that we can consult our investment banker about managing our funds, get personalized products conceived across the table, and meet a credit appraiser from our home by wearing a pair of virtual reality glasses. Interesting as it may read, this is how metaverses will integrate with banking and make virtual Banking a reality. We will make an attempt here, to explore as how the fusion of metaverse and banking could create an interesting ecosystem that will enable wider participation. Analysts project that this economy is set to boom in the coming years, and there are strong reasons to make this assumption. Consider these industry wide developments for example:

• Mckensey in its report estimated a $120 billion of investments in metaverse ventures, that has happened the first five months of 2022 by corporations, PEs, and VCs.

• KPMG estimates ~$13 trillion per year revenue to be generated by metaverses by 2030. While Goldman puts that estimate at around $8 trillion.

• Microsoft acquired Activision Blizzard for ~ $69 this year.

The above data, points to the fact that funding and public interest in metaverse has really exploded over the past year and it is not just limited to gaming but is instead across a diverse spectrum of industries amongst which, banking and financial services space is definitely one.

WHAT IS METAVERSE? The word metaverse was introduced by Neal Stephenson for the first time in his 1992 novel – “Snow Crash” and he described it as a type of virtual reality that is shared across the internet. While a concept in paper then, in its current state - It is a seamless convergence of our physical and digital lives, creating a unified virtual community, enabling users to deepen their social interactions digitally. While the first few most successful use cases built on Metaverse frameworks is in the gaming industry, it has got some immense potential to redefine the way consumer interactions as a part of customer service shall be managed by a diverse spectrum of industries in a not so far away future, banking being one of the most significant ones. To establish this point, SEC reported that in the first six months of 2022, the word metaverse appeared in regulatory filings more than 1,100 times. In the BFSI space, entities are either working in consortiums or joining hands in exploring the potential opportunity in the metaverse. The likely future extent of the impact on this sector depends on the evolution of the underlying technology, especially utilizing web3, and on the degree to which platforms are adopted over Web3.

WEB 3 - There is an old phrase – “We have to know our past well to gauge our future better”. Therefore first, let’s reflect back on the journey we have taken from web1 to the future of web3 and see where the future of consumer banking may be headed.

The earliest version of the internet entailed of a few users creating content for a large population, and thus enabling them to access such information, from the sources. The best description of “Web 1.0” therefore would be that, it was the earliest form of the Internet, designed as a medium to assist people find data with a few basic characteristics like - being made up of static pages connected to systems via hyperlinks, having HTML elements like frames and tables, which mostly got sent through e-mails.

While web 1.0 was made of smaller group of users generating content for a wider audience, then “Web 2.0” is characterized by many users creating even more content for an ever-expanding audience. While Web 1.0 focused on making data available for reference, Web 2.0 focused peer to peer contributions. Therefore Web 1.0 is generally referred to as “the read-only Web,” and Web 2.0 is identified as “the participative social web.” Mobile Internet, and the rise of social media have contributed to a dramatic rise in Web 2.0’s growth. A typical breakdown of Web 2.0 characteristics would be like - offering collective data creation, allowing users to retrieve and classify data collectively, containing dynamic content that responds to the user’s input using APIs, encouraging self-usage and allows forms of interaction like podcasting, social media, blogging, social networking, amongst some other features.

When trying to figure out the meaning of “Web 3.0”, we need to look far into the future. Although the elements of Web 3.0 have been available since some time, however it’s combined usage in commerce to radically change the existing methods, has a way to go before it reaches full realization. Web 3.0 is built on a foundation consisting of the core ideas of decentralization, openness, and user experience allowing seamless convergence of physical and digital worlds. If Web 1.0 was the "read-only Web," Web 2.0 is the "participative social Web," then Web 3.0 is the "distributed and decentralized web”. Here collaboration across users away from centralized platforms towards more decentralized and nearly anonymous platforms. Though Web 3.0 isn't entirely in place, we are seeing elements of it working its way into our Internet experiences, in the form of implementations on NFTs, Blockchain, Distributed ledgers, and AR on cloud. However, if and when the full implementation happens, it will get closer to Berners-Lee's initial vision of Web 3.0. As he had explained, - “it will be a place where no permission would be needed from a central authority to post anything … there is no central controlling node, and so no single point of failure … or no kill switch." A typical list of Web 3.0 characteristics would be – An open web, where technology evolves into a tool that lets users create and share, content without centralized authority. Incorporates AI to become smarter and more responsive to user needs. Connect multiple devices and applications through the internet of things. Semantic data storage, allowing available information to be effectively leveraged in parallel. And as well characterizing users with complete freedom to interact publicly or privately without an intermediary and thereby offering people trustless data.

Combining all these features of Web3, there can be a radical change in the way banking products and services are delivered via platforms on metaverses, using the blockchain and NFT frameworks, resulting into decentralized finance involving peer-to-peer digital financial transactions, smart contracts, and digital token economics.

Evolution of Products on Metaverse in the Financial Services Space – There is a clear distinction between how financial institutions have been engaging in the more traditional Web 2.0, vis-à-vis experimentation in Web3-enabled metaverse frameworks.

In the context of Web 2.0, we see financial services companies utilizing technology better for employee training. For example, Bank of America’s TRAINING115 built on VR. Creating virtual “financial towns”, by South Korea’s KB Kookmin Bank. Or offering virtual investment advisory services. Although these applications could be very mature, however their impact on the ultimate business model generally is only modest. In a way we can say that these are incremental innovations over existing ways of banking functions.

In the Web-3 enabled metaverse product space, ideas become more creative, as solutions get built incorporating AI, connecting via IOT, and allowing users the freedom to interact publicly or privately without having an intermediary. For example, HSBC announced plans to open an office in the metaverse on Sandbox. Siam Commercial Bank also announced plans to launch a virtual headquarters on Sandbox. BNP Paribas has launched a Virtual Bank for customers to access their account information. London-based fintech Sokin is building infrastructure for processing metaverse payments, transactions, and investments. Neobank Zelf is launching embedded banking on metaverse in Discord. North American technology company TerraZero providing back-end support for virtual real estate financing in the metaverse. And JPMorgan via this bank’s blockchain arm Onyx became the first bank to open a lounge and an office on Decentraland. With more entities investing and showing interest in NFTs, tokens, DLTs, Smart-Contracts and Blockchains, it is not far-fetched to assume that consumers will start having a strong brand recall to the banks that position themselves effectively on the metaverse. And once the adoption of Metaverse picks up, more banks are set to follow.

TO ME PERSONALLY - I envision the future of banking on metaverse to be as seamless as visiting a bank in person, without having to step physically into one. I envision for instance, as a customer to get a lifelike metaverse avatar of a support agent or advisor to be more interesting to communicate with, than a dead computer screens, or a chat application or even over an audio call. I also envision one extremely inefficient aspect of banking that should completely change via metaverse, and that is the KYC verification process. Via a seamless convergence of our physical and digital beings, we should be able to perform KYC verification through immersive experiences. Banks are currently limited by borders to run their operations. Banks often set up workspaces in markets where they intend to provide services. I envision metaverses to provide an unlimited potential to access customers and talent from all over the world. Imagine this, a French bank could have a relationship manager anywhere in Europe who could be speaking to a customer from anywhere in Asia through a seamless convergence of their physical and digital being in the metaverse.

IN SUMMARY - Metaverses in fintech are set to be a lot more than a just an incremental technological shift, that would open new sources of revenues for banks and other financial institutions in the future. In an age where passive dead chat engines, and cold calls by banks truly leave customers and prospectus, both cold, this platform has the potential to truly revolutionize the way banks can connect with their customers in a virtual space and build personalized engagements with them.

WHAT METAVERSE IS NOT - While products and services surrounding metaverse would radically reduce the bottlenecks in today’s consumer banking services, and it is practical for banks to adopt this new age version of banking to create a competitive advantage, however at the same time its important to realize that metaverses do not replace real life. Even in its most advanced version, a metaverse could only complement rather than compete with the real world, enhancing our real-life experiences rather than replacing them.