Defining the metaverse is a bit of a tricky task because it does not yet truly exist in a final form. However, like many technologies, it is evolving a little more each day. For the sake of explaining the metaverse, the best definition of a metaverse is a shared virtual space that is hyperrealistic, immersive, and interactive, thanks to the use of augmented reality (AR) and virtual reality (VR) technology. Even more simply put, It is a digital universe. It is not easy to quantify the possibilities that a fully functioning metaverse can provide, but we will discuss how a metaverse could affect the world of financial services.
It is crucial to cover the basics of the metaverse as we look at the effects it may have on the future of financial services.
- Boundless - There are no barriers between the physical and digital, as the metaverse is endless
- Persistent - The metaverse is not a thing that can be turned off or reset.
- Immersive - Through the Use of extended reality, users can have realistic sensory experiences.
- Decentralized - There is no single controller of the metaverse, as all users have individual autonomy.
- Social Experiences - Through the use of AI, entities and user interaction events can be shared to create social connections.
- An Economic System - The use of digital currencies will enable the metaverse to be a fully functioning virtual economy.
To give reference to what a metaverse is, pop culture has supplied us with a few examples from movies like the Matrix, Tron, Ready Player One, and Free Guy. For those who are avid science fiction readers, the "Snow Crash" novel may give you a literary picture of a metaverse, be it a dystopian one.1 However one views the idea of a metaverse; there is the fact that there are incredible opportunities within a metaverse for individuals and businesses.
There can be countless worlds inside a metaverse, in which individuals and companies can engage in a wide range of activities that are the byproduct of both the physical and digital worlds. Today we all stare at our screens—computers, tablets, smartphones, and even watches—for much of our work. In a metaverse, however, users can be inside all the online experiences, such as shopping, going to a concert, conducting business, and, yes, even buying real estate. With major financial institutions getting involved, there is the potential for the metaverse to move away from niche users.1 As the demand for the metaverse grows, the need for the flow of paperwork and finances will be necessary for the metaverse to be sustainable.
Impacts On Financial Services
The early adaptors of the metaverse in the financial service sector are using it to train staff, build virtual towns for networking, create telecommunication centers, and even provide investment advisory services. At the moment, their impact on business models is still quite small. The potential that it may have in the future still remains a large question.2 The potential for the creation of value for use in a business application is quite important to observe.
Currently, the value of using the metaverse for financial service institutions lies in marketing as they can show that they are able to adapt, increase brand awareness and credibility, and innovate in the changing environment. The next is that financial institutions, especially more traditional ones, are uniquely positioned to bridge the trust gap that has traditionally held back wider adoption of services such as digital IDs, digital payments, or custody for NFTs, cryptocurrencies, or other digital assets. Further, there are emerging products and services; as the metaverse grows, cybersecurity and cyber insurance have the potential to be involved in protecting and ensuring privacy and assets are covered in case of any threat.2
As the metaverse grows and expands, there will be a need for a bank-like service that can securely handle multicurrency cash management, virtual real-estate mortgage origination and warehousing, funds and investing services in both metaverse-specific investment and traditional investments, and finally, the financialization of everything. Growth in these use cases will depend on the extent to which the metaverse is adopted.2
Impact On Asset Managers
For asset managers, there are a few things that could have an effect on how business is conducted. Using the example of paperwork when setting up an offshore investment account, if the metaverse is used, the client and asset manager can meet in the metaverse and seamlessly go through the account opening documents together rather than depend on emails and snail mail solely for documentation transfer. Accepted digital IDs would allow for the process of notarization to be done away with, hypothetically. This would help to streamline the onboarding of clients. In the real world, client privacy and the security of assets are of utmost importance, and this is an issue that will remain very important in the future. It will be quite the hurdle to vault for the metaverse to ensure that business can be done safely and securely.
In terms of investing, the metaverse could provide countless more investment opportunities for alternative investments, with cryptocurrencies being used as its tender. If the metaverse is truly an independent economy, it will create new opportunities for companies to create new services and products. It would be a digital form of emerging markets. The possibilities would be countless. However, as with all investing, there is risk involved, and at the start, they would most likely be high-risk investments.
As mentioned earlier, a fully functioning metaverse does not yet truly exist due to the constraints of technology and wary participants. It is an interesting topic to dive into to gain an understanding of how the digital world around us is evolving. Understanding the potential impacts it could have on our daily lives and the financial service industry is a good place to start learning what the future may hold.
Since many questions remain unanswered about how the metaverse may change interactions, communication, investments, and services, it is important to stay informed and see how things progress over time. In the current world, we are more connected than ever and have incredible access to services and products from around the world. The question is, will the value added by the metaverse be significant enough to draw individuals and companies inside of its digital reality?
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