Unravelling The Mysteries of The Metaverse - How Can Banks Differentiate Themselves

The Metaverse is the next frontier in technology - merging real and unreal realities into a digital landscape in which we can exist. Despite being in it’s nascency, banks and FinTech's have begun investing in the metaverse, looking to take advantage at an early stage and exploit the opportunity to engage with customers in immersive new ways.

As banks and FinTech's enter the Metaverse, we asked three leading experts from HSBC, Quinlan & Associates and Defi Singapore on how banks can differentiate themselves and maintain customer relationships in this alternate reality. They debate if banks are simply investing into the Metaverse to "occupy the field" and ensure competitive advantage or staying two steps ahead of the game because the future as we know it, is indeed at the dawn of change.

In the context of the metaverse, how do you see banks differentiating themselves and maintaining customer relationships in this alternate reality?

Nicholas Soo, Director, Regional Head of Payment Products, HSBC - “It’s very early days still and the industry is still largely in a learn and experiment mode, different players are moving at a slightly different pace, depending on the nature of the specific industry, and the demographics of their customer base.

We’re keeping a very open mind on what opportunities the Metaverse may present to HSBC as well as our clients. To provide a few examples 1. We announced in March, that we were looking to acquire a plot of land in the Sandbox metaverse, to explore ways to create new experiences for our clients via emerging platforms. 2. We have partnered with a leading museum in HK to introduce NFT exhibitions, 3. Continued publications and live-streamed Global Research discussions on a host of metaverse-related topics

Specific to the Metaverse from a corporate payments’ perspective, there are some dimensions to consider: how do we support payments/collections natively in the metaverse whilst complying with existing regulations? Can we adopt some of the improved capabilities of VR/AR to offer more immersive experiences or do we also take a broader view on what Metaverse means to incorporate the web3/defi ecosystem? I would propagate a guiding principle to avoid just recreating a vanilla banking experience in the Metaverse - we can aim higher!

At the end of the day, the key question to ask ourselves is how these emerging technologies better help us serve our clients and the communities we operate in. Some of the technologies may be transformational and some may not. It’s important to monitor the landscape, upskill ourselves, experiment accordingly, demonstrate outcomes, and then make informed decisions on how to participate more meaningfully.”

Leslie Daniel Chan, Founder, Defi Singapore – “These new markets are the GenZ. They grew up with the banks in poor market conditions and are more exposed to current market shifts in the present-day market such as high inflation and excessive printing of money that has painted a negative impression on these GenZ (thus the narrative of a "better world" in sandbox). The banks recognize that GenZ and the future children are constantly more engaged online than that of a physical bank presence nearby to use their physical banking services; everything can be done online. This is the result of providing faster internet service with 5G, to digitalization of banks old legacy systems from more than 10 years ago with the migration of existing customers to their web 2 portals in the last few years that solely focus on the individual banks products and services.

From a traditional expansion of branches to retain customer engagement to the current digital space of web3, banks are productizing their services and maintaining a brand engagement strategy to engage their existing clients and NEW ones through the use of web3 platforms. This is where the differentiation comes in; by being in an agnostic 3rd party web3 environment like sandbox, their banking competitors are going to be in the same VR vicinity, banks would need to be innovative and creative to capture and retain new market amidst in an explorative Virtual world that allows a web3 user to say " i want to open a bank account; can i do it virtually in a web3 platform like sandbox? " OR online static web 2 marketing efforts now have the capabilities to engage the digital audience experientially. Collaborations between non-banking personnel and 3rd party service providers like metaverse designers/architects will join forces to bring these new virtual experiences to a new market and Gamification Experts will bring new VR experiences to banks for a virtual customer centric based audience.

Benjamin Quinlan, CEO & Managing Partner, Quinlan & Associates - First, there are certain challenges banks must address, the foremost of which is attraction of customers to the metaverse. The fact is, many people, especially older generations, have either never heard of the metaverse or had heard of it but were unsure of what it meant. 

Even if the metaverse does become a popular theme, the high cost of purchasing AR / VR hardware would likely curtail mass market retail customers, especially from emerging markets, from entering the playing field in the first place, at least until much later when the hardware becomes affordable. The question of whether customers indeed wish to use the metaverse as a banking channel will remain, since many are likely to be cautious. The slew of hacks and scams that have taken place do no favour to web3’s credibility either, likely impacting the metaverse by extension.

Assuming that adoption does indeed take hold, then differentiation will likely come in the form of the quality of virtual experiences that banks can deliver. The metaverse can also offer banks a scalable way to roll out the virtual red carpet to not just wealthy individuals (such as high- and ultra-high-net-worth individuals), but also mass-market retail customers, offering a more personalised user experience to one and all. For instance, we have recently witnessed multiple banks, such as J.P. Morgan, launch “virtual lounges”, allowing their customers to enjoy an immersive experience in the metaverse.

Are banks simply making investments to "occupy the field" and ensure competitive advantage in the future or could this be a sign of what’s to come? 

Benjamin Quinlan, CEO & Managing Partner, Quinlan & Associates – “There is presently a lot of uncertainty regarding various issues, such as a lack of common standards in the metaverse, regulatory compliance requirements, and interoperability challenges across multiple different metaverses, etc. Whether the metaverse, and banking / financial services delivered via it, witnesses robust customer adoption or not still remains to be seen.

Hence, I would speculate that at present, banks are simply ensuring that they don’t get left behind, should the metaverse indeed take off spectacularly, especially after having missed out on other recent web3 exploits, like cryptocurrencies and non-fungible tokens (“NFTs”). So, you could perhaps call it a fear of missing out (“FOMO”) that’s driving these initiatives from banks that don’t want to be late to the party, once again.

This is also reflected by the lack of banking / financial services currently being delivered via the metaverse. Yes, some banks may have launched “lounges” in the metaverse, but one cannot avail products / services via them, but rather just observe them like a tourist in the metaverse. The closest tangible product / service offerings for customers at present are funds that are investing in metaverse-related companies, like HSBC’s Metaverse Discretionary Strategy portfolio.

Other than that, it is important to understand that the metaverse, in essence, is a platform that lives-off of user traffic. Attaining a parcel of virtual land with a high-level of traffic could open-up new business opportunities for banks. Thus, purchases of virtual land by banks could also be thought of as real estate investments, rather than just space for launching a “virtual lounge”. For example, HSBC is introducing the sport of rugby to the metaverse by launching six immersive experiences in its virtual stadium at the Sandbox, in sync with the “Hong Kong Sevens” tournament. The digital stadium could easily monetise the traffic by placing virtual advertisements, just as how physical stadiums do in the real world.”

Leslie Daniel Chan, Founder, Defi Singapore - “I believe that with the recognition for a new form of online engagement needed for the future generation - banks are planting "seeds" in potential new WEB3 platforms to build and grow for a new generation to come. This remains highly experimental and would need the tenacity and focus to see through and build the next digital infrastructure to migrate from web 2 to web3. As to what is to come; Banks should start asking how they can engage these borderless audiences to use their services.”