The Future of Financial Services: Web3 and the Metaverse

Web3, the metaverse and similar emerging technologies continue to be subject to significant hype, yet many in financial services remain skeptical of their potential role in the industry.

While a few major players, such as HSBC and JPMorgan, have been quick to adopt such technology, with JPMorgan's “Opportunities in the Metaverse” forecasting that the metaverse could reach $1 trillion in annual revenue, most have been reluctant to explore the transformational potential of these technologies.

Innovations like the metaverse will be vital to the advancement of the financial services sector and have the potential to deliver unique business benefits. But will customers adopt these innovations on a large scale? Where does the real value lie in such technologies if they are to be more than a short-term fad?

What are the use cases of Web3 and the metaverse for financial institutions?

Financial institutions are early in their adoption of Web3 but need to secure their place in the market by quickly integrating these technologies into their business models and services. But where is the best place to start?

There are hundreds of potential use cases for Web3 and the metaverse in financial services. The most impactful use cases include:

• Digital asset settlement
• Web3 virtual-world integrations with legacy rails(e.g., credit cards and wire transfers)
• Cross-border and cross-metaverse settlements and foreign exchanges
• Identity confirmation (e.g., KYC and AML compliance keys)
• Non-biased recruiting
• Creation of virtual worlds and simulations for training or upskilling
• Advertising and search opportunities that create ambient experiences Privacy and digital infrastructure (such as Zero Knowledge Proofs)

Who is the target audience for Web3 and the metaverse?

The first step for financial institutions looking to dip their toe into Web3 and the metaverse is to understand their target audience. As with all technology, new innovations can help financial institutions lower barriers and improve connectivity—but you need to know who you want to connect with.

For example, younger generations remain skeptical of traditional financial institutions, as these consumers place a higher value on things like user-friendly mobile apps, on-demand customer service and personalization. If traditional financial services organizations are looking to capture this audience (which will inherit an estimated $11 trillion in wealth over the next decade), they will need to strategize how technology can help them achieve this.

Research from the Steez : Guide to Gen Z for Financial Services shows that younger audiences prefer a mix of physical and digital channels. The number of Gen Zers using mobile banking is predicted to rise from 81.4% in 2021 to 89.8% in 2025. They also have the highest preference for opening a bank account online, with nearly 60% opting to open a bank account this way. 

As younger generations are less satisfied with their primary banks compared with older generations, this puts them at a higher risk of switching providers. While this is a challenge for banks, it also presents an opportunity for financial institutions to engage with young audiences. The metaverse can be used to roll out the virtual red carpet for consumers. Banks can create tailored experiences for specific segments, making them feel more valued. 

What actions in the metaverse can financial services take right now that will deliver ROI?

When it comes to Web3 strategies, the first step for financial institutions should be the lowest-hanging fruits–simple actions to implement that will deliver quick ROI. 

In the financial services industry, this lowest-hanging fruit would be the crypto rails . Crypto blockchain rails tie everything in Web3 and the metaverse together. With the adoption of real-time payments rails(RTR), financial institutions can innovate and overlay services and enable account-to-account (A2A) payments, which improve services through lightning-fast transfers for their customers.

Financial institutions can also start to implement NFTs in loyalty programs. A bank can drop an NFT to a client (and think of an NFT more like a browser cookie than an expensive piece of digital art from the Bored Ape Yacht Club). The NFT then sits in the customer's wallet, and banks can track it.

The NFTs will start functioning like a global CRM, and financial institutions can gather data on customer behavior. The NFT could provide useful insights like metaverse tracking and product/service interactions so banks can better tailor specific offerings for customers’ evolving needs.

What should leaders in financial services consider before they get started?

Before financial institutions jump into creating their Web3 and metaverse presence, they must first create an overall brand strategy.

Consider what the business offers. If it is high-end/high touch, financial institutions can explore more avenues than if they were high volume. However, it's important to remember that customers still desire high-touch interactions for more complex financial products such as mortgages and advice. 

Create a strategy that aligns with the brand's values and offerings in a digital space while still meeting consumers' need for the human touch.