The metaverse is still in its early stages of development, but some banks are already thinking about its customer-connecting potential.

Sandeep Vishnu, a partner at the consulting firm Capco, shares his thoughts on how financial institutions might find a home in the metaverse.

A few takeaways from the conversation:

• Key opportunities for banks in the metaverse today: Providing capital to help build it out and being a payment facilitator for those spending money there.
• Institutions with tech-savvy customers may be more adventurous in staking out metaverse territory than those whose customers are more conservative.
• Looking out into a distant future, one metaverse scenario is something like Star Trek’s holodeck where banks can provide virtual customer experiences.

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Once upon a time, there was just reality. Now we have virtual reality, extended reality and augmented reality as well. And existing within these new dimensions of reality is the metaverse.

Joining us this week is Sandeep Vishnu, a partner at the global consulting firm Capco. He’s going to tell us more about what the metaverse is and how banking institutions might venture into it.

Sandeep, glad to have you on the BAI Banking Strategies podcast.

Thank you, Terry. Thanks for having me.

Sandeep, we’re going to have a freewheeling conversation today, and parts of it may get well out there into the speculative realm. I know that you want to make it clear that some of what you say may stray from the Capco house viewpoint. So, let’s start with a disclaimer that should hopefully cover you for the rest of our chat.

Sure. Thank you. Now, I just want to make sure that we are clear that anything that we discuss today that I say are really my own personal opinions and do not reflect any corporate positions. Look forward to the conversation.

All right. Now that we have that out of the way, we can get into our theme of banking and the metaverse. I’ll admit upfront to not being totally clear on what the metaverse is, and I’m pretty sure I’m not alone. The New York Times has called it a fully rendered digital world that exists beyond the one we live in. Wired magazine a few months ago says a good rule of thumb is to sub in the word metaverse when you might otherwise use the word cyberspace. Mark Zuckerberg, who swapped out Facebook for Meta as his company name, suggests that the metaverse may not be a place at all, but rather a point in time. So that’s layering Meta on top of meta. With such a range of definitions, it’s a little wonder why we’re all a little confused. So, Sandeep, do us all a huge favor and tell us once and for all, what is the metaverse?

The word “meta” really comes from the Greek that means for “beyond, above, transcending.” The metaverse, in concept, is something that transcends our current universe. Now, we still exist in the same universe, so it’s a little bit of a stretch, but think about the metaverse as being a new interaction and engagement model for us in society. It’s going to augment how we interact with each other, it’s going to substitute, it’s going to enhance. There’s probably a range of things that will happen in the metaverse. But as the word meta suggests, this is a new form that transcends our current reality. That, in its broadest sense, is what the metaverse is going to be. We don’t know yet what all is going to be included, we don’t know how it’s going to manifest itself in different forms, but regardless of how it emerges, it’s going to be enhanced and augmented in a different interaction model for us. I know that’s a very broad term, but that’s really why the metaverse is as big, broad and unclear as it is.

Thank you for adding some clarity on this. When I think of the metaverse, I think virtual reality headsets, I think the kinds of immersive video games that my son loves to play. Aside from gaming and providing virtual-3D experiences, what are some of the other ways that businesses in general are moving into the metaverse?

When we talk about the metaverse, it’s important to separate out the access technologies from what happens in the metaverse. The virtual reality headset is an access technology. But within this range of universes or the metaverse, there are things that can happen, that are happening – the creation of new environments, whether they are for the purposes of entertainment, whether they’re for the purposes of commerce, socializing, productivity, but new environments are being formed. Similarly, new experiences are being delivered. They enhance our interactions with each other, or they might offer the potential for fundamentally new interactions. Extend that further, and it extends into virtual societal models that could be decentralized. We now have a whole different appreciation of time and space. You can get onto the metaverse, people who can be physically removed geographically in today’s three-dimensional world, can interact very closely in the metaverse. The way the society, the way companies are looking at it is, do we create new environments? Do we create new experiences? Do we stake out real estate and build entire new ecosystems of societies? Those are just some of the ways that the metaverse is evolving. We’ve seen this happen in the world of real estate, we’ve seen this happen in the world of fashion. Zepeto was one of the early ones. That was a fashion portal, a virtual content platform that attracted companies like Ralph Lauren, Gucci and Dior. We’ve had virtual personalities. There was an AI-powered Kizuna that have become large part of social media. It comes down to, is it going to be an environment, an experience or a fundamentally new model? All of that is how the metaverse is evolving.

That’s quite a lot in there, but keeping these examples that you mentioned in mind, keeping this range of possibilities in mind, let’s bring the conversation around to banking. Broadly speaking, what is today’s opportunity for banks in the metaverse as you see it?

Banks perform a valuable role in society. They fundamentally inject trust into a system, and they also are the providers of capital. If I were to think about the broad opportunities for banking, they could fall into two broad categories. One, in building out the metaverse. This is with the metaverse. This is where they can offer lending support to companies that are investing in technologies to build out the structure. That is where they can offer support in building out platforms, lands. The second set of opportunities are in the metaverse. These are fundamentally transactions that get enabled. Today, the greatest number of transactions happen in gaming, but tomorrow they could easily happen in real estate, they could happen in art, they could happen in tourism. Banks provide the mechanism for these transactions, and they inject trust into the system. They give the consumer confidence that this system that is going through and having transactions and converting virtual currency and cryptocurrency into fiat, is backed by a bank, and that’s a trusted performer.

It’s pretty well accepted now that the COVID pandemic has really turned banking on its ear in terms of the digital adoption and the move deeper into digital by banks and credit unions. How does the metaverse relate to or build on this fast-paced effort that financial institutions have been undertaking? Is it a natural progression in the same sense that the gaming industry has advanced from Pong, which I used to play in the ’70s, to cloud gaming and other leading edge trends in that industry?

In some sense, yes, it is a natural progression. But in a broader sense, it’s the industrialization of the metaverse. By that I mean this digital move for banks to basically create digital interaction models, which are really a simplified, easy-to-use, front-end experience that is enabled by a data supply chain that allows for self-service. That’s what a digital bank is. But what it does is it makes the consumer, it makes employees, very comfortable in operating in a digital/virtual space. The metaverse is therefore an extension of that. It allows us to get more comfortable in operating outside of our physical world. The move to digital efficiencies that we have seen in banking has probably been driven more by economics as well as convenience, because you can do anything, anywhere, anytime. But it’s going to enable greater adoption for these augmented experiences offered by the metaverse.

You mentioned facilitating transactions early on as one of today’s opportunities. In terms of facilitating transactions for those living parts or all of their lives in the metaverse now, do you have any sense of how much of that is already going on at banks? And those who are now in that space, how is what they do different, if at all, from the kinds of in-game transactions that are now possible in video games?

Banks, I think, are watching the metaverse very carefully. They aren’t entirely sure how to engage in it, but they probably feel that they can’t afford to not engage with it. Today, the majority of the transactions that are happening are really in the world of gaming, and they happen through the use of cryptocurrency. There are mechanisms for crypto to get converted into regular currency. That’s what banks are already doing. We are also starting to see the emergence of other types of transactions. For example, in April, there was a house in Beverly Hills that sold for $9.5 million, a physical house. But  $100,000 of that was for a virtual space on Decentraland in the metaverse. There’s a real estate transaction that is getting enabled. We are seeing the emergence of NFTs, non-fungible tokens, which are ways of taking digital assets and monetizing them. We’ve seen a little bit of forays into the world of art with non-fungible tokens. But are there things that can also get digitized and similar transactions can start getting enabled? We actually think that there might be great potential in the world of tourism, in the world of conferences, in the world of training, that would also drive more transactions, but it hasn’t emerged yet.

Aside from transactions, can you share with us some examples of what else banks are doing now that would be considered stepping into the metaverse, or at least getting ready to take that big step. Feel free to name names of those institutions, whether in the U.S., or whether they’re outside the U.S., and what you think they’re actually achieving by doing this.

Some of the more tactical things that banks are doing are enabling transfer of money from the real world to the metaverse and vice versa, providing NFT loans to customers, engaging clients through digital branches. There’s a bank in South Korea that actually spent, I think, a quarter of a million dollars to create a whole digital branch. When we talked earlier about how banks can interact in the metaverse versus with the metaverse, we are seeing that some of the advisory services, people like Morgan Stanley, are really advising their clients on how to invest into the metaverse, as is someone like PNC. Now, there are others that are trying to capture space in it by creating a landing zone and a platform. We’ve had the emergence of Sandbox, of Decentraland, where people can come, aggregate, interact and then hopefully drive transaction. These are the types of things that banks are currently, I would say, dabbling in.

One of the big competitive threats the traditional banks and credit unions are facing now is from the big tech players like Apple and Google that are already a major force in the payment space, and they’re moving into lending and other core aspects of banking as well. Given that these companies are built on tech savvy, is the metaverse an avenue for them to expand their appeal to banking customers, particularly focused on younger ones who’ve grown up with technology and who may actually never have set foot in a branch lobby?

The big technology companies have to be involved because this is fundamentally a technology-driven experience. It’s not just the big companies, it’s also the smaller companies, companies like Mesmerize, Horizon, Spatial. There are several of them that have emerged. Many of the big companies are helping build out the metaverse because they’re going to be part of the plumbing that needs to be put in place for the metaverse to come to life. At the same time, they see the opportunity for having some amount of land grab. These are the outposts that might emerge and eventually become valuable pieces of virtual real estate. Not only are the big companies working in this, the smaller companies are working in it. There’s a big convergence between technology as well as the consumers of technology.

But what about in terms of actually competing with banks in the sweet spot for banks, which is lending, which is deposits, which is providing capital to where it can be used most efficiently? Is that something that banks could face more competition from tech players beyond providing the plumbing of the metaverse?

This is definitely an area where you will find new entrants. It could be the new technology companies, it could be the established technology companies, it could be new players, but they’re better off sitting in their own space and doing what they do best. Whereas they may move into banking, today they’re doing it through the ability to influence payments. That’s probably where we’re going to see it first. But it could then move into lending, it could move into more assets and investments. But personally, I think that’s a little ways away. There’s a lot of opportunity for technology companies to capitalize on building out the metaverse versus trying to actually interact and capture the value that is driven through transactions in the metaverse. Over time, they might get there, but that’s probably not their immediate focus.

For banking institutions that do want to venture into the metaverse, in your view, is there a right way to do it? Perhaps even more importantly, is there a wrong way to do it?

I think the metaverse for a bank should be very much part of their overall strategy, footprint, consumer profile. If you are a bank that has a consumer base that might be less tech savvy, might be more conservative, might be older – some of these are stereotypes – but if it’s the kind of consumer base that is less likely to venture into the metaverse, then you might want to be a little careful in how much you try to go after this market because you’re going to convert your current consumers first. Attracting new consumers or new customers is going to be a challenge here. I think the banks that have the younger profiles have a more customer base that is more tech savvy, i.e., some of the digital banks that emerged over the last 10 years, they are the ones that could probably go into the metaverse more easily because they can take their customers with them. The ones that don’t have that customer set, it’s going to be a little trickier because now if you go into the metaverse, you not only have to provide the experience, but you have to extract a new customer set. That may happen, but it might take some time.

We discussed earlier what today’s opportunities are for banks and the metaverse, and we have poked around a little bit on what maybe the next level of opportunities might be. I want to wrap up our conversation by asking you to go way out on a creative limb here. Knowing that both banks and the metaverse will likely continue to evolve, give us a vision of how you think banks might fit into that far future metaverse. Don’t hold back because this is pure speculation – we’ll say that right up front, so no idea is too crazy.

In some ways, and apologies to anyone who is not as big a sci-fi fan as I am, but I’ve always felt that the future is Star Trek. It’s just a question of how we get there. If you see what the metaverse is and how it’s looking to emerge right now, and for those that are familiar with Star Trek and the concept of a holodeck. A holodeck was a virtual world that got created in a very limited space, and it provided the same types of interactions that we had in the real world, if you will, but it augmented them. Now, I’m not saying that that’s all that the metaverse is going to be, but it could be the way it evolves. It allows us to have engagements and interactions. Banks need to capitalize on that. They fundamentally enable societal interactions today. They are the financial glue that allows us to interact with each other, to trade, to exchange, to buy, to sell, to invest. These are things that banks do in the real world today. Tomorrow, they need to offer it in the metaverse. They could also look to the metaverse as an opportunity to do something more than just be the purveyors of trust and the facilitators of transactions. They could become spaces and destinations in their own right. That’s actually probably a bigger challenge and a bigger opportunity for a bank, is “can I become a destination beyond a transaction?” I think that’s where the potential for banking lies most, but it’s way out there. Hopefully, we’ll get there one day.

Way out there for sure – maybe that’s the final financial frontier, we’ll see… Sandeep Vishnu, partner at Capco, many thanks again for sharing your ideas and sharing your futuristic views with us on the BAI Banking Strategies Podcast.

Thank you so much, Terry. It was a pleasure. Look forward to more such conversations.

Terry Badger, CFA, is the managing editor at BAI.