May 19, 2022. The metaverse economy is predicted to hit 13 trillion dollars by 2030 — financial institutions have already started exploring its opportunities and the profits it could bring. JP Morgan has been among the first to have taken up the torch; recently, the leading bank opened the Onyx lounge in Decentraland, one of the most popular virtual worlds.
Paying for digital assets will be the key to creating a seamless user experience. To ensure smooth virtual commerce, each digital environment, as well as the metaverse as a whole, will have to have its own digital economy, and robust payment methods will be key to a fully functioning meta-space.
Main payment pillars – security and familiarity
In real life, the financial sector already has its hands full when it comes to security upkeep. 2021 has been unrelenting, with cyber threat levels continuously rising throughout the year. The industry is poised for the same or even more extensive challenges in 2022. As the online space is already subject to endless cyber attacks, the problem will only magnify in the metaverse.
According to Simas Simanauskas, Partnerships Director at ConnectPay, the credibility of any virtual world will largely depend on having state-of-the-art security in place, this includes all-things payments, too.
“Any wallet functionality will require authentication security standards close to Secure Customer Authentication (SCA) used in Europe — anything less and you risk your customer wallets being emptied in minutes,” the expert explained.
For those out of the loop, the SCA law states mandatory two-factor authentication for all online transactions and contactless payments made within the EU to provide an extra layer of security.
He also noted it is likely that a significant number of metaverse users will not hold a balance in cryptocurrencies, even though blockchain-based payment methods are expected to dominate.
“Odds are that users will simply want to shop with their cards or other well-known methods. The element of familiarity will be crucial, as users will have to be able to recognize a payment method provider before entrusting it with sensitive transaction details — so this is a good time for established fintechs to start planting their flags in the metaverse.”
Banks eyeing virtual real estate
The virtual space could aid in further bridging the gap between brick-and-mortar and their customers, for whom it would no longer be necessary to make the trip to any physical bank branch. Rather, they would be able to receive the same interactive experience in the metaverse. However, Simanauskas does not believe this is the main area that banks are looking to capitalize on.
“People don’t usually associate taking care of financial matters as a leisurely activity and seeing how banks have adopted to carrying out online one-to-one sessions, I don’t see this vertical taking-off. Instead, where traditional banks might seize the opportunity is financing and facilitating trades within the metaverse as well as digital real estate.”
Virtual land at Decentraland has been appreciating rapidly — during its first auction a parcel of land cost $20. In 2021, it went for an average of $6,000, and by the start of 2022, it skyrocketed to $15 000. Throughout last year, real estate sales on the four major metaverses reached $501 million and, if the current pace continues, could reach nearly $1 billion in 2022.
“Virtual space is an incredible asset and I wouldn’t be surprised if in the future it will be bank-rolled,” emphasized Simanauskas.
Fintech to push metaverse forward
For fintechs, metaverse looks like a natural pivot in line with their digital-first nature. They are better positioned to push the market forward, as, unlike banks, they do not have to cut through miles of red tape and have more flexibility to deploy new solutions. To take advantage of this, Simanauskas advised solidifying brand awareness and being prepared to quickly reiterate once different regulations start kicking in.
“Fintech and Covid-19 have brought banking from branches to the internet and mobile devices. Now, the metaverse is promising to bring people from their living rooms to the next-gen virtual space. If it succeeds, there will be an entirely new market for PSPs to cater to and familiar brands will be the first ones to capitalize on the newly risen demand,” the expert commented.