Friday, 14 June 2024

DBS, and other banks to benefit from opportunities in the metaverse

5 min read

By Jeff Villapando

More financial players and commercial banks are experimenting in the metaverse. However, it is unclear whether customers will adopt these ventures in their current form and what tangible returns would the financial sector gain from these investments.

  • Leading banks in Asia are entering the metaverse experiment and identifying opportunities
  • Learning from Facebook Meta’s fading virtual world
  • DBS jumps into the metaverse but faces challenges from regulators and cyber risks

Banks must buy "land" on the Sandbox or Decentraland if they wish to take part in the metaverse. Video games on these gaming platforms incorporate aspects that make use of blockchain technologies, such as cryptocurrency and non-fungible tokens (NFTs). Players can trade, purchase, and sell virtual goods with other players in these games.

Banks are now investing in these virtual platforms. They can easily put virtual banks and services in the gaming world, which customers or players can use in the metaverse land. Blockchain games typically allow players to trade in-game items for cryptocurrency, which can then be exchanged for fiat money.

Various banks are now operating and providing services in the metaverse. In August 2022, Decentraland introduced the first automated teller machine (ATM) in the metaverse on its platform. Players can use the ATM to quickly buy cryptocurrency in the metaverse, through the collaboration of Metaverse Architects Studio and Transak payment gateway.

JPMorgan Chase opened its first lounge and office in the metaverse in February 2022. The opulent area debuted on Decentraland, A report published by the bank's blockchain unit, Onyx emphasised what JPMorgan thinks will shape the metaverse's future.

The biggest challenges for financial institutions’ (FIs) opportunities are social media or interactions in the real world. Banks and other brands may be exposed to a variety of reputational and legal issues by using metaverses. The adoption of the new experiences that banks and other brands are developing will be largely dependent on trust. Banks should get ready for intense regulatory analysis of the metaverse and be prepared to act fast when new regulations are introduced.

Banks look at different opportunities in the metaverse. In today’s digital world many FIs are participating in this digital space not just in Asia Pacific (APAC). Banks will be able to build 3D consumer and employee experiences using augmented reality (AR) and virtual reality (VR) technology. Additionally, they can deliver immersive learning experiences in the security of simulated customer environments or onboard remote workers, in ways that foster a fun connection and a sense of community.

Learning from Facebook Meta’s fading virtual world

Facebook has made significant investments in the metaverse since the release of Horizon World, a virtual reality online video game with an integrated game creation system. It was created and published by Meta Platforms to be played on the metaverse platforms. Facebook has spent more than $100 billion on research and development (R&D) and $15 billion on product development, according to its annual report.

The customers' expectations that they would flock to it in large numbers to engage in a novel form of social interaction have been largely unfulfilled. The company's initial target for these multiple virtual worlds was 500,000 active monthly users, but the current estimate is now 200,000.

The opening of Facebook's VR avatar realm, Horizon Worlds, was announced last November 2021 and is a harbinger of the challenges that the industry is facing.  Facebook Meta is currently under severe criticism from investors, as a result of yet another quarter of enormous losses in its VR and metaverse division.

According to the company's quarterly earnings, the Reality Labs division, which includes VR and AR efforts, as well as metaverse endeavours recorded an operating loss of $3.7 billion in 2021 and that same division has widened its net loss to $9.4 billion, from $6.9 billion in 2020.

Banks that are in the metaverse should not follow the footsteps of Facebook Meta’s virtual world. Banks must provide customers or players with the most services they can give to virtual customers. Customers on Facebook Meta virtual world are anticipating a very interactive and customer-driven world. However, players saw an empty space, that’s why most of them don’t stick around after the first month in Horizon Worlds, resulting in a steady decline in active users.

DBS jumps into the metaversebut faces challenges from regulators and cyber risks

In September 2022, one of the largest lenders in Southeast Asia, DBS announced its partnership with The Sandbox to develop new services for customers in the 3D virtual environment that employs digital avatars.

Piyush Gupta, CEO of DBS said, “Over the last decade, the biggest changes in the world of finance have been catalysed by digital advancements. In the coming decade, driven by new technologies, such as artificial intelligence (AI) and blockchain, these shifts have the potential to be more profound. Metaverse technology, while still evolving could fundamentally change the way banks interact with customers and communities”.

DBS will find many opportunities, but there are also challenges. DBS and the three Asian banks have now fully embraced the metaverse, which enables users to access services and buy cryptocurrency without leaving the virtual world. Standard Chartered Bank (SCB) acquired a plot of land in the metaverse last March 2022. Its virtual headquarter is designed to reflect the past, present, and future of Thai culture that is influential to SCB 10X, the venture arm of SCB. In the same month, HSBC bought a plot of land in The Sandbox to engage with sports, e-sports and gaming fans via a slice of turf in The Sandbox. In May 2022, SCB partnered with Sandbox to create innovative experiences for its clients and community.

Banks should carefully consider their future business strategies for the metaverse, including the creation of a secure financial environment.

Through the DBS LiveBetter initiative, the bank can also look ways to highlight DBS BetterWorld, which offers simple access to a number of tools to have a more convenient customer experience. These tools include eco-friendly advices, ways to donate to sustainability causes, and investment opportunities.

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