11 minutes
Experts spill the real deal on the virtual world.
If you’ve spent any time dabbling in the metaverse, you might feel as though the future has arrived. In case you’re new to the topic, the metaverse is an area of the internet that’s an immersive virtual world facilitated by virtual and augmented reality.
Though it may sound like sci-fi, Chris Skinner, author and commentator at The Finanser, insists it’s not a new concept.
“It’s actually quite an old idea,” he says. “I simplistically put it into the context of Star Trek. In Star Trek: The Next Generation, they had the Holodeck. Basically, you walk through sliding doors, and as the doors closed, you were in a completely other world, and it could be any world you wanted it to be; it was pre-programmed. The metaverse is basically stepping into a completely other world where you can be whatever you want to be, wherever in the universe you want it to happen.
“What credit unions and community banks need to understand is that it’s going to be a huge thing,” he explains. “Gaming today is bigger than the movie industry, and this is the next level of gaming. When you think of it in that context, it’s huge.”
It’s worthwhile for credit unions to take the time to evaluate and understand the metaverse, since it could be a wonderful arena for the continuation of the unique services they can offer their members, advises Neil Dougherty, VP/marketing and communications for CUESolutions provider Strategic Resource Management, Memphis.
“At its core, the metaverse is a vision, not just a technology,” he says. “It’s the next frontier of the virtual world we’ve long envisioned. It is meant to be highly social and dialogue-driven, which is where credit unions have thrived historically. If credit unions can keep up with the technology—starting with the offering of virtual wallets and other digital asset solutions—there will be a place for them in the metaverse’s virtual economy and the world of MetaFi.” (MetaFi is a combination of the terms “metadata” and “decentralized finance” or DeFi.)
However, not everyone is convinced that jumping on the metaverse bandwagon is urgent. “We’re very, very early in the evolution of the metaverse, so this is not the kind of thing where senior executives and boards of directors need to be sitting around worrying … at the moment,” says Ron Shevlin, chief research officer at CUESolutions provider Cornerstone Advisors, Scottsdale, Arizona. “It’s kind of like the internet; being No. 1 with a website 25-plus years ago does not mean today you’re any more successful than if you had waited five years or so to get on the internet.” However, Shevlin believes the metaverse is something that credit unions should track and monitor to see how fast things are moving.
The Finance World in the Metaverse
“The metaverse today is splintered,” notes Dougherty; it is not one entity but multiple metaverses with various owners and creators. “The hope is that in the future there would be a movement to allow interoperability between the different brands/owners—essentially an open metaverse, which right now runs contrary to the commercial interests of the big players. But technology and commerce always adapt to user demand over time.”
Right now, the largest operators in the metaverse(s) are the builders of virtual worlds, companies including Meta (formerly Facebook), Apple, Microsoft, Nvidia and the creators of specific worlds, such as Decentraland and The Sandbox. But there’s also a layer of economic and commerce infrastructure in development that features companies highly familiar to credit unions, according to Dougherty—specifically the top card networks and well-known crypto exchanges like Coinbase and crypto.com.
“Early adopters among financial services companies, not surprisingly, have been the large, multinational banks including JPMorgan Chase (with its Onyx lounge in Decentraland) and HSBC,” Dougherty says. “They possess the bandwidth and resources to invest early in MetaFi. HSBC’s recent purchase of virtual land in The Sandbox metaverse was an eye-opener to be sure. We’re now seeing smaller neobanks offering a form of ‘metaverse mortgage,’ providing financing for the purchase of high-dollar virtual real estate in the metaverse.”
Like JPMorgan Chase, a handful of large companies have created virtual branches or storefronts in the metaverse. “They’re just dabbling in this, so I don’t see a lot happening from small or mid-size financial institutions, banks or credit unions,” Shevlin says. “It’s not a business opportunity—it’s simply a branding thing. The primary uses for the metaverse are going to be things like games, events, concerts and shopping. People aren’t going into the metaverse because they want to stop in a credit union branch and talk to somebody about opening an account.”
However, Shevlin believes there is an opportunity for some credit unions, especially those focused on commercial or small business lending, to buy up land in the metaverse with the idea of either trying to capitalize on potential price increases over time or in terms of building something in the future.
“It’s more analogous to commercial real estate when you have to evaluate the piece of property, and that’s very similar to what’s happening in the metaverse,” Shevlin says. “For example, if Snoop Dogg purchased a lot of land in the metaverse with the idea of building a Snoop Land to do games, events and concerts, people would start buying up the land around Snoop Land because it made it more valuable. So, the opportunities for the credit unions are really around commercial lending and helping entrepreneurs and small businesses fund their purchases of land in the metaverse. That’s the short-term opportunity.”
In fact, that happened late last year. As reported in Fortune, “Someone just paid $450,000 to be Snoop Dogg’s neighbor in the metaverse.” The article also mentions that in January of this year, metaverse real estate sales reached $85 million.
Shopping for Virtual Real Estate
Before credit unions and financial institutions start investing in real estate in the metaverse, they should gain a deep understanding of that virtual world and what virtual real estate really means. Virtual land in the metaverse has quickly risen in value based on virtual platforms projecting an artificial scarcity of space, Dougherty notes.
“Once purchased, this virtual land is the equivalent of an NFT on the blockchain, which establishes unique, encrypted ownership,” Dougherty says. NFTs, or non-fungible tokens, are unique—as in one-of-a-kind—digital goods. These tokens are part of a blockchain, such as the Ethereum cryptocurrency’s blockchain, which tracks the ownership and trading of NFTs. A popular use case today for NFTs is the selling and collecting of digital art.
“It would be wise for credit unions to understand the changing cost of real estate in the metaverse and stay close to the consolidation of the various metaverses. We may start to see more technologically astute credit unions entering metaverse partnerships that include purchase of virtual land. It’s a watch-and-see moment right now,” Dougherty adds.
Buying up virtual real estate also raises the question of where, since there are a few different metaverses developing, and there’s not really a dominant one, according to Skinner. “Watch and wait right now, and just keep track of the developments,” he advises. “The critical thing to look for is whether there’s a metaverse currency developing. … It’s quite likely there will be a new virtual currency like cryptocurrency, but it will be a metaverse currency.”
Know the Risks
As with any investment, risk is a constant when it comes to the metaverse. The lack of rules around ownership and how the metaverse will be policed and regulated are the natural points of risk now, Dougherty notes, but there’s also the risk of doing nothing or denying technology’s impact on our daily lives, which could impact membership retention and projected growth over time.
“It’s hard to say with 100% certainty how the metaverse will pay off,” Dougherty says, “but we see opportunities for even more personalized member service with frictionless digital tie-ins, more opportunities for payments and financing product usage based on the existing relationship, as well as an ideal onboarding channel for credit unions.
“The tools in the metaverse will also give credit unions the opportunity to articulate their mission and brand in different ways than before.”
Ultimately, it remains to be seen how much consumer adoption the metaverse will gain. “I’m not convinced that it’s really going to be as big as Facebook thinks it’s going to be,” Shevlin says. “But I never thought Facebook would be as big as they are either, so I got that one wrong.”
A Cautionary Tale
In the aughts, Second Life was an online multimedia platform and a precursor for the metaverse, where people could create an avatar for themselves in an online virtual world. Many people expected Second Life to be huge, and there was a lot of money circulating there—real money.
“The banks started interviewing new candidates virtually in Second Life, and they opened towns there,” Skinner says. “But then Second Life imploded.
“This is the story I keep coming back to all the time when we talk about the metaverse. The reason why Second Life failed is that they didn’t have a regulated banking system. The bank disappeared overnight—it just shut down. It turned out it had been run by a student in Brazil who took $750,000 U.S. dollars. That was real money, and he brought a Ferrari and an apartment and shut down the bank. All the people in Second Life were very upset about losing the real money, so they started demonstrating outside the virtual headquarters of Second Life.
After a few months, Linden Lab, the owner of Second Life, declared that to be a bank in its virtual world, you have to be a bank in real life and comply with the regulations that go along with that. (Linden Lab has since introduced Tilia, a licensed money transmitter and virtual economy platform used by Second Life and burgeoning metaverse Upland.)
“As a credit union or community bank, we need to build a community in the metaverse, and you need to make it clear that you are a regulated bank in the real world that can be trusted in the virtual world,” Skinner says.
New Business Opportunities
“The metaverse is no different from the conventional world in that goods are exchanged regularly and purchases are encouraged—be they for simple, sustaining items or the metaverse’s versions of luxury goods or memberships,” Dougherty says. “That’s where the opportunity lies.
“The currencies of the metaverse will be cryptocurrencies,” he adds. “In most cases today, individuals can only enter the more popular metaverse platforms by showing proof of a crypto wallet. So, for credit unions, the opportunity starts with implementing a sound crypto strategy/offering.”
Credit unions could also stand out in the metaverse by adapting their financial literacy resources to fit these virtual worlds and the needs of their members in them, Dougherty notes.
This stage is reminiscent of the early internet days when people bought up the likely domain names of major businesses and brands—which then had to purchase the domains at a high price.
“Get in there early and at least stake your brand in these domains,” Skinner advises. “Whether they take off or not, it doesn’t cost you anything, so why not?”
Another thing to consider is what to do with your space in the metaverse.
“What is it you want to offer in an alternative world?” Skinner asks. “Do you take all the products that we offer in the real world and drop them into a virtual world? Or do you reinvent them? A lot of the internet connectivity through the mobile network is creating new financial services around financial inclusion, financial literacy and financial education. For a credit union, I’d specifically focus on, ‘Can we make this a fun place to learn about money in the real world but do it in the virtual world where you have no exposure and no risk?’ If you lose something, you’re not going to really lose anything in the real world.”
Growing With Members
Credit unions are always looking for opportunities to connect with members, and the metaverse offers a fresh way to do just that.
“The metaverse will be inhabited by digital natives who’ve grown up in game experiences like Roblox and who will have experienced VR (virtual reality, like using the Meta Quest headset) much earlier in life than Gen X and millennials,” Dougherty says. “Introducing loan products and other financial life products to this group will be much more seamless with an eventual presence in the metaverse.”
Examining the metaverse with a generational lens is key. “I think Gen Z and millennials—particularly Gen Z—are looking for alternatives,” Skinner says. “If you look at who is investing in cryptocurrencies by demographic, the majority are young people. It’s because they have lost faith and trust in traditional institutions. That’s where the metaverse is going to appeal. If you’re there, then the next generation of customers will love you far more than the ones that can’t even find you.” cues icon
Celia Shatzman has penned stories on topics ranging from beauty to fashion, finance, travel, celebrities, health and entertainment.
