JP Morgan was the first bank that entered the metaverse with a bang in 2022. The US financial service behemoth acquired a sizable tract in Decentraland, and its Onyx Lounge features a wandering tiger. Since then, South Korea’s Kookmin Bank has expanded its customer service options by offering metaverse-based one-on-one consultations.

HSBC then followed suit by establishing an office in the existing Sandbox territory of the metaverse, while the UK-based fintech Sokin recently revealed its impending entry into the platform as well. All of these examples point in one direction only: the metaverse (when it does arrive) will transform financial technology or fintech for good.

What is Fintech and What Does it Have to Do with the Metaverse?

Fintech is an expansive term that encompasses a variety of techniques and services. Utilizing technology to enhance the efficacy and usability of financial services is the primary goal. This may include applications for mobile banking, online investment systems, blockchain-based payments, as well as AI-powered financial advisory services. As fintech matures, it will make a play towards more experimental areas – such as the blockchain-powered, distributed online world called the metaverse.

What is the metaverse?

The expression “metaverse” relates to the virtual universe that exists in Web 3.0’s decentralized, blockchain-powered online environment. It is a place where individuals can naturally communicate with each other and share, collaborate on, or simply enjoy digital content, often using hyper-interactive tools like virtual reality (VR).

The metaverse is in its nascent stage at this time, with a great deal of progress but limited acceptance. Ultimately, it has the potential to become an important element in our daily lives, just as social media did during the Web 2.0 era. According to experts, the metaverse might even supersede the physical universe as a  central hub where we interact with other people and with companies, particularly in terms of financial transactions.

Enter finance. Picture an online environment where buildings, objects, apparel, land, or avatars can be purchased and sold just as they are in reality, or where it is feasible to wander around facilities, homes, offices, and other buildings — and participate in virtual events. As a result, a vast economic environment, and a hugely profitable playground for fintechs, comes into play.

Top Fintech Use Cases in the Metaverse

Some of the most prominent use cases – that could serve as metaverse entry points for fintech majors – are as follows:

1. Monetizing digital assets

The metaverse provides a trading platform for digital assets like digital currencies, non-fungible tokens (NFTs), as well as other digital assets. Fintech companies can use the decentralized infrastructure of the metaverse to establish new trading platforms with enhanced security and openness — not to mention a much wider variety of goods, products, and services.

2. Decentralized marketplaces in the metaverse

Using the metaverse, businesses can create and sustain online marketplaces in which users can exchange digital currencies for products and services. These virtual marketplaces offer a secure, decentralized setting for transactions that are accessible from any location.

3. New user-centric financial services

The metaverse provides fintech companies with a unique opportunity to develop immersive consumer experiences. Using AI and 3D avatars, you could develop VR financial advisors who offer personalized financial recommendations and guidance to users.

4. The rise of decentralized finance (DeFi) apps

DeFi is an expanding area of finance that employs the blockchain as well as the metaverse to develop decentralized financial systems. These applications offer a substitute for conventional institutions by enhancing safety, openness, and user-centric controls.

5. Immersive financial education

The metaverse can facilitate the development of virtual workshops and educational programs by fintech companies. These would enable users to gain insights and enhance their knowledge of finance in a setting that is more engaging. Over time, the metaverse can increase the accessibility and affordability of financial education.

6. Financial service gamification and rewards

The metaverse has the power to transform financial services and provide rewards to encourage user engagement with fintech applications. For instance, you could construct treasure hunts and other adventures in virtual reality that recompense users with digital currency for achieving their financial responsibilities.

7. Identity verification and secure user authentication

Using blockchain technologies, the metaverse allows secure and decentralized identity verification. Such systems can be utilized to confirm users’ identities prior to granting them access to financial services, thereby minimizing the possibility of fraud and theft of identities.

8. Metaverse-based wallets

By storing, receiving, and transferring tokens, metaverse wallets will enable users to develop and distribute digital assets. Companies like Facebook are already working on blockchain wallet projects for widespread user adoption.

9. E-commerce in the Metaverse

E-commerce is another clear instance of a fintech application in the metaverse. In the metaverse, organizations would be able to establish virtual storefronts where consumers might shop from the comfort of their own residences.

10. A new way of banking

The metaverse can facilitate the establishment of bank accounts and loan applications. As a result, banks would be able to schedule online sessions or events and operations throughout the metaverse, which might draw in new customers from a digitally advanced demographic.

The Benefits of Merging Fintech with Metaverse Platforms

By leveraging the metaverse, fintech companies can unlock several key advantages that would be impossible otherwise:

1. The metaverse will provide its own fully-functional economy – exponentially growing fintech’s value

This is a significant distinction between traditional virtual environments and the metaverse. It also demonstrates the importance of blockchain and cryptocurrency in the future. Within the realm of the metaverse, people and organizations will be able to participate in a vast array of activities that generate value and will have the ability to pass on that value to other metaverse entities. All of these transactions will rely heavily on fintech.

2. The metaverse will be decentralized, providing every fintech player with equal opportunity

The metaverse will consist of multiple platforms. It will function as an entity over which no single business or government will have total control. Therefore, the data and experiences of metaverse users will be completely decentralized. In this way, the metaverse will dial back the monopolistic business patterns of the social media age and encourage healthy competition among fintech players.

3. The interoperability of the metaverse will allow for easier integration of fintech services

One of the objectives of the metaverse is to establish a space where experiences from one environment can be transferred to another. Currently, what transpires or exists on one digital ecosystem tends to remain on that platform, increasing the effort level for fintech players. With the metaverse, users can migrate data freely, and developers will find it easier to replicate their services across environments.

4. Fintech will drive metaverse monetization and become an indispensable cog in its growth

Fintech is expanding the ways in which users can interact with the metaverse. For instance, blockchain-based systems like Decentraland and Sandbox permit users to buy, sell, or trade virtual real estate (or land) and property. This is just one instance in which fintech enables us to interact with the metaverse in new and creative ways that were not possible before. As the metaverse grows, the fintech industry will find itself poised for a long-term boom.

Conclusion: Adoption Barriers and the Way Forward

Since fintech is an emerging industry and the metaverse is in a nascent stage, three “teething challenges” may stand in the way:

• Compliance uncertainties: The financial industry has strict regulations, and financial technology startups must often navigate a complex web of laws. And, the metaverse – and its blockchain architecture – come with its own set of compliance challenges.
• Web 3.0-ready cybersecurity: With increasing instances of online crimes, it is more crucial than ever before to protect financial data. Fintech companies must offer their customers an exceptionally high degree of security, even protecting 3D and spatial information using next-gen cybersecurity solutions.
• A steep learning curve: Obtaining customers to embrace its metaverse offerings and services will be an important challenge for fintech. For consumers not familiar with immersive environments or decentralized systems, the learning curve can be steep.
• Challenges in scaling. Due to the swift development of fintech, businesses must be ready to scale rapidly to meet customer demands. However, the infrastructure to support metaverse systems is expensive to build and scale for large companies, let alone fintech startups.

Ultimately, financial technology (fintech) will prove central to the new era of online interactions in the era of Web 3.0 and the metaverse, by powering transaction systems, cryptocurrency, and digital assets like non-fungible tokens (NFTs).