Is the metaverse the next renaissance in financial services?
Innovators and traditional financial services firms like Fidelity Investments, JPMorgan Chase, and American Express are already experimenting in the metaverse. The opportunities for the financial services industry are inestimable today, but perhaps the best analogue is the value created during the Renaissance.
Fidelity Investments has said that “the metaverse is the next evolution of the internet – a 3D model of the internet.” One of the most monumental periods in time for finance as well as science, math and art – the Renaissance – did much the same thing. Greats such as Michelangelo and Alberti perfected that use of linear perspective as a means of depicting three-dimensional depth in art. Today’s metaverse puts us on the same trajectory and fintech very well could be the means to getting there.
Fintech redraws the lines of financial services
CB Insights recently reported that “2021 was venture capital’s biggest year ever: more than $621 billion invested worldwide – with $132 billion going to fintech companies.” That means one dollar out of every five invested in innovative ideas last year went to fintech. Catalyzed by a river of investor capital, cheaper and more ubiquitous digital channels (such as smartphone adoption), and ever-increasing customer expectations for frictionless financial services across all industries, we can argue we are living in the fastest, most profound secular shift in the adoption of emerging financial services technology in history.
Innovative firms have replaced the metaphorical mattock approach financial services takes to developing new product and service delivery channels with technologies that streamline infrastructure and, increasingly, augment human intelligence. These smart fintech platforms enable client information to be much more efficiently and robustly aggregated and analyzed, and also further leverage connectivity. This means financial services has been able to reach more clients more efficiently and with more targeted products than ever before. Admittedly, there is much more to do here; however, an important consequence of these efforts has been a future financial services industry with broader access, marginal cost reduction, and more transparency.
The shift to digital is accelerating
Fintech has made a consequential impact on the financial services and other industries. For example, the banking industry has been undergoing a monumental shift in recent years, with fintech shaking things up on all fronts. But it isn’t only our contemporary form of banking that appears to be transient.
Across the past decade, and certainly accelerated by the global health crisis, other areas of financial services such as payments, custody and compliance, institutional and retail investing, real estate, and insurance among many others, have benefitted from innovative fintech solutions.
It is tempting to suggest that those companies and countries that have mastered the art of making financial transactions convenient and real-time have a competitive advantage going into this next decade of innovation. But that would be a miscalculation. It may well be that the emergence of the metaverse when combined with fintech has the real potential to improve almost every aspect of the financial industry.
The dramatic changes that have come to financial services appear to be moving in the direction of a new format entirely with the adoption of more digital technologies. In most corners of the financial services sector, some if not all participants have advanced past analog to digital. In certain regions, even legal tender – that is, bills and coins – is being transformed by more efficient exchange methods such as CBDCs (central bank digital currencies).
The metaverse can reconnect the financial services sector
As a construct, the metaverse seeks to be an interoperable, digital world where people are conversing, earning, and spending and, importantly, merging real and virtual assets. Its mere existence requires new thinking on securing our identity, conducting transactions, and owning assets. Through its focus on interoperability, Web3 and the metaverse may very well reconnect a financial services industry that still grapples with inclusivity back to its economic core, albeit in an immersive online environment.
Blockchain is one technology that will underpin our emerging immersive world. While it has been held out by some as the cornerstone to the future of financial services, it’s been some time coming. The use of clay cuneiform tablets and a chisel to make ledgers that kept count on loaves of bread or jars of olive oil has been around since at least Mesopotamian times.
More contemporaneously, Institutional Investor magazine Editor Michael Peltz called it in 2015 when he wrote, “The beauty of blockchain technology is the fact that you can do a transaction that is affirmed right away and in ten minutes the whole network is updated.” Unlike clay tablets or spreadsheets, blockchain technology provides the immutable, near real-time confirmation of ownership of assets or identity that is critical to a well-functioning, boundless, but integrated metaverse.
Programmable money will have a similar pivotal role in the metaverse as will the regulatory and legal constructs that define (or don’t) the new standards of consumer protection. As the metaverse crosses borders and engages in traditional financial transactions outside of the digital world like mortgages, the integration of currencies that engender trust, acceptance and stability are paramount.
It's challenging to forecast what the future of finance will look like, yet one thing is clear; it won't be the same as today. However, fintech and new technologies will drive us to a new digital future in one form or another. The metaverse may well be the center of financial services and fintech will help the new Michelangelos thrive.
About the author: Sarah Biller is a FinTech entrepreneur, investor and educator. She is Co-Founder of FinTech Sandbox, and Executive Director of Vantage Ventures. Most recently, Sarah was the Head of Innovation Ventures at State Street Bank’s Global Exchange division and its Chief Operating Officer for Innovation. Prior to joining State Street, she was the Co-Founder and President of Capital Market Exchange (CMX), a privately-financed predictive analytics platform utilizing investor sentiment to help bond investors anticipate near-term changes in spreads.