Metaverse Banking: Digital Identity, Smart Wallets, and the Future of Financial Services

The term “Metaverse” is no longer in its 2021 hype phase (remember the Meta X connect rebranding) but that does not mean the Metaverse Tech Cycle is dead and irrelevant. Gartner positioned the Metaverse in 2022, in the early stage of a 10-year cycle, and continues to do so in 2024.

Gartner continues to view the metaverse as part of the broader theme of immersive experiences, which also includes technologies like decentralized identity and non-fungible tokens.

I believe the Metaverse is more relevant than most think simply because the advancements in AI are enabling increased combinatorial innovations. There is no consensus that AI qualifies as a General Purpose Technology (GPT) which means that it will be unlocking new value, new business models through the combination of existing technologies like APIs, Blockchain, and Digital Twins etc.

During our October Fintech Book Club session, we dove deep into the Metaverse topic and uncovered some fascinating insights about the future of digital finance.

Watch the full Linkedin live discussion of the 2024 book by David Birch and Victoria Richardson, with Stessa Cohen and Jim Perry here

𝐌𝐨𝐧𝐞𝐲 𝐢𝐧 𝐭𝐡𝐞 𝐌𝐞𝐭𝐚𝐯𝐞𝐫𝐬𝐞: 𝐃𝐢𝐠𝐢𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬, 𝐨𝐧𝐥𝐢𝐧𝐞 𝐢𝐝𝐞𝐧𝐭𝐢𝐭𝐢𝐞𝐬, 𝐬𝐩𝐚𝐭𝐢𝐚𝐥 𝐜𝐨𝐦𝐩𝐮𝐭𝐢𝐧𝐠 𝐚𝐧𝐝 𝐰𝐡𝐲 𝐯𝐢𝐫𝐭𝐮𝐚𝐥 𝐰𝐨𝐫𝐥𝐝𝐬 𝐦𝐞𝐚𝐧 𝐫𝐞𝐚𝐥 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬

Beyond Gaming and Virtual Reality

One of the key takeaways from our discussion was that the metaverse isn’t just another buzzword — it represents the future internet of the digital economy. While many associate the metaverse with gaming and augmented reality, its implications for financial services are far more profound. The technological foundation, particularly the advancements in cryptography, are already in place to handle financial transactions securely in this new digital realm.

Digital Identity: The Core Foundation

At the heart of financial services in the metaverse — think of it as the evolution of the Internet — lies digital identity. The book outlinee three crucial aspects of a “smart” digital identity:

- Pre-authorization capabilities

- Multi-factor verification

- Verifiable credentials

These elements come together in what the authors envision as a “smart wallet” — a concept that goes far beyond today’s digital payment solutions. This wallet would serve as a foundation not just for payments, but for managing various digital assets, from patents and intellectual property to in-game items that could potentially be used as collateral for loans.

Rethinking Data Sharing and Identification

One of the most intriguing aspects discussed was the possibility of conducting financial transactions without unnecessary data sharing. For me this is the most exciting part, as cryptography enables us to verify without moving the data.

The next generation of the Internet must address the problem of sharing unnecessary data during any identification process. One of my favorite teasers (rhetorical questions by the authors) in the book is “When buying shoes and paying, does the merchant need to know your name?”

This simple question challenges our current approach to financial transactions, where we often share more information than necessary.

The Future of Banking the Unbanked

Another Metaverse golden nugget is smart banking of the unbanked.

When addressing financial inclusion, the authors suggest a different approach: serving the underbanked through smart wallets with built-in digital ID capabilities rather than pushing traditional bank accounts for everyone. This could enable instant, low-cost transactions without the need for traditional banking infrastructure.

Looking Ahead: Key Considerations for Financial Institutions

For banks and fintech companies, two major considerations emerged:

1. Prepare for a future where financial services might need to serve bots as well as humans

2. Watch for companies developing smart wallet strategies, as these could reshape the financial services landscape

Final Thoughts

The metaverse isn’t just about virtual worlds and digital avatars — it’s about fundamentally reimagining how we handle financial transactions and identity in the digital age. For financial institutions, understanding and preparing for this shift isn’t just optional — it’s becoming increasingly crucial for future success.

The Fintech Book Club conversation highlighted that while some of these concepts might seem futuristic, the foundational technologies are already here. The question isn’t whether these changes will happen, but how financial institutions will adapt to serve this evolving digital economy.