Payments in the Metaverse – (Almost) Everything You Wanted to Know

Many definitions of the metaverse exist, but the underlining idea is that of a series of interconnected, intercompatible online worlds with elements of virtual reality and augmented reality. It has been defined by Onyx, JP Morgan’s blockchain unit, as “a seamless convergence of our physical and digital lives, creating a unified, virtual community where we can work, play, relax, transact and socialize.” Metaverse proponents see the metaverse as an evolutionary concept. Here are two stages of this evolution in a nutshell.

What often comes to mind when people think of a virtual world, the closed metaverse of Web 2.0 is comprised of a proprietary virtual platform or series of platforms owned and monitored by a large corporation. What is driving their growth?

Socialization and gaming 

These are the biggest driver for the development of metaverses and the money spent on these is staggering. For comparison, spending worldwide on music is only half of the amount spent of virtual goods, and in-game ad spending is predicted to reach $18,41 billion by 2027. Fortnite, Roblox, Second Life and World of Warcraft are examples of closed metaverses provided by very large, centralized players.

Web 2.0 metaverse platforms sell to its users games and related paraphernalia, access to virtual events and experiences, and virtual items like gear, skins, and land. They may allow their users to buy and sell among themselves and from the platform itself, behaving in effect like an e-commerce shop. For instance, Battle.net, an online shop by World of Warcraft, allows users to load their Battle.net balance via different traditional payment methods such as credit or debit cards and PayPal. After that, they can buy in-game items such as mounts or pets, character services such as a level boost or transfer between WoW realms, digital games and more.

The metaverse of Web 3.0, the ambitious vision of a single, interconnected, intercompatible and open virtual world, is more a hypothetical concept than a fully realized environment at this stage. However, everyone agrees on several things.

The metaverse of Web 3.0 should be community-governed. Instead of a company owning the environment, the metaverse should function as a DAO (distributed autonomous organization) where contributors are creating and enforcing set rules, like the way Wikipedia functions. However, it should be noted that even Wikipedia is owned and regulated by the Wikipedia Foundation, which has authority to carry out policy decisions for the entire site (such as its recent decision to stop accepting bitcoin as donations). What exactly constitutes community governance is still poorly defined at this stage, particularly when it comes to a single, cross-platform and open metaverse.

For one, people are buying up digital plots of land for virtual real estate, which owners can develop into personal virtual homes to showcase personal possessions, like a personal webpage, or keep as an investment. Forbes this year reports that the average price for the smallest plot of land on Decentraland or the Sandbox was going for around $13,000. Users are also creating, buying and selling NFTs. The transfer of value back and forth between NFTs and the real world, and the collaterization of loans based on NFTs are attracting the notice of the financial industry.

Some financial brands have already made forays into one of the metaverses mentioned above, or have produced their own platform. JP Morgan made its splash by purchasing a large plot in the Decentraland metaverse and opening its Onyx Lounge. In South Korea, Kookmin Bank has constructed a metaverse VR branch in partnership with VR content developer Sharebox where headset-wearing customers can access financial services via avatars, while employee avatars help them analyze risk-return profiles and design investment portfolios. The Industrial Bank of Korea announced that it will be launching a virtual branch on Cyworld Z’s metaverse. In this way, banks hope to create awareness of their brand among a new, younger demographic used to spending lots of time in virtual roleplay and open-minded to innovations.

Besides building a presence of their own in a metaverse, banks and fintechs can play a key role in this space by identifying potential customers, onboarding them through crypto wallets, and providing payments, lending and custody services. The use of NFTs involves currency exchange activities, an area where banks already excel. The metaverse comes with its own customer segments such as creators, gamers, storytellers, event producers, managers and artists, all of whom need an intermediary between cryptocurrencies and fiat bank account currencies, since very few people are able to use crypto in their daily financial transactions. Financial institutions can be providers of loans, financial planning services, and aggregation of income sources. Protection of digital assets might also be an avenue of profit for banks, especially if these banks are willing to take liability. And like with any other asset, banks can offer their expertise in managing risk, compliance, fraud, and data protection to safeguard the digital assets of metaverse users.

It should be kept in mind that regulation, tax, and accounting of commercial transactions in what JP Morgan calls the meta-economy still have not been developed fully and carry risk. There are few regulations, not to mention that NFTs are destroyable, conditions of their ownership and possession are still poorly defined legally, and are considered securities. A financial institution should also consider real-life factors that may impede the adoption of existing and future metaverses by their customer base. Some of these:

• Signing up for a metaverse is too complicated. Often it is impossible to enter a metaverse without a cryptowallet. Not everyone has the technical skills to work with cryptocurrency or even understand how it works. They may also be unable or unwilling to invest in additional hardware or computing power needed to even make an initial venture into the metaverse possible.

• The technology behind delivering an immersive experience is nowhere close to smartphones and computers in their ubiquity. Technology is for the most part still shackled to big tech companies and their big platforms, which makes it a long way from making everything interconnected and open. A decentralized, autonomous future world will most likely need tools to make it accessible and usable to a larger audience. However, there is no incentive for big companies to develop such tools, since they will most likely push for centralization, power, and profit.

• There is no guarantee that people will even want to hang out via avatars (sometimes even without legs) in a virtual space in favor of offline experiences in the real world, particularly after pandemic restrictions have been lifted.

Although many proponents of the metaverse compare its development and progress to the early internet, predicting what people will want is notoriously difficult. As WIRED notes: “Money pouring into a space doesn't necessarily mean a massive paradigm shift is right around the corner, as everything from 3D TVs to Amazon's delivery drones and Google Glass can attest. The history of tech is littered with the skeletons of failed investments.”

• No matter how much virtual worlds evolve and become globally accessible, governments and regulators will be scrutinizing economic activity in the metaverse and there is no way to predict what actions will be taken to regulate or even outright ban key components of the metaverse. Think of China’s ban of cryptocurrency transactions by financial institutions last year, followed by bans on all crypto mining and cryptocurrency itself.

Regardless, it should be kept in mind that metaverse Web 3.0 activities are at a preliminary, conceptual stage. As with any innovation, there are many issues yet to be considered and explored in more detail to ensure that the customer journey is not only exciting but safe and reliable. This is where the financial services industry has probably more experience than any other industry sector.

OpenWay sees the metaverse as an interesting area of exploration for innovative payment players who want to stand out and deliver a reliable and trusted payment experience to new virtual spaces. Here are some ideas of how financial institutions can use Way4, OpenWay’s end-to-end digital banking and payments software platform, to find a role in the metaverse economy:

• Become an enabler of payments in Web 2.0 and Web 3.0. Financial institutions can become a bridge between traditional and new-generation payment rails used in metaverses. Using Way4, they can offer card, account-to-account, and wallet-to-wallet payments, also facilitate multi-currency and in-game currency purchases. They can integrate popular crypto wallets and alternative payment methods popular among users in a target location.

• Create an all-in-one digital wallet experience. Despite being in – and perhaps even because they are in – the metaverse, customers want an easy-to-use, unified view of their finances. Way4 Wallet can load and manage all types of client financial assets in one place: payment accounts in multiple fiat currencies, loyalty accounts, virtual currency accounts and more. NFT and digital assets may also be integrated here.

• Enable 100% digital workflows. The metaverse experience is mostly virtual. Way4 allows banks and fintechs to digitalize their bank office operations related to payments, such as new account holder or NFT merchant onboarding, chargeback processing, fraud prevention, and multi-party settlement with automated profit-sharing.

• Embed payments and VAS to a metaverse via APIs. Way4 is an open payment software platform that comes with data-rich APIs and data streaming functionality that allow companies to smoothly integrate their payment services with other viable metaverse services, such as crypto wallets, AI and VR systems. 

• Enable cross-metaverse payments. The flexibility of the Way4 core allows it to be used as an engine for future cross-border payments between different metaverses. It is possible to set up any payment transfer and pricing mechanics, set rules for optimization of transaction processing costs, and manage currency conversion.

• Introduce essential financial services to a virtual reality setting. Although unclear assumptions and uncertainty about financial transactions in the metaverse are abundant, it is safe to assume that users will want the same convenience in their payment experience there as they would find in the real world. They may want to use BNPL, pay-in-one click, and see personalized offers and discounts. Companies should be ready to offer these services and be quick to develop any other service that may be required by metaverse users.

The Way4 digital payment platform has always been at the forefront of payment innovation thanks to our future-facing clients and our stellar international team. Our visionaries are always open to designing and implementing payment solutions that help our clients strengthen their leadership in the dynamic world of payments.

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