Financial service providers are well positioned to facilitate seamless interoperability by partnering with metaverse players, said DBS Group Research analysts.
In its “Can Metaverse Break Constraints of Physical World?” report, the analysts explained that the metaverse is likely to be a space over which no single entity will have complete control.
The digital space will likely comprise a “multiverse” of metaverses as opposed to a single homogenous metaverse, with those built by decentralised players such as Decentraland and Sandbox as well as those built by traditional players such as Roblox and Microsoft.
If these metaverse are not interoperable, customers would not be able to transfer their purchases between different platforms, the analysts said. “Interoperability is crucial to connect multiple metaverses. It would enable avatars to freely switch between metaverses and explore different infrastructure, much like the way we move from one place to another in the real world while our identities and assets remain intact.”
As the metaverse grows, DBS expects the value of digital assets to grow to a sufficiently large scale that financial service providers can no longer ignore. In this scenario, interoperability and intermediation between metaverses and the physical world would be essential.
“This interoperability is technical as well as legal and financial. Even for a simple transaction like an asset transfer, for instance, transferring gold between two countries, there are various legal and financial steps involved.
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“Parties need to comply with the customs rules of both countries and declare the value of the gold in the local currency of the receiving country after accounting for tax imputations,” the analysts added.
Many banks and neobanks will be pursuing what DBS characterises as “outside-in” business models – replicating banking experiences, customer engagement and branding with augmented or mixed reality functionality. However, DBS finds the “inside-out” business model more interesting. This model involves enabling and embedding value-added financial services into the metaverse, including facilitating exchange between digital and non-digital financial assets and flows.
That being said, financial service providers are not likely to generate sufficiently engaging content to drive an “inside-out” business model on its own. A credible strategy involves financial service providers partnering content giants or intellectual property franchises and incorporating financial service expertise in co-designing economic and financial interoperability between one or more metaverses and the physical world, they explained.
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"Financial service providers are experts in economic and financial intermediation. The currency swap was born from exchange control; the equity derivative in part from foreign shareholding limits; securitisation from the need to unlock trapped value eating up balance sheets and capital limits; the payments ecosystem from the need to drive efficiencies at massive scales; and the foreign exchange and interest rate markets from the underlying trading, hedging and risk management activity at even larger scale.
“Learning from the past, we believe, financial service providers are well positioned to meet the needs of users traversing between metaverses and the physical world,” the analysts concluded.
