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The Metaverse Will Revolutionize Banking. But What About Its Fraud Gaps?




Banking and financial services have undergone a digital transformation, but the next trend in technology – the Metaverse – will bring a new grouping of regulatory and compliance challenges, namely identity fraud.  

 By Glenn Fratangelo, Global Head of Marketing, Fraud and Authentication Management, NICE Actimize.  

Digital transformation has paved the way for the banking sector’s newest technology disruptor: the Metaverse. The concept of the Metaverse, where users are represented as 3D avatars and interact with each other, products and their environments in an augmented reality (AR) experience, feels like science fiction fantasy come to life. While some may think there are not applications for the Metaverse in sectors such as banking or financial services, the reality is that shift toward digital across these sectors amid the pandemic has opened up new opportunities for the Metaverse to flourish. The opportunities for these organizations are endless, and the exchange of money and services in this virtual ecosystem presents challenges, and benefits, to banking, financial services, and beyond.  

Banking and payments in the Metaverse  

Adopting a digital-first mentality has been crucial for financial services organizations (FSOs) since the onset of the pandemic and has led to increased pressure to deliver highly personalized digital services and engagement for consumers. With the emergence of the Metaverse, the prospect of a completely digital payments landscape is edging nearer. Decentralized finance will be key in supporting the payments infrastructure, with technologies like blockchain and cryptocurrencies critical to both enabling secure transactions and payments within the Metaverse. 

FSOs have an opportunity to establish themselves within the Metaverse and consolidate their legacy financial systems with the Metaverse’s virtual economy. This can be accomplished in a number of ways, including launching virtual branches of their institution, joining in the virtual payments and lending ecosystem, tying fintech offerings to virtual experiences, improving remittance experiences, and providing financing options for Metaverse developers. 

The Metaverse is the next logical step for the financial services sector, and the momentum in banking caused by the digital transformation efforts that have flourished amid the pandemic, means this is a trend that is here to stay. In a 2021 Deloitte survey on online banking, only 23% of respondents indicated they plan to return to in-branch banking post-pandemic, a number that underscores how many consumers are looking for digital options in their daily lives moving forward. While the Metaverse provides a variety of challenges, namely compliance and fraud, for FSOs, it’s an area that is undoubtably growing and will require regulatory attention.   

The challenge of identity in the Metaverse  

Another factor for FSOs in their transition to the Metaverse is the issue of identity. As mainstream adoption of the Metaverse grows, along with the services and applications that form its foundation, it’s increasingly vital to have a digital identity capable of providing security, protecting privacy, and demonstrating proof of user identity while acting as a reserve for virtual assets. 

Unlike in the physical world, where an individual’s face is yet another tool in offering proof of identity, a person’s avatar can take on any form or appearance. Both consumers and organizations need the assurance of proof of identity and that their sensitive data is secure and belongs solely to them – especially as once closed ecosystems, like certain gaming platforms, converge. 

Fraud, phishing, and money laundering are severe challenges in a digital-first world and are likely to be significant concerns within the Metaverse. This stems from the sheer amount of personal information that’s collected from users through AR and VR technologies. The use of multiple identities, such as separate avatars for personal and private scenarios, also intensifies the issue.  

To solve the issue of identity fraud in the Metaverse, many will look to Self-Sovereign ID (SSI), which allows users to control their identity via blockchain technology and is connected to real-world verification processes such as biometrics. This allows for a shift in control from the platform to the user, to better protect end consumers, and enables users to corroborate the accuracy of another user’s data without disclosing personal data.  

Moving ahead with the Metaverse  

The payments landscape is set to evolve and FSOs must be equipped to not only withstand the changes but play an integral role in the Metaverse community. Just as organizations had to prepare for disruption from emerging technologies like AI and rapidly respond to events like the pandemic, they will need to strategically pivot to effectively undertake the next level of acceleration the Metaverse will usher in over the next decade.  

Glenn Fratangelo is a marketing leader with a deep understanding of technology markets, building and launching technology products, services, and alliances. His global experience spans 15 years across all disciplines of marketing and communications with a career spanning both emerging companies and Fortune 500 corporations that provide B2B solutions with advanced technologies to solve their most complex problems. Throughout his career, he has led transformation and innovation in the aftermath of the financial crisis and in the face of industry disruption. Glenn currently serves as the Director of Product Marketing for Fraud at NICE Actimize.