Banks are exploring NFTs, but they are having trouble preventing the development of tokens

What we have noticed: As more financial institutions (FIs) explore non-fungible tokens (NFTs), we look at how they could impact the financial services industry.

The backdrop: The wealth management sector already views clients’ high-end physical collectibles as an integral part of an investor’s portfolio. And now more banks are also exploring digital collectibles like NFTs as assets, technical solutions and marketing tools. Banks primarily view them in the context of the metaverse, where real assets can be bought and sold as NFTs.

• Goldman Sachs so it is examine “NFTs in the context of financial instruments,” according to the bank’s global head of digital assets Mathew McDermott.
• JPMorgan opened up a lounge in the metaverse where users can buy virtual plots of land with NFTs.
• And Japanese bank Nomura seeking to grow its presence in cryptocurrency and NFTs.

Find NFT’s use in finance: The technology underlying NFTs can be useful for FIs, as American Banker points out.

• NFTs allow companies to register and transfer digital assets on the blockchain so that owners can store data while protecting it from loss or corruption. This system can help banks and financial institutions more easily deal with the challenges associated with handling and securing sensitive data.
• This can be useful, for example, when assigning royalty payments. Sometimes royalties have more than one owner and it is not obvious who is to be paid. With NFTs, it is obvious who owns an asset.
• NFTs can also potentially help banks bring in new customers who don’t trust crypto and are intimidated by the complexity of blockchain technology.
• Fintechs and banks can benefit from trading NFTs in the same way that anyone can benefit from selling collectibles. For example, Conv gives investors exposure to rare assets like fine wine and watches and plans to add NFTs in the future.

What are NFT’s limitations?

1. Unstable prices: Much like crypto, NFT prices have fallen off a cliff this year. The average NFT price fell from $3,894 in May to below $300 in August, per Chain Analysis.
2. Public Apathy: 41% of US adults never heard of NFTs, according to YouGov, and only 3% of UK adults said they would feel more positive about a company if it started offering the digital tokens.
3. Hackers: Like all digital data, NFTs are potentially at risk of being hacked, especially if they are stored on a centralized exchange. If they are stored in a decentralized wallet, they can still be hacked in a phishing scam that secures the user’s password.