Plugging in: financial services in the metaverse
If there’s one industry buzzword this year that’s on almost everyone’s lips, it has to be “metaverse.” Since social media giant Facebook rebranded as Meta, centering on what the company believes is the future of the web, the concept has sparked interest and confusion in equal measure.
What opportunities exist for financial services in the metaverse?
For something so difficult to figure out, a number of financial institutions (FIs) have already taken to the metaverse with confidence. These firms believe they have seen a golden opportunity to provide metaverse participants and citizens with the services they need to buy, sell and hold goods and services, such as digital assets and concert tickets, non-fungible tokens (NFTs) and digital real estate.
FinTech Futures recently spoke with Glenn Friedman and Jerry Eitel, managing director and chief metaverse officer (CMVO), respectively, of London-based accounting and advisory firm Prager Metis, to get down to the brass tacks – how will people trade in the metaverse, how will the real world and the metaverse are connected and what are the possibilities for financial services?
Seeing is believing
“A lot of people think of the metaverse as a complex concept, which it can be, but once you experience the virtual world, it’s much easier to understand,” says Eitel.
“I like to compare the metaverse to a TV show; but you are actually in the show, but from your physical location rather than watching it. It transforms the two-dimensional world of the Internet into a multidimensional reality.”
In short, the metaverse is a virtual world where people can go to school, work, play games, attend concerts or festivals, shop and meet friends. Essentially everything one can do in the “real world”.
“It’s what I would describe as the Internet on steroids. I think it’s the future,” Friedman says.
After Prager Metis set up a digital presence in the metaverse, the firm initially thought they would only deal with mining clients and exchanges.
But soon partners started calling them up. “I don’t think any company is going to be able to ignore this in the future. My advice to all companies out there is that the future is now,” says Friedman.
“You can’t joke about that. You need someone in your organization who wants to champion it and has a passion for it.”
Prager Metis opens its doors in Decentraland
New world order
What will the digital landscape look like in 25 years, when the metaverse is potentially commonplace and we all shop and do business in online realities?
Eitel believes that as the infrastructure behind the internet continues to evolve, so will the metaverse. Roads, streets, communities, districts and shops are just the beginning, with the metaverse constantly evolving as a community of decentralized virtual worlds.
“The more people create metaverses, the more it continues to evolve,” says Eitel. “The possibilities will be endless, and the future of this new immersive virtual landscape will ultimately become the foundation of how the real world works and engages.”
As such, people can expect to use the same services as they do now. They will clock in to work in the metaverse, receive payments in cryptocurrency, make purchases and attend social gatherings. Future financial services providers will need to know as much about the virtual world as they do the real world.
“I think the future has a seamless joining of the two worlds that will require education, accessibility and community,” adds Eitel.
While Prager Metis clients are eager to learn and avoid big mistakes by seeking expert guidance from the start, Eitel believes that using any financial service provider who is not well versed in this new technology “can be like asking your GP to perform heart surgery”.
In this new reality that requires learning and listening to the experts, “you can’t expect even a good accountant or tax preparer to be a specialist”, says Eitel.
Businesses need to think carefully about the scope and type of opportunities that exist in the metaverse. Friedman and Eitel outline three main opportunities: scaling a company and finding new customers, branding and monetizing intellectual property.
Organizations can also leverage the metaverse to improve internal operations and processes. “For example, look at today’s workforce, which is largely remote,” says Eitel.
Companies can use the metaverse for things like upgrading employees, retaining and acquiring talent, training and onboarding.
Recognizing this opportunity, many firms are already doing business in the metaverse. In January, Prager Metis opened the first ever CPA firm HQ in the metaverse platform Decentraland and actively works with businesses that want to enter the metaverse.
Aerospace giant Boeing also announced plans to build the next plane in the metaverse, using virtual design and engineering tools. It plans to use the metaverse to access every piece of information about the aircraft and certification documents to help with the precision of the aircraft’s development. “This can help with potential supply chain issues,” Eitel believes.
Gold rush
In terms of regulations, the metaverse is still something of a Wild West environment, “but operating as a business, we have to apply the same business practices to businesses and transactions in the metaverse as we do in the real world,” says Eitel.
The legal fees are “astronomical” and it’s more just buying and selling NFTs. Payments with any of these assets will result in gains or losses from the original basis compared to fair market value at the time these assets are used to pay a vendor. Proper forms such as 1099s must be issued. Taxpayer ID must be obtained if you are in a metaverse business.
In addition, many independent contractors from around the world are paid in crypto. There are formalities that must be followed. Treaties may even have to be examined if royalties are paid.
The metaverse needs users – and qualified people behind the scenes – for it to work
Investing in metaverse assets is like buying and selling physical real estate and is treated as capital assets. Also, certain NFTs may be taxed as collectibles and therefore at higher rates. There is some question as to whether an NFT can be considered a security. The list goes on.
“The metaverse is an extension of society. As much as people want to think that rules don’t apply, they do, and the government will address that in the future, says Friedman.
Through interaction and interconnection, people and services will move seamlessly between the metaverse and the real world. For example, there are already real objects that are sold in the virtual world and vice versa.
“I prefer to see this as an extension of the world. If you don’t see it that way, you must. The metaverse is one of geography and demographics. It’s just a new place to expand the market. Whether you call it Hawaii 2, it exists, Friedman adds.
Eitel believes the metaverse offers an enormous amount of growth opportunities for companies as well as opportunities for the so-called real world to develop new business concepts. As technology advances and more people enter the virtual worlds, companies will have to rethink business models and learn to operate in both physical and digital worlds.
“In several years, businesses will see increased efficiency due to the metaverse. Personal processes that took time and money will be streamlined through the metaverse, increasing speed to market for many industries,” says Eitel.
availability
For the metaverse to gain traction, “it will be important to increase accessibility”, says Eitel.
The more big brands enter the metaverse, like Disney and Nike, the more consumers will follow. More consumers mean more profitable opportunities. If governments treat digital currencies, NFTs and virtual lands the same as they do all real world assets, the metaverse will remain as accessible as our real economy.
As it stands, the metaverse is currently being regulated by various organizations. “The technology isn’t where it needs to be for governments to be able to predict exactly what needs regulation, but I think applying physical business practices to the metaverse and keeping it open to anyone who wants to join will keep it profitable for businesses to exploit , says Eitel.
Friedman says the metaverse, and the financial services it needs to operate, has already expanded beyond wealth management, risk management and technology.
Smart contracts and blockchain offer immediate appeal, but where these technologies are today, they are not ready for primetime or commercial use.
“When you think about what it takes to do the accounting for a wallet that might have different cryptos and contracts in it, there’s a lot that has to go into accounting for those gains and losses,” Friedman says.
“It’s a bit like when wirehouses didn’t exist and you had to go back and look to see what someone bought something for. It’s pretty intensive.”
A land of opportunities
While still a very nascent concept, there are many ways the metaverse can go wrong. It can be suffocated by too much centralisation, become too lawless with too little regulation or dominated by large players, which stifle competition and innovation.
But Friedman believes the biggest challenge facing the metaverse is something more prosaic – people.
“Even though everyone thinks it’s about avatars, it’s about finding good and qualified people who understand the metaverse. Educating our team also takes a lot of resources and time, says Friedman.
Time is also a big challenge for the company. “Every day I get on the phone with someone and learn something I never thought about,” adds Friedman.
“We get so many questions and opportunities that it’s hard to keep up. You have to separate the ideas and decide what you think will be the future and profitable.”
