We have the invention and evolution of technology to thank for some of humanity’s most significant advances. The invention of the telephone in 1876, the aeroplane in 1903, the computer in 1937, and the internet in 1974 all completely changed how we live our everyday lives. As technology advances, how can the likes of Web3, the metaverse, blockchain and DeFi change the future of fintech?
Throughout March on The Fintech Times, we consider the topic of innovative technology and which inventions and evolutions could have the biggest impact on fintech.
Here in this next instalment of our month-long coverage of innovative technology, we’ll be assessing how the advent of the metaverse and its associated technologies are ushering in new forms of innovation across the fintech industry.
Our answer to this will be supported by the invaluable insight of industry experts from Freeport, Hummingbird, StandardDAO, EY Americas, Unlimint and The HBAR Foundation.
Launching our conversation, Colin Johnson, CEO and co-founder of Freeport, a platform bringing fine art investment on-chain, says “It’s frankly still too early, and existing metaverse options are not compelling enough, for the true fintech innovation to have occurred.”
However, according to Johnson, “it will happen soon.”
In this, he recognises how the rise of the metaverse will require a smooth user interface that “lets users engage with all types of digital value as they navigate an array of different virtual scenarios.”
This includes the purchase of items with digital currencies and the ability to transfer them to family members’ wallets and store their own goods.
“To enable this universality,” Johnson continues, “fintechs will need to build their solutions in an interoperable and composable way with other providers – something many are not keen to do currently.”
He points to the benefits of open source as a facilitator of this. “Open source development, coupled with baseline blockchain infrastructure, will lead to an entirely new set of incentives and outcomes for builders in the space,” concludes Johnson.
Innovation in security
Adding to this, Joe Robinson, CEO of the compliance CRM platform Hummingbird, sees that with an increasingly digital world, the metaverse will cement itself as “a new and emerging channel where people interact, initiate transactions and process payments.”
However, he also warns that with this, “bad actors follow the money,” stating that the metaverse is “an attractive space for criminals to launder large sums of illicit funds and assets.”
Reassuringly, however, Robinson is steadfast that advancements through regulatory guardrails will help track illegal activities digitally.
“To ensure individuals and companies are protected when dealing with metaverse-related assets, financial institutions participating in the metaverse need to ensure that they understand and prepare for the unique risks of digital currencies,” he continues.
“This starts with a strong compliance programme and continues through collaboration with regulators and law enforcement as the metaverse takes shape.”
Innovation in efficiency
As CEO of the decentralised treasury StandardDAO, Aaron Rafferty sees how the metaverse can provide a “more accessible, transparent and secure environment for financial activities.”
“With the use of blockchain, digital identities and artificial intelligence (AI), users can engage in financial activities without the need for intermediaries, reducing costs and increasing efficiency,” elaborated Rafferty.
“This can lead to the creation of new financial products and services, such as decentralised finance (DeFi) applications, that enable users to earn passive income and participate in global financial markets.
“Additionally, the use of DAOs and smart contracts can automate financial activities of individuals and communities, reducing the need for human intervention and increasing the speed and accuracy of financial transactions,” he concludes.
Industry in the making
Matt Hatch, fintech and private leader at EY Americas, starts by establishing that the promise of fintech has always been to “deliver seamless value across a complex global financial and commerce landscape.”
He explains that as a result of this commitment, technologies and innovations are currently at the forefront of enhancing a frictionless metaverse experience.
“Underlying protocols and networks, digital wallet infrastructures and decentralised identities all have roots within the fintech ecosystem,” affirms Hatch.
“As with all technology-enabled innovations, regulatory oversight and structure have yet to catch up with the full power of these innovations. It will be interesting to continue to advise the fintech and metaverse ecosystems as these conversations continue to take direction and shape,” he concludes.
The elixir of financial innovation
“The metaverse is a hotbed of innovation in the fintech industry, offering new possibilities for financial services, products and experiences,” brings in Jovi Overo, managing director of banking-as-a-service (BaaS) at the financial services provider Unlimint.
For Overo, the metaverse is enabling innovation in fintech by creating a more open, accessible and collaborative environment for entrepreneurs and investors to experiment and develop new solutions.
However, on the topic of generating innovation, he confirms the leveraging of DeFi applications as one of the key ways the metaverse is enabling innovation in fintech.
“DeFi offers a more accessible and equitable financial system, allowing individuals to transact and invest without relying on traditional financial intermediaries,” he explains. “This creates new opportunities for innovation in areas such as micro-lending, digital identity and smart contracts.”
“Moreover,” continues Overo, “the metaverse is creating new opportunities for collaboration and co-creation in the fintech industry.”
“Startups and established financial institutions can work together to create new financial products and services, leveraging the strengths of both parties to create something new and innovative.
“This can lead to the development of new financial ecosystems that are more efficient, transparent and inclusive.
“To conclude, the metaverse is a catalyst for innovation in fintech, creating new possibilities for financial services, products and experiences,” he closes. “By embracing the opportunities offered by the metaverse, entrepreneurs and investors can drive the next wave of innovation in the fintech industry.”
Decentralised but integrated
Concluding our findings, Alex Russman, head of the metaverse fund at The HBAR Foundation, confirms that the currently separated payments rails and rewards platforms are being consolidated into a product ecosystem that is both “secure and decentralised but integrated” at the intersection of the metaverse and distributed ledger technology (DLT).
Elaborating on this statement, Russman also describes how this consolidation is unlocking “unprecedented innovation” in consumer engagement.
“With DLT, payment transactions can be processed and recorded alongside the earning and redemption of the rewards that consumers generate for different activities and transactions, such as shopping or completing surveys,” he comments. “This creates a more engaging and rewarding user experience, while also increasing customer loyalty.”
“By tying the collection of rewards into the point-of-sale process, the drive to onboard users to loyalty programmes will become a more attractive opt-in endeavour for consumers,” continues Russman.
“On-ledger rewards can be acknowledged and consumed by third parties as well, enabling independent coffee shops to disburse reward air miles, and Starbucks loyalty tokens to unlock experiences in Roblox.
However, as a parting note, Russman explains how this quickly moves beyond the consolidation of just payments and brand loyalty.
Altogether, “Consumers can gain visibility into the environmental, social and governance (ESG) impacts of their purchases, ‘voting’ for carbon-minimised products with their wallets and receiving a share of ESG rewards. The atma.io platform by Avery Dennison is already capturing this data on-ledger for 22 billion-plus items.”