OBSERVATIONS FROM THE FINTECH SNARK TANK
Claiming to be the first bank in the metaverse, JPMorgan announced the opening of a “lounge” in Decentraland. Upon entering the lounge—which was established by Onyx, the bank’s blockchain unit—visitors are greeted by a digital portrait of Jamie Dimon (which morphs into the image of the bank’s head of crypto) and a roaming tiger.
I didn’t find a lot to do in the lounge other than viewing a wall touting the bank’s blockchain accomplishments and watching a video of Chase’s eCommerce and Fintech Forum from June 2021. There’s an upstairs to the lounge, but all I found there was a female avatar that kept walking into my avatar.
It would be easy to write this off as a useless initiative from a bank that can afford to spend $12 billion on technology. As Cornerstone Advisors’ Director of Fintech Research Alex Johnson wrote in his Fintech Takes newsletter:
“At some point in the future, it’s possible that the digital worlds being built today will have aggregated sufficient user attention and engagement that financial services companies will need to invest in the metaverse as an acquisition and customer service channel. But we’re not there yet. Until the metaverse is a little less empty, resist the temptation to colonize it with branches and billboards.”
There are some that believe banks should establish bank branches in the metaverse, however. According to IBS Intelligence:
“Virtual branches are the next logical step for how financial institutions can use virtual reality. Imagine never having to take a break during working hours and wait in a line at the bank. Now imagine getting personalized banking service at the comfort of your home, when it’s convenient for you while enjoying a cup of coffee.”
The Money in the Metaverse is in Financing It
JPMorgan doesn’t appear to believe that its metaverse lounge will serve random metaverse visitors who will, on a lark, decide to open a checking account, however. While the purpose of the lounge itself seems suspect, the bank’s thinking about the metaverse’s potential opportunities is spot on:
“Supply and demand dynamics are driving people into the meta-economy. Over time, the market for metaverse real estate could evolve in a similar way as the real estate market in the analog world. In time, the virtual real estate market could start seeing services much like in the physical world, including credit, mortgages, and rental agreements.”
As I wrote in a recent Fintech Snark Tank article, The Coming Boom In Metaverse Lending For Banks, virtual real estate sales are skyrocketing. The two largest virtual worlds—The Sandbox and Decentraland—saw 86,000 virtual property transactions totaling $460 million in sales in 2021.
For both virtual worlds, the average investment in land was about $5,300, but prices have grown considerably from an average of $100 per land in January 2021 to $15,000 in December 2021, with rapid growth in the fourth quarter when the Sandbox Alpha was released.
In the past month, sales of property on the six most popular virtual worlds brought in more than 52,000 ETH—roughly $169 million—on NFT trading platform OpenSea.
A “mortgage” isn’t the right analogy for purchasing virtual property in the metaverse. Commercial real estate lending is the better analogy.
Metaverse property prices rose 700% in 2021, but it isn’t just price speculation that’s driving the increase—it’s the opportunity to monetize virtual land with games, events, and other revenue-producing ideas.
Banks have developed a competency in evaluating real real estate lending. Smart and entrepreneurial banks will develop the capability to evaluate virtual real estate lending, as well. Many of the same principles apply to both types of assets.
Much like early movers into the metaverse are trying to establish their “metaverse brand,” early lenders will be able to establish themselves as “metaverse lenders.”
Enabling the Gaming Ecosystem
According to JPMorgan’s metaverse report:
“The success of building and scaling in the metaverse is dependent on having a robust and flexible financial ecosystem that will allow users to seamlessly connect between the physical and virtual worlds.”
In enabling the gaming ecosystem, the bank intends to focus on three verticals:
- Industrializing game platform providers with bank-grade products and digital assets platform access.
- Enabling game and content creators to easily commercialize their creations.
- Globally scaling the metaverse industry across multiple currencies and payment methods.
TechBullion recently commented:
“[Metaverse] transactions require some type of financial infrastructure. But traditional financial institutions may not be primary players in the Metaverse. Most are still hovering on the periphery of decentralized finance. When the Metaverse launches, digital banks will be in the perfect position to facilitate transactions. DeFi protocols will also quickly adapt and position themselves as major players.”
It appears that JPMorgan takes exception to TechBullion’s comments.