The Capital Markets industry should be recognised for diving in early into the Metaverse. Many firms are already looking or experimenting on how to enhance business-to-consumer (B2C) and employee experiences through leveraging this spectrum of digitally enhanced worlds and realities. And while looking at this in a recent LinkedIn article, I started to also think if such applications might not just be some of the metaverse’s low-hanging fruit.
What about the idea of reaping more value from the metaverse by scouring every inch of capital markets businesses, e.g., the more traditional Investment Banking business-to-business (B2B) activities for potential metaverse applications to create new value or help bend the cost-curve?
The early efforts around the Metaverse
Retail banks were among the first businesses to leverage persistent 3D environments for their consumers, and many now boast some form of augmented reality (AR) and virtual reality (VR) technology that allows people to check balances, pay bills and make transactions.
Meanwhile, capital markets are harnessing the metaverse to enhance a range of employee experiences. Some firms are using avatars to onboard remote workers in ways that inspire fun, engender a sense of connection, and nurture a feeling of community. Other firms across the capital markets spectrum are using immersive learning tools that rely on simulated customer environments for training purposes.
Enhancing these everyday B2C and employee experiences is a smart move. But I believe, the bigger prize for capital markets firms might lie in building these virtual spaces for their B2B activities, the nerve centres of capital, liquidity and alpha generation in the industry.
Enabling persistent shared experiences
Firms probably haven’t even scratched the surface of the metaverse for B2B applications, so there’s plenty of room for no-holds barred thinking. Many of these B2B activities are based on either one or all of these three things: collaboration; the flow of information; and the creation/access to markets. So, firms might want to start with revenue generating business activities that are ripe for persistent shared experiences, which are the defining quality of the metaverse.
Let’s start by looking at the trading space. It might start with a pilot internally, where firms could look to improve the flow of information within the front-office between their sales and trading teams—potentially even across geographic boundaries. Product information could flow seamlessly across teams at scale in more engaging ways, enabling a new form of collaboration. And, if working, this could be easily extended to share information as well with customers.
It’s also easy to imagine an array of market participants joining forces to build computer generated trading floors. Think of this as an exchange in the Metaverse, that allows, e.g., fixed income, foreign exchange, and equities traders in different geographies to share, visualize and digest a wide spectrum of transaction information via augmented reality. This could allow for greater price discovery and transparency and promote an environment that could cater for increased liquidity and transaction flow. And perhaps, firms could also leverage the Metaverse further down in the process chain to help with frictionless execution and a more seamless post-trade processing.
An opportunity to create new marketplaces
Firms could consider ‘meta’ deal rooms that enhance the due diligence processes of IPOs and M&A deals by replicating the experience of the physical data rooms for potential buyers. The metaverse could also breathe new life into relatively static revenue streams, such as the sale of sell-side research to institutional investors and data service providers. This might involve investment banks building virtual libraries for their research, which could allow customers to enjoy immersive, personalized, and ‘high-touch’ experiences.
If you combine elements of the last two examples, you might get to ideas on how to use the metaverse to help create new business. The metaverse might provide the opportunity to spin up marketplaces and virtual participants in these marketplaces quickly. These could be created and adjusted according to market conditions. Think for a moment of a marketplace for private capital that could help bring together start-ups with venture capital firms to address their financing needs, with banks offering a range of virtual services to these participants.
It’s probably too early to put a number on the ROI from enriching such B2B experiences, but there could be efficiency gains from traders collaborating in the same virtual space, a whole deal room visualizing the most relevant data in AR, augmenting data points to help with asset pricing as well as the ability to instantly connect buyers of research with the analysts who wrote them in a virtual setting where geographic restrictions can be removed.
Thinking about risk and reputation management
While it will not be easy to build such new virtual environments and worlds, there is value in spending the time to reimagine the way these customer and employee experiences could work. The guiding principle for me would be to look at places where the metaverse could help address existing challenges, be it on the cost or revenue side. Of course, firms will need to apply creativity, technology and skills to set strategies that drive business transformation. Finally, they’ll need to design, build and operate metaverse capabilities, including Blockchain, 3D commerce, extended reality and digital twins.
An interesting question in this context is if firms should then also start to think about the cultural impact and reputational risk of the metaverse, especially if it introduces an element of gamification into business functions and activities. There is probably no easy answer to this one. One might be especially wary of appearing frivolous, and hence unsuited to the serious business of capital stewardship. But I think firms should worry more about the risks of keeping the spirit of competition locked up, given they are all too familiar with actual and potential regulatory and compliance risks that they currently deal with every day anyway. The incumbents can take this knowledge and experience into consideration from the outset to avoid any pitfalls.
And finally, if you think about attracting talent and your workforces being staffed more and more with millennials and Gen Z, offering shared experiences as part of the daily routine might become the norm fast. In the longer-term, there is probably a much bigger risk for firms who shy away from the metaverse: They might soon be operating in worlds defined by others.