The complexity of the purchasing process within the new generation of metaverses, coupled with lingering concerns over many aspects of crypto, are both acting as deterrents to most people entering the newer decentralized, blockchain-enabled, and crypto-based platforms such as Somnium Space and Axie Infinity.
So what’s going on, and what are the opportunities for payments providers?
The growing level of interest in metaverses and the associated commercial opportunities is driving a focus on payment mechanisms/rails. The potential size of the prize is also helping to focus attention on payments. JP Morgan estimates that the metaverse economy could be worth US$1 trillion, McKinsey put it at US$5 trillion and Goldman Sachs and Morgan Stanley come in at US$8 trillion.
Right now, the metaverse economy is only putting its shoes and socks on for the start of a thousand-mile journey, and the bulk of revenues by 2030 will likely come from activities, services, and concepts which haven’t yet been conceived.
There are a variety of different types of payments already taking shape in the metaverse economy. The more mature platforms such as Fortnite and Minecraft allow people to pay for ‘in-world’ assets directly on the platform via a credit card using fiat currencies such as the U.S. dollar.
The newer decentralized metaverses, such as The Sandbox and Decentraland – the two largest platforms – represent a more complex proposition. The land in these worlds is typically sold in tranches by the platform creator. To make a purchase, the buyer has to buy the native $SAND token via a crypto exchange and then use this to purchase the land directly from the platform – this takes the form of an NFT. These NFTs can then be sold in secondary markets such as OpenSea – typically using Ethereum (ETH) – which again need to be purchased via a crypto exchange. A crypto wallet is required to hold these NFTs.
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The assets within a decentralized metaverse, such as buildings, also take the form of NFTs. Typically an agency is hired to create them and paid in a fiat currency. These NFTs can also be sold via platforms like OpenSea. Rental of land or properties and purchases of other assets within the platforms and transactions between individuals is then done using the native token such as $SAND and MANA for Decentraland.
The complexity of current payments processes creates a massive payments opportunity around facilitating the purchase or rental of land, buildings, and other assets or taking part in experiences within one of the decentralized crypto-based platforms.
For metaverses to realize their potential, the big win will come from allowing people to make the payments using fiat currencies without having to go through the underlying steps. All of the major credit card companies are positioning for this. JP Morgan was the first bank to create a metaverse presence – using Decentraland. The key content they have in their virtual branch is their thinking on the future of payments. Morgan Stanley and PNC have both started offering their high-net-worth clients the ability to purchase land in metaverses using fiat currencies.
While the existing payments providers have been quite cautious in their approach to date, the newer entrants are offering innovative metaverse native payments solutions. For example, Terra Zero offered the first metaverse mortgage in February 2022, with a US$45,000 two-year loan to enable the purchase of a block of land in Decentraland.
In the pure payments space, Latvia-based Zelf styles itself as “The Bank of the Metaverse.” Zelf allows customers to sign up for a credit card and deposit fiat such as U.S. dollars. Customers can then add the NFTs they own within that metaverse, plus any ‘Loot’ they have earned through playing games and trading assets in the metaverse.
All of those asset classes can then be used to buy other assets inside the metaverse or to pay for physical world goods and services using the credit card. The expectation is that more players will enter this space to allow people to purchase within metaverses using fiat currencies. The next stage will be to add additional asset classes to these accounts – such as cryptocurrencies, stocks, bonds – basically anything that has an immediately realizable monetary value.
Another platform – Vera – has opened up as a decentralized finance enabling, open source, non–custodial liquidity platform. Vera offers customers NFT custody services, peer-to-peer lending, and a range of decentralized fiancé products for lenders, borrowers, and asset investors/collectors.
The current metaverses are not connected. So users cannot move assets between platforms or use resources on one platform to buy assets on another. This disconnect clearly represents another opportunity for payment providers to facilitate the flow of value and transactional activity across platforms – all from a common fiat currency-based interface.
Of the myriad future payments possibilities, one is the notion of asset tokenization/fractionalization. This involves dividing an asset into tens of thousands of micro tokens that enable individuals to participate in asset purchases for as little as $5, mimicking how users can buy a fraction of a crypto token such as Bitcoin.
We are just scratching the surface of metaverse functionality and activity, and the landscape is evolving at a rapid pace. While payments solutions currently lag functionality, we can expect the gap to close rapidly, particularly as new entrants bring radically different metaverse native payments solutions to bear.
Rohit Talwar is the CEO of Fast Future Research, a global research and consulting company specializing in identifying future growth industries and helping governments and global companies explore and respond to the sectors, ideas, trends, and forces shaping the next five to 20 years.
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