Last month, when JPMorgan released its summer reading list, it took a slightly different approach than in previous years—displaying the books in a virtual lounge it set up in Decentraland for visitors to browse. This initiative began in February.

This move reflects JPMorgan's bet on the benefits of establishing an early presence in the metaverse. The bank believes this immersive virtual world representsa $1 trillion market opportunity。

The metaverse, a virtual world users explore through virtual reality and augmented reality headsets, is seen as a new model for social interaction and engagement. Sandeep Vishnu, a partner at consulting firm Capco, noted that banks cannot afford to be absent from this space.

"If the metaverse is a new model for social interaction and engagement, then banks must follow," Vishnu said. "Banks must clarify what role they will play in the metaverse. Acting early and becoming part of the ecosystem may earn them some first-mover advantages—if they are slow, these advantages will no longer exist."

Similar to JPMorgan, Quontic Bank, a New York-based digital bank, has also adopted a metaverse-first strategy. In May, the bank opened aQuontic Bank outpost。

To celebrate this milestone, the bank hosted a virtual opening party in the virtual space, complete with a DJ performance and limited-edition non-fungible tokens (NFTs) given away.

Aaron Wollner, Quontic's chief marketing officer, revealed that the bank's discussions about establishing a presence in the metaverse began early this year.

"We conducted an assessment of investment and impact, estimating that the investment would be relatively low while the potential impact could be high—not immediate, but possible," Wollner said. "That's how we think about innovative initiatives: even without immediate impact, how large is the potential upside?"

This digital bank has long been committed to exploring the frontier of integrating new technology with the banking experience.

Quontic claims to be the first U.S. bank to offer customers aBitcoin rewards program, a feature launched in 2020.

The bank also says it is the first to introduce thetap-to-pay payment ringto the U.S. market, with the product officially launched in April.

Wollner said that through the metaverse, Quontic is excited about creating a three-dimensional spatial experience for its customers.

"We love our digital, dot-com experience, but it's two-dimensional and somewhat flat," Wollner said. "We try to extend that experience through chatbots and various forms of automation, but at the end of the day, it has limitations."

JPMorgan opened its lounge in Decentraland months before Quontic. Wollner said Quontic viewed this as validation of its own efforts to establish a presence in the virtual world.

But Wollner added that Quontic sees the large bank's approach to the metaverse as an example to avoid.

JPMorgan's Onyx Lounge, named after its Ethereum-based service platform, features a roaming tiger, a spiral staircase, and a portrait of CEO Jamie Dimon.

"We thought that was very self-promotional," Wollner said, referring to the Dimon portrait and the space's promotion of its new crypto business. "It was more about JPMorgan itself than its customers... We became even more convinced of this idea: 'If we're going to do this, we should do it for our customers, build it for them.' That's the approach we took."

Wollner said the bank is operating the space with an educational focus, inviting customers to visit and learn about Decentraland, crypto wallets, and how tradable digital assets work.

"Just click the button on our metaverse landing page, and you're in—and then, voilà, you're experiencing the Quontic metaverse," Wollner said.

But when it comes to operating the space as a full-function branch, Wollner said Quontic is taking a "wait-and-see" approach.

Wollner noted that the concept of using the metaverse as an extension of banking for financial institutions raises several unresolved regulatory and security issues.

"We are a highly regulated financial institution that takes compliance and risk very seriously," Wollner said. "Before we conduct any banking business in our Decentraland outpost, we must ensure that security, regulatory compliance, and other matters are properly addressed, and that remains largely to be determined."

Vishnu believes it is only a matter of time before regulators turn their attention to the metaverse, with focus likely on fundamental elements of financial regulation such as identity management, know-your-customer (KYC) transactions, and anti-money laundering in the virtual world.

"Regulation will be a concern for banks, but in my personal view, perhaps not yet," Vishnu said.

Vishnu also pointed out that navigating the metaverse using avatars comes with its own set of security and identity challenges.

"One of the biggest considerations in the metaverse is the security aspect of identity management," Vishnu said. "Do you know who you're actually dealing with? Linking virtual identities to real people and real identities is crucial."

Vishnu said that while the virtual world presents a new form of customer interaction for banks to consider, the way banks verify identity in the metaverse should be consistent with what they do on their digital and mobile channels.

"It may be a new form of interaction, but the considerations will be similar," Vishnu said.

Does it make sense for banks?

Beyond JPMorgan and Quontic, other financial institutions are also planting their flags in virtual metaverse land.

In March, London-based HSBC purchased a plot of land in The Sandbox, a virtual world primarily used for gaming.

HSBC said the space will be used to interact and connect with sports, esports, and gaming enthusiasts.

"The metaverse is how people experience Web3—the next generation of the internet," Suresh Balaji, the bank's chief marketing officer for Asia-Pacific, said in a statement.

However, investing in the metaverse may not be suitable for all financial institutions. Vishnu said banks need to examine their target customer base when considering how deeply to engage with the metaverse.

For banks with an older customer base less familiar with technology, the metaverse may not offer much value to their customers, Vishnu said.

"If you don't have a customer base suited to this form of interaction, do you pivot to attract a new set of customers? I think this must be closely tied to the bank's overall strategy, not done in isolation," Vishnu said.

Michael Moerman, a partner at Capco, noted that beyond public-facing metaverses, banks should also pay attention to internal use cases for virtual worlds.

"There are public-facing metaverses where everyone can participate. But banks have the potential to have their own internal metaverse—which could be enterprise-grade, internal-facing, and used only by their employees."

For example, Bank of America launched avirtual reality training programfor its employees last year. The training, available at nearly 4,300 banking financial centers across the U.S., creates an environment where employees can practice customer interaction skills.

Moerman said private metaverses could also be used by banks for customer interaction, such as offering wealth advice in virtual private spaces.

French bank BNP Paribas launched its own virtual reality application in 2017, allowing its retail customers to view account activity and transaction records in a virtual reality environment.

Vishnu said that beyond building virtual spaces, banks should view the metaverse as an opportunity to extend existing services—such as supporting transactions in the new world and providing advisory services to customers interested in investing in the metaverse.

Vishnu revealed that PNC and Morgan Stanley are already providing advisory services to customers interested in investing in the metaverse through the purchase of virtual land.

"Whether it's the sale of NFTs or smart contracts, many different things will begin to happen here," Vishnu said. "We are at the beginning of a new world."