The Metaverse will change the e-commerce experience by making the virtual experience more personal, more real, and more immersive. The experience will be characterised by ultra-personalisation and user-designed products, going beyond just product recommendations offered on the internet currently. Retailers who provide a winning personal experience would be entitled to charge a price premium. User returns, estimated by CBRE Supply Chain to be 30% during 2021 holiday season5, would reduce as users ‘try’ the product virtually or see how a particular furnishing might fit in their homes using augmented reality. There is likely to be much higher (virtual) footfall as users can go into stores at the click of a button and stores could attract custom in ways not possible within the constraints of the physical world (for example, watching an exclusive live show at the store). Furthermore, tokenised assets (primarily non-fungible tokens) opens up markets that did not previously exist. Fractionalisation and programmable money could drive even more transaction volume.
McKinsey estimates the market impact of the Metaverse on e-commerce at US$2.0–2.6trn by 2030. This impact is driven by transactions that require payment services to be supported by the financial institutions. The core services would broadly need to cater for two scenarios:
- Support transactions on Web 2.0 Metaverse ecosystems that are not built on DLT, but sometimes utilise DLT assets (such as non-fungible tokens (NFTs)). Examples include in-game app purchases on Fortnite or Roblox, which have significant volumes.
- Supporting transactions on Web 3.0 Metaverse ecosystems that are built using blockchain-based tokens and need conversion between these tokens and fiat currencies. As an example, Decentraland, which is built on the Ethereum blockchain, allows users to buy plots of lands (as NFTs) using its native currency MANA. One way to buy MANA is to make a payment of ETH (Ethereum’s cryptocurrency) via an exchange and store it in a browser-based wallet. Obtaining ETH requires a fiat to cryptocurrency transaction using an exchange
“NFTs play a critical role in the Metaverse”
Core solutions to support the non-token payment flows already exist (ie, current payment rails). However, there are still opportunities for providing solutions to close the sales loop directly on the Metaverse. Moreover, driven by both the user volume and transaction volume, the e-commerce transactions are likely to also grow on the Web 3.0 Metaverse ecosystems. Solutions, integrated in the Metaverse with the required scale and low transaction costs, are needed for token transfers and token-fiat currency exchange. NFTs play a critical role in the Metaverse, providing the rights for digital ownership and provenance of purely digital assets as well as digital twins (ie, a digital asset with a physical world equivalent). Beyond the core solutions, we are also likely to see financial services players offering financing and lending solutions.
Payment providers and fintechs have invested in and started to offer such services. American Express seeks to engage in virtual payments and electronic business transactions for digital media and NFT. PayPal allows users to buy, sell and hold crypto. Stripe’s new application programming interface allows businesses bi-directional fiat-crypto conversion, including KYC and identity verification. Mastercard has announced that it is working with NFT marketplaces to allow NFT purchases.6