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Everything You Need to Know About Payments in the Metaverse
18.08.2022
5 min
Mark Zuckerberg called the metaverse “the next chapter of the internet,” while Satya Nadella said, “it's not only transforming how we see the world but how we participate in it.” Indeed, the metaverse is already far more than some distant concept, but rather a whole new world in the making.
The space where physical and virtual realities are set to merge will launch a new era of digital connectivity, VR experiences, and upgraded eCommerce, and now that it’s closer than ever, it is only natural to wonder what exactly it is going to be like. In this guide, we will shed light on what the metaverse is likely to be from the payment industry’s perspective - read ahead to find out!
What Is the Metaverse?
The metaverse is an integrated network of 3D virtual worlds, where users can interact with a digital environment as well as with other users. This immersive experience is facilitated by VR and AR headsets.
Tech visionaries and consumers alike are looking toward a metaverse where one’s virtual avatar can hop from one platform to another and engage in activities such as:
- Gaming
- Attending concerts
- Watching sports
- Conducting business meetings
- Shopping
For instance, already now Manchester City is building a virtual stadium in the metaverse so that football fans can watch games and, possibly, purchase digital merchandise just like when gamers buy skins.
What’s more, nearly every activity in the metaverse can potentially be monetized, which makes more and more businesses consider the possibility of entering this virtual world. However, there is one question that makes a lot of merchants hesitate: how to accept payments in the metaverse?
Which Payment Methods Work in the Metaverse?
In its 2022 report, Visa described the metaverse as a strategic inflection point with its unique virtual economic system where users can trade and monetize digital content1.
Similar to physical reality, there are multiple options to make payments in the metaverse, namely:
- Cryptocurrencies. Users can exchange fiat currency for cryptocurrency and use it for payments in the metaverse. To do it, they need to have a crypto wallet and access to exchanges such as Coinbase or Binance. Note that every platform in the metaverse accepts its own set of currencies.
- NFTs. Non-fungible tokens have become a widespread payment method in the metaverse due to how simple it is to transfer them between users. NFTs use blockchain technology just like crypto, which makes them a great option to transfer value securely and anonymously.
- Digital wallets. The number of unique digital wallet users is projected to exceed 4.4 billion globally by 20252. Not only is this an increasingly popular payment option in the physical world, but also a widely used method to make purchases in the virtual realm. What’s more, in a recent Facebook Post, Mark Zuckerberg announced the launch of Meta Pay, a digital wallet designed specifically for the metaverse.
Due to the digital nature of the metaverse, fiat currencies cannot be used to purchase goods in it.
Current Challenges in the Metaverse Payments Landscape
As the metaverse is in a fairly early stage of development, there are still aspects in which it can be improved. When it comes to payments in the virtual world, there are currently three main challenges FinTech companies are trying to tackle:
- Immersion. The metaverse’s goal is to be an advanced virtual space where your physical and digital versions blend into one. When it comes to payments, this means less context switching and a minimum of accounts and passwords for a seamless experience. However, many payment processes these days still involve multi-step authentication and are yet to be adapted to prevent users from breaking their immersion into the metaverse.
- Security. When striving to create a fully immersive payment experience, it’s easy to compromise transaction security. However, fraud always follows large volumes of money, so as more and more users join the metaverse, merchants and FinTech companies should be ready to address emerging security risks.
- Regulations. This challenge is related to decentralized payment methods like crypto and NFTs. While they are mainly considered safe, there is a lot of potential for them to be used for dark web transactions due to the anonymity they provide. Hence, the way payments will be regulated in the metaverse is still subject to discussion.
With that said, there’s no reason for merchants to avoid entering the metaverse market. However, before doing so, it’s critical to be prepared to deal with unfamiliar security risks, disputes, and marketing scenarios.
Future Prospects of Payments in the Metaverse
The metaverse market has the potential to reach $783.3 billion by 2024, compared to $478.7 billion in 2020, representing a CAGR of 13.1%3. This is partially attributed to the high involvement of Gen Z users. For instance, 80% of Zepeto’s users are teenagers, while 54% of people actively playing Roblox are under 13 years old4.
Besides having the interest of a younger audience, the metaverse features a unique monetization model that is rooted in human interaction. Combined with the trend for digital assets, it is sure to encourage users to both generate and purchase virtual products.
Therefore, if you are interested in exploring this developing market, it’s important to be open to new revenue generation strategies, develop a long-term yet flexible strategy, and stay true to an innovative approach.
1, 4 - Visa - The metaverse as a strategic inflection point
2 - Juniper Research - Digital Wallets ~ Transforming the Way We Pay?
3 - Bloomberg - Metaverse may be $800 billion market, next tech platform