The metaverse effect on the payments space

How is the metaverse going to change the way the payments ecosystem work?

Let’s start with a brief explanation to understand just how transformational the Web 3.0 convergence of technologies is set to be for the payments space.

First, the ‘metaverse’ is the buzz term that encapsulates what many expect to be the next big change in how we’ll use digital technologies to interact and collaborate with others.

Second, let’s look back at a little history to see how we got here…

• Web 1.0 (of the 1990s and early 2000s) was the old ‘read-only web’. It’s called the read-only web because it lacked the social participation that today’s web is known for.
• Web 2.0 is where we are now in the ‘participative social web’. It’s centered around not only reading information, but commenting, sharing, and interacting with content. Innovations such as smartphones, mobile internet access, and social networks are what are behind its exponential growth (further fuelled by the digital transformation the pandemic drove). Unlike Web 1.0, which was open-source, today’s 2.0 is a ‘closed system’ and platforms are centralized, meaning users must follow the guidelines of powerful players like Facebook, Google, and Twitter.
• Web 3.0 is where we’re heading: into the ‘read, write, execute web’. Decentralization and openness are its hallmarks. Proponents hope it will make the internet more democratic so that users have more freedom to shape it. It is already here in the form of technologies such as blockchain, the decentralized shared database of transactions. Web 3.0 will likely increase the power of the user and shift it away from large companies like Google or Facebook.

So how could Web 3.0, which is being built on three new layers of emerging technologies – edge computing, decentralized data networks, and AI – change the world of banking and payments?

Through the use of public blockchains, Web 3.0 will cut out the ‘middle men’ or financial intermediaries now needed for virtual transactions to take place between two or more parties.

In practice, it means that instead of customers using services mediated by businesses like Google, Apple, or Paypal, users themselves will own and control portions of the internet.

The potential advantages of Web 3.0-enabled Decentralised Finance (DeFi) are many for consumers, including:

• Removal of the use fees that banks and financial institutions impose
• End to bank deposits; funds may be stored in a secure digital wallet
• Availability to anybody with an internet connection without authorization
• Rapid speed and convenience of fund transfers

For the traditional centralized world of finance, all this represents both an opportunity and a threat.

Its system is slow, inefficient, and vulnerable to fraud but Web 3.0 can potentially increase efficiencies by creating a more decentralized, secure, and private banking system.

Web 3.0 also has the potential to radically change the cross-border payment market. Crypto assets can provide a secure infrastructure that can move money globally almost instantly and at an affordable cost.

The European Payments Council has stated that more than 90% of its members think blockchain technology will disrupt the industry by 2025.

This new vision for the banking industry has the potential to change everything for financial services companies willing to adopt decentralized technologies and win access to new customer segments that were previously difficult to reach.

We are not yet there however. Web 3.0 is likely to be adopted gradually while the technical and regulatory aspects are still in their infancy. But centralized finance (CeFi) and DeFi will eventually unite.

Ready or not, Web 3.0 is coming: we are on the verge of stepping into a fully digital payments landscape.