Power of Payments Ep. 12: Metaverse payments, sonic branding, and cash vs crypto

Welcome back to the Power of Payments podcast. I’m your host Ismail Umar, and in today’s episode, we discuss what financial firms need to know about payments in the metaverse, and why building a sonic brand is becoming increasingly important as consumers become more reliant on contactless payments and voice technology.

We also talk about crypto payment adoption patterns among consumers and merchants, and whether crypto could ever replace cash.

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The following excerpts were edited for clarity.

What do FIs need to know about payments in the metaverse?

The metaverse economy could be worth $13 trillion by 2030, according to a recent report by Citibank. Naturally, financial institutions want to participate in this huge growth opportunity, and industry leaders including JPMorgan Chase, HSBC, Amex, Visa, and Mastercard are actively exploring opportunities in the metaverse.

Of course, at the heart of a growing metaverse economy is the need for a robust payments ecosystem. Providing secure and convenient ways to pay for virtual goods will be essential to creating a fully immersive experience in the metaverse.

So, what kind of potential does the metaverse present for the payments industry? What are the opportunities to avail and challenges to tackle?

I spoke with five experts to understand why it’s important to ask these questions now rather than years later, and to get their thoughts on how traditional FIs as well as fintechs should be thinking about metaverse payments.

The five experts I spoke with include Vijay Sondhi, CEO of NMI, John Mitchell, co-founder and CEO of Episode Six, Andrew Edem, global head of innovation at PPRO, Brent Johnson, chief information security officer at Bluefin, and Armen Najarian, chief marketing and identity officer at Outseer.

Now, I’m going to summarize our discussion and the most important points that we touched upon.

First of all, I wanted to ask them why it’s important for financial firms to already be thinking about payments in the metaverse.

They told me that financial firms need to start thinking about metaverse payments now, so that they’re prepared when the metaverse economy is fully realized by both businesses and consumers. Many people envision the metaverse as a virtual commerce space where consumers will be able to use different digital payment options, including mobile wallets, QR codes, and crypto. Financial firms need to implement solutions that can accept multiple payment methods today, with the flexibility to quickly implement new payment types for the evolving metaverse economy.

Consumer adoption of metaverse payments will take time, since this will be a new experience for many people, and will include new types of digital currencies that are unfamiliar to many of today’s consumers and businesses. Of course, the speed at which payment providers enable digital and mobile payments will influence the speed at which consumers and businesses adopt these payments.

The metaverse could potentially play a big part in the future of the payments space. With big tech companies like Meta and Google already focused on the metaverse, the payments industry needs to make sure it doesn’t fall too far behind. The more financial firms support contactless, digital, and mobile payments now, the easier it will be to implement those channels into the metaverse, whenever companies see fit.

There are a number of unique challenges associated with sending and receiving payments in the metaverse as opposed to the physical world. Current money transfer mechanisms in place for cards, such as SWIFT and ACH, are decades-old technologies, and they’re not suited to support metaverse payments. Additionally, crypto will represent a big percentage of payments in the metaverse, so merchants and card companies will need to ramp up their acceptance of crypto payments.

Chargebacks could be another big issue with metaverse payments, since the marketplace will likely be based on blockchain. Future legislation, especially with regard to stablecoins, could also dictate how payments are allowed to be sent and received in the metaverse, which could cause hurdles that don’t even exist yet for merchants.

As all forms of payment in the metaverse are inherently digital, there’s a need to educate both consumers and businesses around these new transaction models. Advanced authentication measures like facial and behavioral biometrics will play a major role in this new model, which will also give rise to new types of payments fraud. Fraud in the metaverse will be more lifelike and dangerous than it is in our current reality. Opportunities for facial distortion and altering physical identities will be real and prevalent.

Currently, it seems like most payment providers, merchants, and consumers are not really ready for transactions in the metaverse. For consumers, blockchain will introduce new challenges and technologies that many people aren’t familiar with. From digital wallets, stablecoins, tokens, and crypto exchanges, a lot of this will feel foreign and hard to navigate at first. But similar to the move from cash to checkbooks to credit cards, it’s just a matter of getting used to new technologies.

Even though there’s still a long way to go, the pandemic has played an important role in preparing consumers for transactions in a virtual world. Consumers are more comfortable than ever before with buying goods and services online, especially using their smartphones, resulting in a dramatic shift towards digital payments such as mobile wallets and P2P payment apps.

Of course, another important thing to consider is the role that blockchain and crypto will play in metaverse payments. While the metaverse will accept many forms of digital payments, crypto is expected to lead the way, thanks to its inherently digital nature. The vast majority of metaverse merchants will accept crypto payments, and they will be supported by card companies and payment processors that service the metaverse. It’s possible that people will buy everything including real-world goods, virtual clothes, virtual buildings and land, virtual comedy show tickets, and anything else you can imagine in the metaverse – and they will likely use cryptocurrencies to buy all of it.

Implementing blockchain technology will be critical to ensuring the metaverse economy is a fair and transparent ecosystem. This will be especially important in the early stages of the metaverse economy, where exchanging money this way will be new for everyone, making transparency critical to building consumers’ trust in metaverse payments.

Why building a sonic brand is becoming important with the rise of contactless payments

Mastercard recently released a music album containing ten songs – each integrating its sonic brand, which it published back in 2019. The album is called Priceless, and it was first made available on Spotify a couple of months back.

To release the album, Mastercard worked with Beatclub, a marketplace founded by producer Timbaland. As part of the deal, Mastercard is purchasing hundreds of one-year memberships and offering them to artists who are part of disenfranchised communities.

Mastercard first released its sound back in 2019, as part of its efforts to adjust its brand to a more digital-first environment. The decision to create an album could be a way to further zero in on the brand image that Mastercard wants to emit – one that’s young, modern, and forward-thinking.

The firm’s chief marketing and communications officer says that the release of this album has been about emphasizing Mastercard’s presence as a global brand that values diversity through its unique sound. The firm partnered with emerging global talent spanning a variety of cultures, languages, and genres, in an effort to make it relevant and relatable for people of different cultures.

Mastercard’s biggest competitors have similarly been getting involved in sonic branding. American Express recently adjusted its own sonic brand to be heard when people make payments, and Visa also has a sonic brand that it released back in 2017.

Consumers’ payment behavior is becoming more contactless, which means they’re not looking at the cards they’re using as much as they used to. That means payment companies need to make sure they’re still being noticed – if not seen, then at least heard.

If card companies can find a way to create a unique identity through sonic branding, they could get a whole new sense to embed themselves within, and potentially escape the wrath of ‘out of sight, out of mind.’

Could crypto become the new cash?

The current market volatility indicates a rough patch for digital currencies, but recent data suggests that they may have the requisite consumer demand and merchant adoption to power through. With crypto ownership reaching an all-time high this year, it looks like paying with crypto could potentially become mainstream sooner than we thought.

Even though most consumers currently buy cryptocurrencies for investment and savings opportunities, 30% of consumers have reported using them to make online purchases, and 21% report using them to buy items in-store. Groceries, clothing, gaming, and entertainment subscriptions were the most popular categories. 37% of consumers reported using digital currencies to buy groceries in-store, and 34% reported the same for online purchases.

While consumer demand is essential to ensure cryptocurrency’s success as a payment method, it alone can’t guarantee it. To become as ubiquitous as cash, digital currencies need to convince merchants and vendors of the value that can be extracted from them. This is often made difficult due to the novelty and volatility of digital currencies, but recent data by Deloitte shows that the tide may be turning in favor of cryptocurrencies.

Almost 75% of merchants report that they plan to accept cryptocurrencies or stablecoins as a form of payment within the next two years. This is because most merchants expect the expansion into digital currencies to give them a competitive advantage. In fact, merchants that currently accept payments through digital currencies have already noticed a positive impact on their customer base and brand perception, which they expect to grow further in the next year.

Offering crypto as a payment method is not as easy as providing functionality for a new card or digital wallet. From the merchants that have adopted cryptocurrencies, 62% report partnering up with third-party digital currency payment processors, 18% report building alliances with traditional payment processors, and 20% are building solutions internally.

Although merchants are accepting crypto as payment, most organizations don’t plan on holding or handling any digital assets, which is most likely due to their high volatility. More than 52% of merchants reported using payment processors to convert their digital assets into fiat, and organizations that partner with third-party payment processors are more likely to lean towards doing so.

Still, the vast majority of organizations that have already integrated digital currencies into their financial functions have benefited from them, with only 7% reporting feeling no positive impact. Regardless of integration strategy, 52% of merchants believe that improving national guidance around digital assets will broaden adoption. This means that despite a push from consumers and merchants alike, the biggest hurdle cryptocurrency needs to overcome is that of having adequate regulatory clarity before it can fully compete with cash for consumers’ wallets.