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A whole new world of payments in the metaverse

By Ron de Bos, Director of Product Management, Payments, Digital River

The metaverse promises a virtual future in which nearly anything is possible and where you can buy just about anything you can imagine. Whether you are looking for a new designer outfit for your avatar or a virtual palace to call home, meta-sellers will be there to meet your needs.

This includes luxury fashion houses, some of the purveyors quickest off the mark. Designers including Balenciaga and Gucci are releasing digital versions of their designer goods, selling for big bucks; Gucci’s digital-only Roblox bags recently resold for more than their real-world counterparts!

Grayscale, the Bitcoin Trust, recently suggested that the metaverse presents a trillion-dollar opportunity across advertising, social commerce, digital events, hardware, and developer/creator monetisation. But when it comes to paying for your digital makeover or exclusive access to an online show, how do payments work in this brave new world? And how might we see payments develop as the metaverse becomes increasingly universal?

As Grayscale describes. “Web 3.0 Metaverse worlds are part of a larger, interconnected crypto cloud economy.” Blockchain-based digital currencies such as Bitcoin and Ethereum would become more common in that scenario. Right now, transactions in the metaverse are primarily conducted using virtual currency that ties customers into that particular ecosystem. Think in-game credits, tokens and real-world currency converted into a particular metaverse’s bespoke currency.

We can see this in Fortnite’s V-Bucks, Minecraft’s Minecoins and Roblox’s Robux, where virtual currencies are bought using traditional payment methods. However, the metaverse will see an increase in novel currencies specifically designed for Web 3.0. For example, the rise of NFTs, unique digital assets that can be exchanged, provides a perfect opportunity for people to trade in new ways.

Better, faster, stronger?

New payment systems for the metaverse are not just about innovation for its own sake. Crypto payments deliver benefits for buyers and sellers. Crucially, most cryptocurrency payments made in the metaverse are instantaneous. There is no waiting for funds to clear, and the lack of chargebacks provides reassurance for merchants.

Perhaps most crucially, however, is that these payments are borderless. Credit cards and other traditional payment methods are often subject to fees and restrictions when used internationally. For now, digital currency payments can be made without any such hurdles. This is particularly important in the metaverse; virtual worlds that are not limited by geographic boundaries. With digital currency payments, users from all over the world can easily make purchases in the metaverse without having to worry about exchange rates or other barriers. In this world, crypto payments are not subject to the vagaries of currency conversion and market fluctuations in the same way as traditional currencies.

This also does away with cross-border transaction fees and provides payment stability to customers in countries where centrally controlled currencies are unstable. Such borderless, decentralised currencies can also offer enhanced security and privacy for users. In a world where more and more commerce is conducted online, the benefits of a borderless payment system are clear – both in the metaverse and in our current Web 2.0 world.

No such thing as a free (virtual) lunch

For businesses operating in the metaverse, digital currencies offer a way to accept payments from customers all over the globe. However, that does not mean that new meta-payment models are without disadvantages or risks.

Consider, for example, the fact that Meta is rolling out merchant fees of up to 50% for its Horizon Worlds Metaverse platform, combining platform and sales fees. How each platform deals with fees will vary, but they will likely want to take their share.

The flip side of such frictionless crypto payments is that customers will have to deal directly with merchants when there is an issue. The same consumer protections afforded offline are not yet in place to govern crypto payments, however, moves are being made in this arena. In March this year, the EU Parliament agreed on draft rules on the supervision, consumer protection and environmental sustainability of crypto assets, including cryptocurrencies such as bitcoins. The ramifications of this on the metaverse is a case of ‘watch this space’.

With businesses and individuals increasingly migrating to the metaverse, the risk of fraud becomes a growing concern. The metaverse is still in its infancy, which means fewer protections are in place to detect and prevent cybercrime. This leaves users susceptible to data theft, phishing attacks, and other forms of fraud, such as false chargebacks, depending on the payment method.

While some businesses may be able to mitigate these risks through insurance or user authentication, others may find it challenging to keep up with the rapidly changing landscape of the metaverse.

As the metaverse continues to grow in popularity, many businesses are starting to explore the possibility of setting up shop in this digital world. However, one of the critical challenges facing metaverse merchants is understanding the different payment methods available and how to meet the needs of their customers best.

Not everyone who wants to venture into the metaverse will be so quick to adopt crypto as their go-to online wallet. That means that traditional payment models will likely keep a place within this new world for the foreseeable future.

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