American Express journeys into the metaverse

Even if virtual worlds allow people to travel without actually traveling, there's still a potential revenue stream and a chance to build loyalty with virtual travelers.

And that requires a payment rail.

American Express has filed several patent applications for the metaverse, or the intersection of digital world and reality. While the metaverse is evolving and is at an early stage, it is attracting mainstream attention including moves by Visa and Mastercard. The metaverse also provides potential sources of payment acceptance and incentive marketing for Amex businesses that serve travel and premium clients.

Amex's filings cover multimedia backed by nonfungible tokens (NFTs), cryptocurrency service and virtual banking and exchange services. The applications also mention technology that supports electronic payments and banking in the metaverse, including virtual prepaid cards and virtual currency exchanges. Another possibility is an online marketplace for NFTs, which are a digital representation of art or other content, and are considered part of the metaverse.

"All of these transactions that get enabled will have to be monetized in traditional payments, crypto or other mechanisms," said Sandeep Vishnu, a partner at Capco in San Francisco. "There will need to be a payment structure for clearing between the different environments and clubs."

Amex did not make an executive available for an interview. In an email, Amex's public relations department said: "Amex is always monitoring emerging technologies to see how they could benefit our customers, and the metaverse is a space we’re following." It did not comment on specific use cases.

Definitions for the "metaverse" are vague, but it generally refers to a mashup of things that already exist, such as augmented reality, virtual reality, blockchain and social media. These platforms combine to create a virtual experience that's similar to normal life, or blends seamlessly with the outside world. Digital gaming is a big part of the metaverse, including advanced video, avatars and in-game currencies to create manufactured ecosystems.

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Even before the metaverse becomes part of the mainstream, digital gaming and NFTs require payment rails, posing an opportunity for card companies, according to Bob Ruark, principal at KPMG Strategy and U.S. fintech leader in Charlotte, North Carolina.

"You may be playing Fortnite and want to buy something for your avatar, so you make a digital payment for that," Ruark said. "There are a lot of payment flows."

Amex's patent applications focus on putting its logos and intellectual property in the metaverse.

"You can create a travel experience that can be sponsored or 'developed by,' " Ruark said. Virtual concerts are another possibility for branding and payment processing given Amex's traditional business of branding and sponsoring entertainment events, he added.

Visa and Mastercard did not return requests for comment by deadline. Both card brands are developing strategies to engage with the NFT market, likely as a payment processor for NFT purchases, or to support the use of digital art for incentive marketing. NFTs and digital imagery have also become a larger part of fundraising.

NFTs can also be used to pay for membership or activities in a club that combines elements of social networking and automated experiences, according to Leonard Langsdorf, chief technology of Digital Labs, a division within Capco in New York. "It can be a high net worth social club. You can have interactions at that level."

Embedding payments and other services inside virtual travel and digital experiences can potentially help Amex adjust to changes in travel patterns and the market for premium cards. Amex's payment processing mix is expected to be 80% merchandise sales and 20% travel going forward, as opposed to its traditional mix of 70% merchandise and 30% travel, Amex CEO Steve Squeri said earlier this year during an earnings call.

In a separate earnings call last summer, Squeri said Amex was bracing for more competition for high-end premium cards from banks, following the departure of Citigroup's Prestige card from the market, leaving a gap for other competitors to jump in. American Express' Platinum in 2021 added new features and raised its annual fee to $695 from $550.

The competition for high-end clients could emphasize on premium experiences such as perks tied to virtual travel, or converting a virtual trip to an actual trip via card points, according to Langsdorf.

Payments

Visa, Mastercard and Ripple plant flags in the NFT market

Nonfungible tokens, which provide proof of ownership in the digital world, are booming. Payment companies are betting they will require payment rails to fund high-value purchases and attract new customers for loyalty marketing.

While associated with gaming, the metaverse is increasingly moving into the corporate world. Financial institutions including JPMorgan Chase and HSBC are using the metaverse to create virtual worlds that showcase new financial technology, or connect financial services to gaming users or clients. Facebook's recent rebranding to Meta was designed to position the social networking giant as an enabler of the metaverse, saying 3D spaces in the metaverse will create new ways to communicate and collaborate.

"The current excitement seems to imply that the metaverse will be a very big digital world 'out there,' and some might argue it already is," said Zil Bareisis, head of Celent's retail banking practice in London.

As people and businesses move into the metaverse, they will want to buy virtual land, develop virtual property and start trading goods and services, Bareisis said.

"All of which will require payments and other financial services, so we'll definitely see more banks and payment companies looking to work out how they can best position themselves in the metaverse," Bareisis said.