The metaverse, Fintech payment systems and sector consolidation emerged as the biggest technology trends at Morgan Stanley’s Technology, Media and Telecom (TMT) Conference, held in San Francisco in March.

“Innovation is happening around the metaverse, and winners and losers will come out of it,” says Umi Mehta, Morgan Stanley’s Global Head of Internet Banking. “The volume around it and newness scares people, but it affects e-commerce, payments and collectibles and will be a part of life going forward.”

As innovation continues to create new value for consumers and investors, Mehta says, “technology companies are getting bigger and owning more in software, hardware, cloud and entertainment. They have their wish lists of what assets and teams to acquire.” Here are the trends to watch right now.

In investing, the largely uncharted land of opportunity is the burgeoning online realm of the metaverse, which now occupies the minds of companies and allocators in and outside of the technology sector alike, according to Mehta. “Effectively your online digital ID, the metaverse has applications even outside of gaming. With Internet 2.0 and now 3.0, there’s lack of trust because many people don’t understand it—but the groundwork is forming,” he says.

You can’t have the metaverse without blockchain technology, which records transactions, usually in a decentralized public database called a ledger secured by encryption. It makes possible the purchase of cryptocurrency, or artwork or music (as nonfungible tokens, or NFTs). “Blockchain technology has horizontal industry application, and many parts of the global economy could be fundamentally re-platformed,” says Brittany Skoda, Global Head of Software Banking, who also specializes in blockchain and cryptocurrencies.

With blockchain enabling monetization of the metaverse, companies are piling in to facilitate and create digital assets for purchase. Some of the biggest technology enterprises are expanding their online platforms in which people can work, play games and socialize, while well-known consumer companies are creating NFTs to sell. On platforms that sell digital land, brands are also creating online versions of their stores.

Creating metaverse versions of shops or goods generally costs less than creating physical products or spaces, a boon for brands and content creators. “As a collector, you can buy a pair of sneakers for $100 in the digital world, and they might cost the same in the physical world, but it doesn’t cost a lot to make those digital sneakers,” says Mehta. “The metaverse facilitates margin making,” which is spurring companies to see the metaverse as a new portion of their total addressable market—and investors are taking note.

The market for technology M&A is heating up because of three key factors, according to Mehta. The first is across sectors, companies continue to show interest in acquiring technology, as they pursue online transformations that accelerated during COVID-19. The second is that new blockchain and metaverse opportunities are also fueling corporate appetite for digital expansion through technology.

“It all starts with the infrastructure,” Skoda says. “The build vs. buy debate is a hot topic among big tech and new and exciting startups focused on blockchain and blockchain-enablement infrastructure.” It doesn’t end with the infrastructure, Skoda adds: “As we see this infrastructure proliferate, there are so many exciting applications, gateways and tools that have gained traction and are now key strategic targets in this new ecosystem.”

Especially for businesses that can scale efficiently such as software, Internet and semiconductor companies, “M&A can give better reach, product breadth, more distribution and better data,” says Owen O’Keeffe, Global Head of Technology M&A. The regulatory environment, however, is a potential uncertainty: “There will be continued increased scrutiny on larger technology deals, but ultimately a lot of M&A has benefited the end users of technology, and so we expect a robust level of activity to continue and potentially accelerate.”

The third factor fueling more interest in technology M&A is recent market volatility. Private companies considering going public are largely closed off from pursuing initial public offerings because of price uncertainty caused by inflation concerns and the Russia-Ukraine conflict. “Last year, 20% of my time was spent on M&A and 80% on IPOs, and this year it’s the reverse—it’s been a massive shift in a short period of time,” Mehta says.

In both the real and virtual worlds, payment technologies are in high demand across industries, shifting the landscape for financial services. “FinTech is everywhere,” says Jigar Patel, Head of FinTech Banking, “with companies and investors continuously finding new use cases” and showing marked interest in these three areas of financial technology:

• Embedded financial services: Many non-bank companies are now offering or considering how to offer financial services to monetize payment transactions as part of their core businesses, retain customers and increase their lifetime value. “Some of the biggest companies have massive consumer bases, and they’re using payments and subscription services to monetize them in ways that are value additive,” Patel says. “Payment flows are an opportunity to increase revenue penetration of an existing customer base.”
• Cross-border payments: Payment technology is democratizing financial services, especially for businesses of all sizes that seek to sell or buy globally.  These businesses have traditionally been dependent on large money-center banks whose products are tailored to the needs of their largest clients, according to Stephen Gerson, Head of Payments Technology Banking. “Growth-stage businesses often need help navigating customers and suppliers in different currencies and markets without it being overly expensive. We’ve seen a growing focus on strategies to expand payment systems enabling all companies to conduct business globally regardless of size.”
• Digital wallets: Moving money seamlessly between individuals has become so widespread that digital wallets now have as many account holders as some large banks have depositors, and these payment systems still have significant room to penetrate new markets, Gerson says. Digital wallet companies are best placed to serve the largely untapped opportunities like the metaverse: “FinTech is in such an early stage with respect to the metaverse. Businesses and consumers will have a variety of new tools to pay for digital goods,” he says.