Maintenance is being performed on Zoom's support site on November 4 that may cause support impact. For more information, please click here.
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In the Virtual Backgrounds popup, at the bottom, you'll see a "I have a greenscreen" checkbox. If you uncheck this checkbox, that should fix the issue.
The reason for this is: when the checkbox is checked, then the Virtual Background feature will work by "chroma keying" out a certain color. This aspect of the feature must be used with a greenscreen (a green or blue screen which is placed behind you). When you uncheck this checkbox, then Virtual Background instead uses an edgefinding technology to remove your background--it looks for the edges of your face and body, and removes everything behind it using computer vision. So unchecking that box allows the feature to work without a greenscreen, basically.