Do US super apps stand a chance in today’s embedded financial environment? “Tear sheet.”
With the rise of embedded finance, many financial service providers already offer embedded finance solutions, and brands are actively looking for new ways to embed financial services into their offerings.
Financial services embedded in e-commerce and other software platforms accounted for $2.6 trillion in 2021, or nearly 5% of all U.S. financial transactions — and are expected to exceed $7 trillion by 2026, according to new research.
In the past, brands were limited by what they could offer customers. However, embedded finance has opened up further innovation as e-commerce companies are able to bring together a wide range of virtual products, services and multiple financial options into a platform known as a “super-app”.
Smartphones and digital wallets are key components of super apps enabled by embedded finance. Brands such as Uber, Amazon and Apple have already incorporated embedded financial solutions by integrating bank accounts, payment and lending services into their ecosystems.
Shruti Patel, director of partnerships at Shopify, discussed this idea at Tearsheet’s “The Big Bank Theory Conference” in December.
“Embedded finance is gaining momentum due to the sheer digitization of commerce. SMBs use expense management solutions, AP and AR apps, and payroll apps, while end users prefer super apps, loyalty apps, social media, and creative apps. Over the past few years, the number of digital interfaces has enabled companies to recognize and embed devices across these pathways,” he said.
What’s stopping super apps from making it big in America?
Super apps are especially difficult to build in the US financial ecosystem, which is very different from financial systems in other parts of the world.
“The US has 10,000 banks, ten times more per capita than the UK, Singapore or Australia. It always takes a lot of effort to get things done in the US,” said Matt Collicoat, FIS Vice President of Strategy and Business Development – B2B. “That said, I think it’s changing; there are many players who have found their niche as a consolidator. These recent initiatives can be used to create super apps – but to date it has probably been too difficult.”
Mobile payment is actually an American creation, but the Chinese market has taken advantage of this payment method with speed and advanced technology such as big data, cloud computing, AI and blockchain. China’s WeChat is a perfect example of a super app that includes all types of payment functions, entertainment and services in one place. In Japan, Line messenger was also released as a super app.
The super app model has made its mark in Asia due to a few factors. One is the unbanked population embracing mobile payments.
About 224 million adults in China did not have a bank account in 2018. Due to the scarcity of alternative payment services, active market regulation and in-house technological developments, the majority of the population decided to use mobile payments.
Almost all Western tech giants, including Google, Facebook, YouTube and Twitter, have been banned in China – the Google Play Store is unavailable, Apple’s App Store has limited functionality, and many of Huawei’s AppGallery application is missing.
To bridge these gaps, China’s WeChat and Alipay tech apps have out of necessity empowered third-party developers to integrate smaller programs into other services to better serve end users, transforming themselves into super apps, according to the Insider Intelligence report.
On the contrary, the US is dealing with privacy and security concerns of personal data abuse, which has stood in the way of innovation and adoption of super apps. Consumers are eager to use connected devices to enhance their shopping experiences, but they also have concerns about data security.
Nearly 50% of PYMNTS survey respondents said they use connected devices to make shopping more convenient. They also use their connected devices to increase their access and information about shopping and merchants. However, 16% of consumers felt that connected devices did not improve their shopping experience, and roughly half globally were unsure if a super app was worth the risk of exposing their personal data.
The regulatory landscape is already beginning to change as a result of the CFPB’s recent crackdowns and a report released by the US Treasury late last year. In addition, as technology companies continue to use consumer data to expand financial services, U.S. regulators will have room to protect consumers and subject technology companies to strict regulation and compliance.
Is it time for super apps in the US market?
Embedded finance has grown over the past few years, driven by the introduction of payment capabilities in many platform businesses. This is a good indication that super apps are likely to appear in the US market.
One of the features that many super apps have built into them in addition to their basic services is access to financial services. This is facilitated by the embedding of partnerships and payment services into online platforms.
The main advantage of embedded finance within a super app is that users do not need to leave the app to complete financial transactions, which benefits both the user and the app. For traditional banks, however, this means an ever-widening gap between them and their customers.
From a banking perspective, the likelihood of super apps offering buy-now-pay-later, stock trading and cashback rewards under one roof could pose a threat to incumbents. Unless banks start providing one-stop financial services, they may lose traditional banking customers to super apps and the fintech companies that offer them.
One of consumers’ primary concerns regarding security is trust in the companies that provide the super app. This is because centralizing many activities within a super app means that consumers are opening the door for an outside company to access the connected economy. In this case, banks are the financial institutions most trusted by consumers and help them build trust in super apps.
The data shows that more than half of respondents trust banks to offer super apps – and 30% would choose traditional FI as the “most trusted” provider.
Some banks have already taken this route to gain a share of the super app ecosystem by expanding their in-house online banking services, while others are strengthening their collaboration with fintechs to provide Banking as-a-Service in their apps.
While consumers expressed interest in a super app for their payments and banking activities, the survey found that less than half of consumers expressed interest in super apps within the existing banking, payment or financial wellness ecosystem. This may be due to discomfort with their service providers, as well as the need to explore new features that are missing from their current payment platform.
Earlier, PayPal and Revolut launched their self-proclaimed super apps – followed by Affirm, which launched its super app and browser extension to help consumers shop and manage their finances under one roof.
But the question remains, have they all succeeded in creating a “successful super app” or are they better suited as “funding apps”?
“They’ve definitely started to move towards true superapp, but none of them have reached full superapp status in my mind. Super apps mean users can use a single platform to run their business. For example, many have reduced the number of platforms a small business needs to sign up for, but none have yet become ‘one app to rule them all,’” Collicoat said.
Because different demographics, industries and businesses have different needs and multiple cash flows, the likelihood is more towards targeted “mini-super apps” rather than a one-size-fits-all app.
While there won’t be a WeChat-like payment program in America anytime soon, the market is opening up for players to start implementing embedded payments in new ways on social networks and online platforms that cater to the young adult population.
Generation Z has redefined social media consumption habits, but millennials are more likely to engage in financial services embedded in social media apps than their younger counterparts, according to new FIS research.
The survey also found that 55% of millennials and 48% of Gen Z are likely to make a purchase directly through a social media platform in the next 12 months.
“It doesn’t necessarily have to be a social media app; it could also be an e-commerce application or something else. Any app that monopolizes the time of many consumers is an excellent place for such super app features,” added Collicoat.
Last year, Elon Musk made a deal to buy Twitter. He has since dismissed subtle hints that the acquisition would play a role in the creation of a super app, which he refers to as “every app.” Musk further shared his vision for Twitter’s plan to enter the payments market and may take inspiration from Tencent’s WeChat program to create the first such super app in the United States.
“While I can’t say what might happen to Twitter specifically, Facebook, Google and Alibaba have all tried to bank on it in recent years, and they’ve all gotten out after taking a hard look at it — because it’s hard. That’s why fintech companies exist – you can make money if you do it well and at scale, but it’s expensive to build from scratch and highly regulated, so you lack the ability to do it differently than you used to. They will probably all get there eventually, but not tomorrow,” added Collicoat.