Every bank of every size in every market will soon be forced to make a high-stakes decision: What should we do about super-apps?
A bank’s answer to this simple, powerful question could mean nothing less than rewriting its strategy and rewiring its business model. And as we describe in our latest report on the top trends in banking, we think every bank needs to be thinking about it right now.
A moment years in the making
The term “super-app” itself dates back to 2010 when Mike Lazaridis, the founder of BlackBerry, used it at the Mobile World Congress. The key feature he imagined was integration with other apps. Instead of switching between different standalone apps on their smartphones to play music, post on social media, and order food, the user of a super-app would be able to do all of that in one place.
In this way, a super-app is a bit like a shopping mall, where convenience is the key selling feature. And if that’s true, then the super-app is to incumbent banks today what the shopping mall was to high-street retailers in the late 1990s—a powerful magnet that attracts customers and demands an effective strategic response.
That’s because super-apps have gone from vision to reality in the 12 years since the term was coined. The two biggest super-apps today, Alipay and WeChat Pay, have around one billion monthly active users each. They offer services in everything from travel to entertainment to insurance, payments, and banking. Many other would-be super-apps offer a similar range of services, including Revolut, Kakao, Line, Rappi, and PayPal. All of these platforms offer embedded payment solutions, and many also offer credit, financial management tools, and advice.
By aggregating all digital interactions, super-apps aim to own the customer relationship across a user’s entire digital life. That prospect is drawing a growing amount of attention and competition around the world. In the US, for instance, 47% of non-bank digital platforms are investing in and plan to launch embedded finance offerings in the future. Embedded finance is projected to generate an additional $230 billion in revenue in the US by 2025.
Super-apps aim to dominate their customers’ digital lives. They must include financial services to do that, since otherwise users will leave the app to satisfy their needs. Yet while the financial services offered by super-apps are more a means than a strategic end in themselves, the scale of their platforms makes them a strategic threat to many banks—perhaps even an existential one.
So what are their options?
The super-app choice facing every bank
There are three different paths a bank can take to respond to the growth of super-apps.
First, they can stay the course and ignore the whole thing. In one sense this could focus resources on building a bank’s brand and improving the experiences it offers, but in the long term we expect this could lead to erosion of market share and revenue.
The second is to partner with a super-app. This could give a bank access to a huge customer base and lead to a significant increase in transaction volume. It could also give a bank access to rich customer data. Against this a bank would need to weigh the risk of losing brand presence, taking a back seat in its customer relationships, and ultimately commoditizing its offerings.
The third and probably riskiest option is to try to build your own super-app. This is the most ambitious choice and the one that would demand the most investment. It would require almost a complete organizational overhaul. Few banks that take this path are likely to succeed, but those that do will reap the greatest rewards.
If you’re intrigued by this path, there are a few key questions that you’ll need to answer:
1. What’s our revolutionary acceptance innovation? It’s no coincidence that WePay, Alipay and PayPal all grew from offering customers new ways to accept—not send—payments. For WePay and Alipay that was scanning a QR code, while for PayPal it was letting individuals accept credit card transactions over eBay. A new super-app will need a similar ground-breaking innovation.
2. How will we build a large network of users? To reach operational scale, a super-app will need a compelling reason for both sides of every transaction to take place there. It’s only a “super” app if there’s a network effect. (Your logo alone will not do the trick.)
3. How will we manage an open platform? Every true super-app today is an open platform. For a bank, that will mean allowing non-customers to use the app. Banks will need to solve some interesting security and user experience challenges to achieve this.
4. What is our killer value proposition? This is the toughest question to answer, and the most important one. Super-apps are a fiercely competitive market. Anyone hoping to survive will need to offer a truly differentiated experience.
There are large, influential banks which have already opted for each of the three possible strategies. Whatever option you choose to respond to the growing dominance of super-apps, you should begin by evaluating where you are best-in-class, where you want to and can develop your capabilities and products, and where you could benefit from partnerships.
If you have any questions about what super-apps mean for your bank, you can reach me here. You can also find our full report on the Banking Top 10 Trends for 2022: