Super-apps: Can banks remain immune to the challenge?

We now use applications on our phones for everything, from ordering food and taxis, making payments and chatting with friends. We have a ton of different applications on our phones to enable us to do all this, but imagine if, instead of many apps, you only needed one?

Welcome to the world of super-apps!

A “super-app” is a parent mobile app that comprises a bouquet of mini-apps within it. It offers a seamless and contextualized experience creating an ecosystem of your most frequently-used services covering social, financial, dining, cab booking functions, to name a few. Super-apps use hyper-personalization to make the life of a mobile-first consumer much simpler. These apps have generated huge revenue streams for providers while giving stiff competition to incumbent banks for their financial product offerings.

To understand super-apps, let us first look at their backstory, the reason for their popularity, and their impact on the incumbent banks.

History of super-apps

The earliest super-apps were dominant players in a core offering, like WeChat for messaging or Alipay for payments. They grew with an ever-expanding bouquet of mini-apps . To survive, these players had to innovate at breakneck speed against cut-throat competition and offer a seamless experience to customers. These services have now grown to cover aspects of financial wellness like insurance, savings, lending, and investments threatening to relegate financial service players to be just the back office with super-apps managing the customer relationship. Countries like India, Africa, South East Asia, Latin America, and Russia are already experimenting with custom versions of super-apps.

Why did super-apps become popular?

The exponential growth of affordable smartphones with higher memory (ability to hold more apps), lower data costs (more on-screen time), and better camera quality (more engagement) have been the most significant catalysts for the growth of super-apps. This has led to a whole generation of users who graduated using mobile apps and bypassed web-based content, especially in countries at the forefront of innovation like China.

Another reason for the rise of super-apps is that they reduce the complexity in a consumer’s life. As per industry statistics, an average mobile user has multiple (~80) apps installed on his/her phone, using only a few frequently. Using several apps leads to multiple payment options, login credentials, etc. which might be too much for a consumer to manage safely. This is where dominant players like WeChat began bundling mini-apps, to help reduce this complexity, monetize their vast user base, and be a one-stop solution for consumer’s needs. They developed some of the mini-apps in-house and for the others, they forged partnerships with other players (like an app store).

The benefit for partners was ready access to a vast user base with minimal customer acquisition costs. The consumers won, storing payment details and other credentials in only one app while enjoying seamless connectivity to all the mini-apps in the ecosystem, simplifying their daily life.

Impact of super-apps on banking

The biggest advantage for banking players is their customers’ long-standing trust. However, the trust of consumers and competition for incumbent banks seems to be increasing only from technology firms (like Google) and other customer-facing players (like Amazon).

• Technology players like Tencent have been disintermediating the financial services landscape by offering basic banking products. While this is largely confined to retail consumers, small and medium businesses, are catching up increasingly, especially in these pandemic-ridden times.
• Some banks like DBS, Tinkoff are looking to aggressively create an API ecosystem and leverage open banking to create their version of super-apps. But most other banks are still watching from the sidelines.
• Manipulation of user behavior due to the (perceived) risk of monopolistic practices and user privacy, especially in the developed economies of USA and Europe, is another reason for treading cautiously.
• Developed economies have a literate population with a fragmented but developed app market. They do not enjoy the type of state support needed by early adopters to enable financial inclusion.
• Productized silos are another reason for the slow adoption in banking, making it difficult to share and leverage customer data for a personalized experience.

Current trends

It’s quite clear that banks are increasingly looking at the super-app ecosystem and evaluating the business case for them.

• Developing economies like those in India (Paytm), South-East Asia (Gojek), Latin America (Rappi), etc., are taking aggressive strides to be the first movers in the market.
• Some of them are also in advanced stages of getting their banking licenses, making the need to tie up with incumbents to offer banking products a thing of the past.
• Meanwhile, corporate customers have largely stayed away from the super-app bandwagon due to higher value transactions, and more stringent paperwork regulations. But there is nothing that can stop banks from venturing into this space. A little push, especially with open banking and PSD2-led infrastructure modernization (that has APIfied the technology ecosystem), can enable easy plug-and-play with other leading players for partnerships.

What does the future have in store?

Banks must revisit their vision, considering the pandemic-induced need for a safe, digital marketplace and the competition from super-app technology players. The fintech companies that fragmented the financial services market in the previous decade are now being viewed as partners. Banks will need to decide whether they want to be in the background or lead customer relationships. To be in the foreground, banks will need to:

• forge partnerships
• leverage their strengths
• create ecosystems without diluting the focus on their core competencies
• have a robust data and analytics strategy to assess the overall customer footprint and offer a personalized experience.

Whoever wins the race, one thing is for sure: the way customers do banking is set to change in the new normal. For banking enthusiasts, this promises to be an interesting space to watch.

Nagarro, with its team of experienced domain and technology consultants, can help you ideate and create an MVP for a super-app or a mini-app to successfully hook into a super-app ecosystem. Want to know more? Explore our offerings and connect with us today!