How super apps can speed FI growth by enabling new ecosystem models

The typical consumer uses dozens of digital services — for shopping, financial services, food delivery, ride sharing, travel and other activities — cobbling together their own digital ecosystems. Super apps simplify things by bringing those different experiences together into a curated marketplace where a consumer can do anything from buy a pair of shoes or book restaurant reservations to trade in digital currencies or take out a microloan to finance a small business.

This has been coming for a while. The 2019 research report, “How consumer financial services firms will drive financial well-being,” noted the growing complexity of managing so many different relationships and predicted the emergence of personal financial operating systems, powered by artificial intelligence-driven advice and sophisticated APIs, to help consumers manage their digital journeys.

Two years on, super apps are poised to fill that role, and their popularity in other markets highlights how disruptive they could be here. In China, for example, WeChat boasts 1.2 billion monthly active users, while its payments arm WeChat Pay counts about 800 million active users and has emerged as an enabler for incumbent FIs.

While there are regulatory and structural differences between markets, consumers everywhere seem to like the value proposition that large, curated ecosystems provide. In the US, powerful brands like PayPal and Walmart are planning to launch their own super apps; they, too, appear eager to make financial services integral to their offerings.

They are challenging FI core competencies — including trust, data and product expertise — that have traditionally provided the foundation for profitable primary financial relationships (PFRs). The 2021 NextWave research highlights the changing views and expectations of consumers regarding FIs and ecosystems and presents a pathway to growth. Among the key takeaways:

FIs should seek to connect their products and services more seamlessly into other firms’ ecosystems.

In the survey, 63% of consumers said they would “highly value” open banking and embedded finance solutions that connect and personalize their experiences across third-party ecosystems. The sentiment was prevalent across all age groups, with an emphasis on functional benefits, such as maximizing rewards programs, customizing products or providing relevant content and advice.

Customers would prefer that FIs accompany them on their digital journeys, but superior experiences are likely to win out.

In the research, 37% of consumers named a FinTech firm as their most-trusted financial brand, compared with 33% who named a bank. FIs no longer have a trust advantage over their rivals but might be able to find growth by partnering with them.

FIs that build joint value propositions with super apps can expect to win new business.

About 7.5% of consumers in our survey said they would find combined FI-super app offerings attractive. We expect this percentage to grow as network effects increase.

The risk of disintermediation by super apps is high.

We expect most to offer products that our data show correlate with PFR status, such as debit cards (91.8% of consumers have debit cards through their PFR), checking accounts (69.7%) and credit cards (52.3%). Super apps have integrated these products into their offerings to enable intuitive customer journeys.

Like other digital platforms, super apps want FIs to be part of their ecosystems — to facilitate payments, provide regulated financial products and contribute data needed to produce personalized experiences.

For banks and wealth managers, the calculus is slightly more complex. Many are concerned that distributing their products through ecosystem partners could threaten customer relationships. Others have concluded that ecosystem participation is a potentially promising avenue for driving growth in the digital age — a way to move past passive relationships to more-active customer engagement.

Understanding more about a customer’s lifestyle can uncover a greater diversity of needs, which can be used to build ever-more-personalized experiences. With ecosystems, experiences are the product.

To date, FinTech firms have proven more adept than incumbent FIs at both providing customers with unique value propositions and unlocking returns from ecosystem models. Beyond being tech-savvy, they are the primary product innovators, the ones with the agility to first offer buy-now-pay-later loans or to use data to dramatically speed small business lending. 

Investors have flagged the distinction. The analysis of market data shows that price-earnings (PE) ratios of publicly traded FinTech firms have grown 16% annually since 2017, largely due to the ecosystem success. Over the same period, PE ratios of banks, which have embraced ecosystem models less enthusiastically, have declined slightly.

Summary

Customers today expect holistic value propositions that mesh spending, investments and advice with shopping and other facets of their digital lives, and super apps are filling the void. FIs with the agility to quickly embrace embedded finance strategies, business models and technologies can leverage ecosystems to unlock growth and help achieve broader strategic goals.