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.

FIs can reverse the trend by leveraging their strengths to create entirely new value propositions that may only exist in the ecosystem. For example, a bank could create a tool to monitor a consumer’s spending activity on an ecosystem and combine that information with its own internally generated insights to provide real-time financial advice. Or it could use the data available from an ecosystem to create a customized mortgage offering for a new customer in a target segment. These are new revenue streams — hyper-personalized products and services, enabled by embedded finance and built on ecosystem data — that the FI cannot create on its own.

FIs can play the role of behind-the-scenes financial utility or specialized product producer for a super app, pursue stand-alone digital strategies that target specific segments within an ecosystem or seek to own the entire customer value chain themselves.

Some are already experimenting with different ways to incorporate super apps into their growth strategies. Illustrative examples include:

Green Dot

The FinTech has a collection of assets — a bank charter, full tech stack, and expansive retail network — that allows it to deliver a breadth of modern money management and payment solutions. It does this both directly to consumers through its flagship digital bank account GO2bank and to its partners through customized, end-to-end banking platform services focused on accounts and money movement embedded in their businesses. It already enables various technology and e-commerce companies to embed banking and payments in their brands and create deeper, more valuable experiences for their users.

SoFi

The FinTech firm is using M&A to transform itself into a licensed digital bank for small businesses and young professionals. Recently announced acquisitions of Golden Pacific Bancorp and Galileo Financial Technologies, an API and payments firm with robust B2B capabilities, positions SoFi to play an aggregator role in clients’ digital lives with an expanded financial services offering that includes deposit-taking and loans.

BBVA Open Platform

The unit integrates banking and payments services such as identity verification, card issuance, account origination, and money movement into the offerings of large, nonfinancial companies and FinTechs. BBVA’s Open APIs support Digit, a FinTech specializing in cross-border banking services, and give accountants seamless and secure access to their small business customers’ accounts through Xero, another FinTech firm. BBVA also has partnerships with Google and Uber in Mexico.

The Bancorp

The financial holding company specializes in providing private-label banking and technology services for nonfinancial firms to offer customers. It provides checking and savings accounts, debit cards, payments and other banking services for FinTech firms, including PayPal and Betterment, and enables loyalty programs, gift cards and other services for Uber, Walgreens and other nonfinancial firms, making their ecosystems more robust.