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Recently, someone asked me what area in fintech China is more advanced than US? While there are many answers, I think one of the profound impact is the shift of business models from East to West when it was the other way around couple of years ago, and SuperApp is leading the change.

SuperApp is basically a mobile app that combines shopping, ride hailing, food ordering to payment, money transfer, basically all your essential needs into one place, an one stop shop concept. SuperApp started in China with Wechat and Alipay, and has spread across Asia. There is Grab in Singapore and Malaysia, GoJek in Indonesia, Line in Japan, and PayTM in India. The model is simple, but effective. Use high frequency, low margin business to attract usage, then add on relevant services that tend to be low frequency, but high margin to create an eco-system to best serve and keep its users. Its impact can be industry-changing. For example in China, Meituan, a food-delivery App, decided to add hotel booking in 2013. Today, it accounts for 50% of all hotel booking in China, and the previous giant Ctrip is down to only 20%. Just as the internet changed the way we book travels, resulting in collapse of 178 years old Thomas Cook, SuperApp can have similar impact. It’s no wonder why companies strive to be SuperApps.

What’s happening is that while TV and internet usage has been decreasing, phone app usage has been increasing. As a matter of fact in 2019, average number of hours spend on mobile app was more than on watching TV.

For app, it makes sense to add more sources of revenue, increase active user counts, and more importantly keeping user more in their apps means more data to be collected about their users. The data can then be used to offer more customized services to better serve their users. This in turn cause a network effect.

For users, I think every user prefer, simpler, cheaper, and faster services without giving away to the quality. SuperApp has the capacity to offer such. As a matter of fact, a number of superApp subsidize their high frequency service, and make their money on the low frequency and high margin business. During the ride-hailing war, wechatPay and Alipay are infamous for spending billions annually in subsidy to get usage. This level of subsidy or free service is not possible without the resources of superApp.

I think the benefits of superApp is obvious for companies making app. There is tremendous value in being the “gate app”. Just like in the dot-com days, the most valuable companies were the search engine because they were the starting go-to page. And the big tech in the US already get it. This is why Google, Apple, Amazon, and Facebook have all been trying to capture the payment market. Google and Amazon have been trying to capture online payment with Google Pay and Amazon Pay. Google and Apple have been successful in capturing mobile payment with Google pay and Apple pay. Facebook took a step further, and tried to create its own global currency, Libra.

Why payment? Because 80% of our interaction with finance is payment. It’s typical high frequency, low margin service. But more importantly, it’s the data, especially transaction data. With commerce becoming every where and embedded, payment will be one of the more critical piece to establish eco-systems. I have written extensively on payment: why payment important & future of payment

Now, both wechat pay and Alipay processed 94% of all payment in China. While I am not sure the US superApp will reach such penetration, the important takeaway is for both incumbents and start-ups to be aware of superApp and be prepared for it.

For incumbent banks, there are 2 areas to be aware of. 1: be clear of your existing high frequency service, and build your offerings around it. For example, Alipay, the largest private company in the world, used mobile payment to get user to use the App. Then offered same-day money market account to generate yields for excess cash in the account. The money market became the most successful in history with over $300 billion in asset. Another example is the digital banks in Europe and US. These digital banks used free checking and virtual debit card to get users to use their product. Again, payment is a high frequency usage. Then these digital banks will start to offer fee based subscription and other services such as wealth management, stock trading, or insurance; these are less frequent, but perhaps higher margin businesses. 2: open to partner with others to offer one stop shop with best of class. Basically in order to be competitive, the incumbent bank can become superApp or try to do so. The incumbent bank can target to become anywhere between superApp, which offers all essential services including non-banking, and one stop shop for all banking needs. Where it lands on the “superApp scale” depends on its strategy and DNA. Where ever it lands, it needs to consider combining the best of class services as information are more transparent these days.

For start-ups, consider focus on one area, and do it so well that others will want to partner with you. This is especially true for those that are working on low frequency service as may be hard to keep users and user acquisition costs may be quite high. My premise is that fintech are complicated to build from the grounds up and I see that start-up will partner to strengthen their competitiveness. It’s a generalization and there are certainly exceptions to the rule.

For API company in fintech, prioritize / target on providing stacks in high frequency areas as it will generate more value for the customers.

In the 4 models of banking that Frank Rotman pointed out in The Copernican Revolution in Banking:

  1. GenPop (The incumbent)
  2. Vertical (Specialized)
  3. Transaction (white label)
  4. Pure digital

I believe that superApp will have the most impact in pure digital non-banks, category 4. The first two are existing establishments. As pointed out in the previous section, the impact of superApp would be to decide where the incumbents want to land on the superApp scale. Note that there is also exceptions here, but I don’t think it will be the norm. For transaction banking players, they might benefit from the superApp trend as long as they can provide seamless integration with quality functionalities.

For pure digital non banks, since most are competing on distribution or user acquisition, I think if you don’t offer all the best of class services or if don’t offer a unique service that stand you out from your peer, nor are you the leading top 3 player in your sector, then I would caution to re-think your strategy on how to offer value to your users. I outline this type of competitor since superApp’s strength is user acquisition.

passion for #fintech #payments #RTP real time payment #Banking as a Service #digital strategy #blockchain

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