Do US super apps stand a chance in today’s embedded finance landscape?

With the rise of embedded finance, many financial providers are already offering embedded finance solutions, and brands are actively looking for new ways of embedding financial services into their offerings.

New research finds that financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion, or nearly 5% of total US financial transactions in 2021 – and is expected to exceed $7 trillion by 2026. 

In the past, brands were constrained by what they could offer customers. But embedded finance has unlocked further innovation, with e-commerce firms now being able to rebundle a wide range of virtual products, services, and multiple financial capabilities rolled into one platform, referred to as a ‘super app’. 

Smartphones and digital wallets are the key components of super apps, which are enabled by the use of embedded finance. Brands such as Uber, Amazon, and Apple have already incorporated embedded finance solutions by integrating bank accounts, payments, and lending services into their ecosystem. 

Shruti Patel, Director of Partnerships at Shopify, discussed this idea at Tearsheet’s ‘The Big Bank Theory Conference’ held in December. 

“Embedded finance is gaining momentum because of the sheer digitization of commerce. SMBs are using expense management solutions, AP and AR applications, and payroll software applications, while the end consumers are into super apps, loyalty apps, social media, and creator apps. The number of digital surfaces in the last few years has allowed companies to start recognizing and start embedding tools across those journeys,” she said.

What's stopping super apps from making it big in America?

Super apps are particularly hard to build in the US financial ecosystem, which is very different from financial systems in other parts of the world. 

“In the US, there are 10,000 banks, which is like 10 times per capita more than the UK or Singapore, or Australia. To get things done, there's always a lot of extra effort in the US,” said Matt Collicoat, VP of Strategy and Business Development – B2B at FIS. “That said, I think that's changing; there are a lot of players who have found their niche in being a consolidator. With the recent instigation of those, super apps can be done – but to date, it's probably been too hard."

Mobile payments are actually an American creation, but the Chinese market turned this type of payment to its advantage with speed and advanced technology, such as big data, cloud computing, AI, and blockchain. China’s WeChat is considered the perfect example of a super app, containing all types of payment features, entertainment, and services together in one place. In Japan, Line messenger has emerged as a super app as well.

The super app model made its mark in Asia due to a couple of factors. One of them is unbanked populations embracing mobile payments. 

About 224 million adults in China did not have a bank account in 2018. Due to the scarcity of alternative payment services, active marketplace regulations, and in-house technological developments, the majority of the population jumped onto mobile payments. 

Nearly all Western tech giants, including Google, Facebook, YouTube, and Twitter, are banned in China – Google Play Store isn’t available, the Apple App Store has limited functionality, and Huawei’s AppGallery lacks many major apps. 

To bridge these gaps, Chinese tech apps WeChat and Alipay, out of necessity, authorized third-party developers to integrate smaller programs for other services to better serve end users, remodeling themselves into super apps, according to an Insider Intelligence report. 

On the contrary, the US has been dealing with data privacy and security concerns regarding the misuse of personal data, which has stood in the way of super app innovation and adoption. Consumers like to use connected devices to improve their shopping experiences, but they also harbor concerns about data security. 

Nearly 50% of respondents in a PYMNTS survey said they use connected devices to make shopping more convenient. They also use their connected devices to increase their access and information about shopping and merchants. However, 16% of consumers were of the opinion that connected devices do not improve shopping, and approximately half of them globally are unsure if a super app would be worth the risk of revealing their personal information.

With the recent CFPB crackdowns and a report released by the US Treasury late last year, the regulatory landscape is already starting to change. Additionally, in light of technology companies continuing to add financial services by leveraging consumer data, US regulators are given the leeway to ensure consumer protection and subject tech firms to strict regulation and compliance.

Is now the right time for super apps in the US market?

Embedded finance has snowballed over the last few years, driven by the implementation of payment capabilities into many platform businesses. This provides a good indication that super apps are likely coming to the US market.

One of the features many super apps have embedded in them in addition to their core services is access to financial services. This is facilitated through partnerships and embedding payments services in online platforms.

The main advantage of embedded finance within a super app is that users don’t have to leave the app to complete financial transactions, which benefits both the user and the app. For traditional banks, however, this means a widening gap between them and their customers.

From the banking industry’s perspective, the likelihood of super apps offering features from buy now pay later, to stock trading, to cashback rewards under one roof can be a threat to incumbents. Unless banks also start to offer one-stop-shop experiences for financial services, they may start to lose their traditional banking customers to super apps and the fintech companies that offer them.

One of the primary concerns among consumers about security is trust in the firms that may provide a super app. This is because centralizing many actions within a super app potentially means consumers are opening the door for an external firm to access the connected economy. In this case, banks are the financial institutions most trusted by consumers to help them develop the confidence to stick with a super app.

Data shows that more than half of the respondents trust banks to provide super apps — and 30% would embrace the traditional FI as the ‘most trusted’ provider. 

Some banks have already taken this route to have a share in the super app ecosystem by scaling their in-house online banking services, while others are fueling their collaborations with fintechs to provide Banking-as-a-Service offerings in their apps.

While consumers showed interest in using a super app for their payment and banking activities, less than half expressed interest in using a super app within their existing banking, payments, or financial wellness ecosystem, according to the survey. This may be due to the inconvenience they face with their providers and the need to explore new features that are lacking in their current payments platforms.

Earlier, PayPal and Revolut launched their self-proclaimed super apps – followed by Affirm, which launched its super app and browser extension for consumers to shop and manage their finances under the same roof. 

But the question remains, have they all managed to make a 'successful super app', or are they better suited as ‘finance-first apps'?

“They have definitely started to move toward the true super app, but none of them have reached full super app status in my mind. A super app means users can just use one platform to run their business. Many have reduced the number of platforms a small business needs to log on to, for example, but none of them have yet become the ‘one app to rule them all’,” said Collicoat.

Since different demographics, verticals and businesses have different needs and multiple ways of money movement, the probability lies more toward targeted ‘mini-super apps’, instead of having one app for everything.

While America may not have a payments program similar to WeChat on its hands anytime soon, there’s an opening in the market for players to start implementing embedded payments across social networks and online platforms catering to the young adult population in new ways.

Gen Z has redefined social media consumption habits, but Millennials are more likely to engage in financial services embedded in social media apps than their younger counterparts, according to new FIS research.

The survey also indicated that 55% of Millennials and 48% of Gen Z are likely to make a purchase directly through a social media platform in the next 12 months.

“It doesn't necessarily have to be a social media app; it could be an e-commerce app too, or something else. Any app that monopolizes a lot of consumers’ time is a prime place to put that super app sort of functionality,” added Collicoat.

Last year, Elon Musk closed the deal to buy Twitter. Since then, he has dropped subtle hints that the acquisition would play a part in the creation of a super app, referred to by him as an "everything app". Musk further shared his vision for Twitter's plan to enter the payments market and draw inspiration from Tencent's WeChat in a move to create a first-of-its-kind super app in the US.

“While I can’t say what may happen with Twitter in particular, Facebook, Google and Alibaba have all tried in recent years to do banking, and they have all pulled out after looking at it closely -- because it’s hard. That’s why fintech companies exist – there’s money to be made in doing it well and at scale, but it’s costly to build from scratch and hugely regulated, so there is a lack of ability to do it differently from the way it’s been done before. Eventually, they will all likely get there, but not tomorrow,” added Collicoat.