One universal app, covering all digital activities – chatting with friends, gaming, sharing pictures, buying tickets, booking holidays, watching movies, and paying for the taxi. That would be nice to have. Why not go one step beyond that and organize all financial affairs with the same app as well? Enabling the user to not only pay for the aforementioned taxi, but also to apply for a loan, manage investments or take out insurance. No more manually adding payment details to every single shopping app or website; no more switching between apps to copy and paste data like bank account details, because everything is preconfigured. Every customer-facing stakeholder of these value chains is part of the app’s ecosystem, directly integrated in the user interface or indirectly via QR code.
Sounds like utopia? In some Asian countries, apps like this are a part of everyday life: Kakao in South Korea, WeChat & AliPay in China, Gojek in Indonesia, or Lime in India. These so-called “super apps” deliver an all-in-one package of digital services directly to smartphones. With an estimated user base of over a billion users each, the Chinese apps WeChat and Alipay lead the competition. By offering countless proprietary and seamlessly integrated third-party services through just one single platform, they act as one-stop-shop for their users’ daily needs. Independent business owners are provided with the opportunity to build their digital presence on one of these platforms only, as they benefit from having access to a large user base and the full ecosystem, including logistics and payment services, to bring their goods to their customers.
Super apps—An Asian phenomenon?
What immediately sticks out: The successful super apps are mostly operating in Asian countries. This in turn prompts the question why there is such a huge market for super apps in Asia and if the business model might be transferrable to Europe? To better understand why super apps are so successful, we need to look at their history.
WeChat grew a large user base in China by offering messaging and social media services, outcompeting their peers in messaging as well as established vendors of electronic payments. WeChat seized the opportunity and stepped into the payments market. The same happened with additional functionalities, where the super app simply started to fill gaps left open by other industries—in most cases, by digitalizing a service to make it simpler and more accessible.
WeChat’s e-finance service was instantly embraced by the population after they introduced the “red packet” feature, allowing users to make microtransfers within the chat session, an innovative attempt to bridge finance with social function.
Another accelerator for the rise of super apps in Asia was language, as large markets could be targeted without the need to support a diversified set of languages – a stark contrast to the fragmented European market. There are also slightly different conditions for Asian super apps.
Availability of high-speed internet everywhere and a mobile-first preference among Asian users foster the mass adoption of super apps even more. In many cases, the payment feature now constitutes the core component of today’s super apps.
Big challenges awaiting
Unlike China, where the lack of a credit card market played a significant role in the rise of super apps, many European markets, like Germany for instance, still have a large share of cash transactions. Also, credit or debit card offerings are well received. Instead of Asian super apps, US-based “Big Tech” companies like Facebook, Apple, and Google are steadily entering the European financial services market. Apple Pay and Google Pay offer contactless payments in most stores. Facebook Pay enables seamlessly integrated payment via Facebook messenger. Compared to Asian super apps, these offerings still cover just a limited proportion of functionalities and are only somewhat integrated into a user’s daily life. A true multi-functional super app is yet to be found.
Furthermore, the issue of data protection and privacy is of particular importance to customers in Europe, especially in Germany. Even during the pandemic, as several public and private mobile apps were launched to identify potential strings of infection, many German citizens were and still are hesitant to install the official app provided by the German government. So, if German people do not even trust in apps that are compliant with the GDPR, why would they trust apps which are not that strictly regulated? Additionally, Germans are often hesitant to use new payment methods, like contactless payment or wearables, mostly due to security concerns.
Besides the individual concerns, there are also some structural barriers. In many rural areas across Germany and other European countries, the digital infrastructure (such as cell reception or internet) is not reliable. That makes it difficult to implement a mobile-only payment provider on a large scale. On top of that, a lot of value provided by super apps comes from integrated government services. Within WeChat for example, users can query their education or traffic violation record via an e-government mini program. Even though digitalization of German government services is already in progress, there are no such digital integration capabilities in sight.
With financial services as the core feature, most super apps would also be subject to regulatory supervision. Regulation plays a significant role in the German and European banking market. To obtain a full banking license in Germany, requirements are much tougher than for example in India, the origin market of the super app Lime. In order for a super app to even enter any European market, it would have to comply with regulatory requirements first. To be successful and gain a significant number of users, it would have to earn the people’s trust, for example by implementing stricter data protection policies. Ultimately, it would need to offer its users an outstanding user experience in their local language – which could be the deal breaker for Asian super apps in Europe.
How will the market evolve?
Even in Asia, developments are being observed that may take the super app giants’ down a peg or two. The large market share across various industries and quasi-monopoly position provides the respective companies with a great amount of economic and political power – which is something not only European governments don’t like to see.
Contrary to WeChat which started out as a social platform, super apps like Alipay who primarily position themselves as finance vehicles are on the direct frontline of substitute with commercial banks and other financial service institutions in the fields of credit cards, micro-financing, and insurance. More and more incumbent banks are losing their channels with digital-savvy customers to super apps. In an attempt to counter this trend, they are now counting on regulation.
Alibaba for example, is under pressure. It was being fined $2.8 billion for exploiting their monopoly position as e-commerce platform by punishing traders that offer their goods via other services than Alibaba.
However, given the consistent demand by their users, it is unlikely that super apps will diminish. In the case of Alibaba, the discussion is centered on whether the financial services unit should be officially separated from the rest of the group by making it a legally and financially independent company. It remains uncertain if and how the super app itself would still integrate the financial services, which would then no longer be proprietary.
How can Banks and Fintechs benefit from super apps?
We have identified three current trends that additionally emphasize the advantage of super apps.
Digital only: The pandemic has demonstrated just how obsolete brick and mortar branches are and how they have become less of a value driver but rather a huge cost block.
A BCG survey found out that between February and June 2020, global branch usage declined by 12%, while mobile banking usage increased by 34%. Looking ahead to a post-pandemic time, survey respondents declared that they would use branches even less, implying a drop of 26% compared to before the pandemic. As super apps successfully offer mobile-only banking services, incumbent banks can learn from their offering and shift to a digital operating model as well.
Mobile first: Generation Z and Y want to have full transparency of their financial status and access to financial services anywhere, anytime—no matter if it’s your account balance, portfolio value, or bitcoin course.
This is only possible with an integrated mobile banking offering. Looking at super apps, they offer an end-to-end mobile universe including financial services. By offering a broader range of services, even a German bank’s mobile section could become a greater part of its customers’ lives.
Innovate: Banks and FinTechs should watch the super app trend closely to enter the market in due time as a first mover or at the very least as an early follower. Alternatively, institutions could add value-adding services to their existing banking apps to enhance them, like e-commerce loyalty or cashback programs, or simplified peer-to-peer payments.
If German banks do not proactively take a step into this direction, they may be caught off guard by foreign providers, once they have overcome the regulatory hurdle.
What could a successful European super app look like?
Since the European market and its customer needs differ from Asian markets in various dimensions, a potential European super app would require different features than their Asian models. While messenger features in their banking app do not appear desirable to most users, some of them already use their messenger to transfer money to friends, for example via Facebook Pay. However, usage of messenger-embedded payments is still relatively low. Banks could use this opportunity and actively push for increasing integration of financial services in their customers’ digital lives.
In the German market, in contrast to their BigTech competitors, most banks have established a trust-based relationship with their users. Also, the regulatory framework in terms of a banking license and compliance with BaFin requirements has already been implemented. With PSD2 conformity, it is even possible to integrate with other banking apps, fostering an end-to-end integrated user experience. By using modern APIs and cloud-based core banking systems, it is much less complex to flexibly incorporate up- and downstream partners.
To reach a critical number of users in time, a feasible scenario could be to partner with an existing messaging service. A first step could then be to offer embedded money transfer to friends, followed by additional services like integrating invoices and payments for popular online shops. Providers like Klarna, for example, offer the latter by integrating a large network of online retailers.
Existing banks are well positioned to take a step further toward offering a value-adding super app in their market, as they have already overcome the regulatory hurdle. By selecting and integrating with strategic partners, banks can enhance their offering more rapidly. The best way to quickly establish a large user base is to start with messaging services, followed by value-adding offerings like insurance and online retailer invoicing. Additional services, like vacation booking or taxi reservation may follow. Liv.com – a Neobank based in the United Arab Emirates – demonstrates how to successfully combine a social media and lifestyle platform with financial services by establishing an innovative, millennial-targeting lifestyle bank.
Next-generation banking apps do not yet support the full range of functionality compared to a traditional banking house. However, customer needs are also shifting from specialized or personal services towards a more transparent and integrated digital offering. If banks want to stay competitive in this space, they must take measures to support the growing digital providers and integrate with their cost-efficient, highly efficient digital services. Given the still large number of technology sceptics and cash advocates in markets like Germany, traditional banks might still have a considerable customer base even without a convincing digital offering. The question is just for how much longer this customer group will provide sufficient revenues to run a “not so digital” bank. Whether super apps will ultimately disrupt the European banking industry as of today will be decided over the next few years.
With strict data protection laws in place and a demanding regulator, it is assumed that new players cannot enter the market too quickly or suddenly. The lack of a comprehensive digital infrastructure also prevents innovations in the digital banking space.
No matter what new players might emerge and when, a clear positioning will be vital to remain successful in a changing ecosystem. European super apps could simply act as a platform that integrates various other services but does not offer proprietary ones. The role of traditional banks in this ecosystem is yet to be defined. Regardless, banks should decide to play an active role in shaping this ecosystem.
About the Authors
George ChenManaging Director
George is a Managing Director of BCG Platinion based in Shenzhen, China. He is a member of Digital BCG and the global Data Platform core team.
Nora is an expert in IT strategy and agile ways of working. By combining her expertise in banking and emerging technologies, she has delivered IT strategies, next-gen target architectures, and agile operating models for fintech and incumbent banks across the globe. Nora is a member of the BCG Platinion Agile chapter and the Neobank and FinTech initiative.
Ludger KüpperManaging Director
Ludger is our Head of the Financial Institutions Practice Area of BCG Platinion EMESA with deep expertise in IT architecture and digital platforms for Financial Institutions. Since more than 20 years he advises international organizations, incumbent banks, fintechs and private-equity firms on IT strategy, tech transformation setup & execution, PMI and tech due diligence. His extensive experience is also often requested if it comes to Neobank and Digital Challenger Bank built.
Annika Melchert is a Manager at BCG Platinion based out of Dubai. She is leading the internal initiatives “Architecture Chapter” in Middle East as well as the “FinTech & Neobanking Group”. Driven by her passion for modern banking she worked with several fintechs and incumbent banks on their technology build, integration strategies, and digital transformations. Besides, she is hosting the “Fintech & Digital Banking Podcast”.
Dennis Römer is a Manager at BCG Platinion and a core member of the Financial Institutions practice area and the Neobanking & Fintech initiative. Dennis has a long history of success supporting banks and other financial institutions in their digital transformations. His experience includes the build of new digital banks, core banking system and system integrator selections, IT cost efficiency programs and definition and implementation of digitization roadmaps.
Boris enables his clients to address the ever-changing requirements of their customer, their market, and their industry. He worked with leading global organizations to drive their digital agenda while being laser-focused on customer value at the same time. His experience ranges from highly strategic techDDs and IT strategy definitions to driving digital transformation program as well as agile customer journey re-imagining projects. Boris is a leadership member of BCG Platinion Financial Institutions practice area and coordinates BCG Platinion’s Neobanking & Fintech initiative.
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