Will Super Apps Continue to Thrive? And What Should Financial Institutions Consider to Stay Relevant in Markets Dominated by Super Apps?
It’s 2022, and the number of mobile apps have skyrocketed with no signs of slowing down. At the moment, there are over 3.48 million apps on Google Play Store and 2.2 million apps on Apple’s App Store. Among these massive numbers of apps trying to compete for a spot on a consumer’s phone, there are a handful of ‘super apps’ that managed to top the list. This article aims to provide readers with insights and analysis into the world of super apps and its future by shedding some light upon some of the ever-fascinating questions of 1) why super apps are concentrated in emerging markets; 2) how can super apps continue to grow sustainably, and 3) what do financial institutions have to consider when coping with the looming threats and emerging opportunities from a rise of super apps.
What is a Super App and What Makes It Super?
A Super Application (super app) is a mobile app that serves as a one-stop solution to multiple services for all possible users’ needs at their fingertips. Some services super apps offer are food delivery, ride-hailing, messaging, digital wallet, and payments.
How to Become a Super App
Here is how an app evolved into becoming an app that rules all:
A super app first introduced itself to the world as one killer app that offers a single function. With the purpose to quickly gain mainstream user adoption, the single function characterizes as one with high stickiness and open rate, the percentage of users who open the app after downloading. Features like messaging or ride-hailing services help the app capture and retain customers to open the app daily.
Once a mass adoption is established from the high-frequency niche function, super apps begin to equip themselves with financial services mainly due to the large user base demanding a convenient way to conduct their finances. In the case of payment, super apps must find the easiest way for users to conduct transactions by launching their own e-wallet or integrating with other payment services to satisfy the customers and drive revenue. With Grab, for example, the demand for better digital payments from users to pay for ride-hailing services led to the launch of GrabPay, Grab’s payment services. GrabPay not only allows users to make payments with one click, but also helps Grab manage cash flows to its drivers. Additionally, the visibility of payment flows allows Grab to offer more financial products like loans and insurance, which in turn draw even more new users to the ecosystem.
Demand from one area of the app drives the demand for another, and the ability of super apps to meet those demands entices more users to join. A large user base creates a positive network effect which further drives growth. Super apps broaden the use cases of apps through extensive partnership deals with third-party providers or in-house product development. This helps super apps expand vertically to achieve the goal of becoming a one-stop service to support users’ everyday life. For instance, Grab started with a ride-sharing service, then quickly expanded into food, and package and grocery delivery, with the goal of helping users organize their life’s logistics. At the same time, Grab could increase user’s usage frequency and earn higher average revenue per user (ARPU) by creating an attention flywheel – where a customer’s attention is increased by Grab providing more valuable services to them.
Tech companies further leverage customer data and loyalty programs to cross-sell new services to retain existing users, and to acquire new users for the app. For example, Grab utilizes users’ riding behavior data to send targeted food delivery advertisements during pre-dinner hours while the users are on their way home from work. Also, Grab segments its customers into gold, silver, and bronze tier, which is based on customer’s usage level as a way to reward and retain loyal customers (e.g. promotions, points for cash).
Super App’s Landscape in the World
Since the inception of the super app concept, super apps have been rising in major cities across the globe. It is very common for super apps to gain strong traction and dominate the emerging market and less so in more developed markets.
**Penetration rate is the number of super app’s users in home country divided by home country’s population
Before diving into the reasons why super apps thrive in the emerging markets. Let’s quickly examine why super apps struggle to gain traction in the developed economies.
Three main reasons why super apps are struggling to gain traction in the developed economies:
- High dominance of existing players in each vertical: Developed markets like North America and Europe are overcrowded with powerful existing players who specialize in each vertical, possibly because the developed economy’s tech market has developed long before that of emerging markets, making it harder for a super app newcomer to penetrate and scale. For example, in the U.S., Amazon already holds roughly 40% market share in eCommerce, and Uber has about a 70% share of the ride-hailing market. Thus, building one super app to win in fiercely competitive developed markets is an uphill battle.
- Consumer’s concern over data privacy: Contrary to the mobile-first population in emerging economies, the developed economies’ population has experienced the desktop era of the internet and learned from it over the last three decades on poor data security such as data privacy abuse and data breach from big technology companies which raised the user’s concern over their data privacy. Users are wary of having all of their personal and behavioral data stored in one platform’s arm reach. Hence, to convince users to provide their data super app has proved to be very challenging.
- Regulatory issues: In general, regulators in the developed markets have a more comprehensive framework and guideline to enforce stricter practices in data sharing and privacy. For example, Kakao only conducts know-your-customer (KYC) and anti-money-laundering (AML) checks for their users once and then passes on the information to their partners. Given the existing strict restrictions and scrutiny imposed by regulators in developed markets, a practice like Kakao’s cannot be implemented in the markets. Hence, super apps face yet another prohibitive constraint, preventing them from their success.
Economic, social and regulatory aspects are very different in developed economies as opposed to in emerging ones. Super apps in developed markets find it difficult to rise above competitors, gain customers’ trust and combat regulatory constraints. Hence, they often fail to gain traction and growth.
On the contrary, why are super apps rapidly proliferating across emerging economies?
Over the past decade, following the rise of WeChat in 2011, dozens of new super apps have emerged and quickly gained massive popularity and adoption. These super apps have catalyzed the economic, social, and cultural growth of emerging markets. The proliferation of super apps came from the company’s efforts, which is to ensure product market fit and seamless customer’s experience, and was driven by supporting market factors as follows.
Market Factors – Emerging markets possess these factors that help drive the adoption of super apps:
- Mobile-first population: Emerging economies such as China and Indonesia jumped from the desktop internet revolution in the 90s straight to smartphone adoption as the mass population is able to afford the mobile device. Accessing the internet through mobile apps has become second nature to emerging markets’ populations which accelerates super app’s adoption. Early super app developers like WeChat leveraged this opportunity and designed their app to cater specifically to mobile users.
- Banking the underbanked and unbanked: Super apps allow underbanked and unbanked consumers to conduct digital banking services all through a super app such as accessing their online banking and purchasing financial products such as property microinsurance or personal loan for their new smartphones. Before, traditional financial institutions did not focus on these segments as the customer lifetime value is not worth it compared to the high customer acquisition cost. Thus, the access to financial products/services which has been made available by super apps consequently further drove adoption.
- Government support: Governments did not prioritize their budget, resources and capabilities to build financial infrastructure. Instead, the governments supported the private sector like super apps to help build the necessary infrastructure. A prime example of this case is WeChat. During its early days, the Chinese government heavily supported the app which was another lever that drove WeChat’s viral growth in China.
Future of Super Apps: How Will the Future of Super Apps Look Like?
Now that we have grasped the reasons why super apps thrive or fail in certain markets. What will be the future of super apps? This section will explore the challenges that super apps are facing today and consider ways for them to grow sustainably.
Where are super apps today and why are they struggling to get where they want to be?
Super apps envision a bright future of becoming profitable ecosystem owners and market leaders in their prospective industry. However, how to get there is not as easy as initially pictured. Today, super apps are operating in ultra-competitive red-ocean markets, which are swamped by large-size super apps backed by deep-pocket parent companies or investors. New market entrants and existing players fiercely compete to protect and seize every decimal point of market share by burning their capital to acquire and retain users through aggressive price incentives. Super app companies trade off their profitability for growth in market share, which often causes them to incur massive losses from thin margins and fleeting user loyalty.
With the example of Grab and Gojek, Southeast Asia’s top tech companies, neither companies are profitable despite owning the majority of market share in their home market, 50% in Singapore and 59% in Indonesia in the first quarter of 2022, respectively. Due to low switching costs and little product differentiation, once the super apps stop injecting money into huge discounts and marketing expenses, users flee to competitors. Lack of customer’s loyalty explains this unsustainable market share. This tradeoff between profitability and market share does not seem to get super app companies anywhere near their goal. Perhaps there are other considerations that they need to adopt instead of sacrificing their profitability for growth when customers possess little to no loyalty to the apps.
What are the key considerations super apps should ponder in order to grow sustainably?
The majority of super app companies have already captured a sizable market share, at the expense of their profitability. Super apps that can sustainably grow are the ones that find the fine balance between spending to build customer’s satisfaction and loyalty, and company’s profitability.
Customers who are exceedingly satisfied and appropriately rewarded, are very likely to become loyal customers and will be more willing to pay and spend more on the app. In fact, research shows that loyal customers are up to 65% easier to sell to than first-timers. Additionally, effective loyalty programs increase customer’s lifetime value, which could be worth over ten times their first transaction.
Profitability can be achieved through effective cost minimization and monetization. Super app companies may have to determine which vertical or sub-vertical in which market is worth fighting to gain market share. For instance, Gojek was operating at an increasing loss ever since it entered the Vietnam market in 2014. It lost VND 1.67 trillion in 2019, up 89% YoY to protect its 10% market share. In addition, it is equally important for super app companies to execute effective monetization strategies. To illustrate, Gojek monetizes its ride-hailing services by charging partners in exchange for advertisements on riders’ vehicles. This helps Gojek generate additional revenue with little to no additional cost by leveraging existing assets in the ecosystem. Lower cost, higher revenue, and greater customer loyalty will pave the way for higher margin and profitability, which only then can super app companies grow sustainably.
How the Rise of Super Apps Could Affect Financial Institutions (“FIs”)?
Since the emergence of the internet, technology startups have disrupted one industry after another. The rise of super app startups is no different. As the industries covered by super apps expand, user expectations are also turning towards the desire to perform almost all possible activities, including financial activities through these super apps. Super apps respond to offer financial products not only as a means to provide seamless customer’s experience, but they are also incentivized by potential significant revenue growth from additional product offerings. Super apps offer more and more financial services from e-wallet to full digital banking. Though most financial activities currently performed through super apps require integration with FIs, certain super apps like Grab, Gojek, Kakao and WeChat (with banking license) can now operate a full digital bank with little to no dependence or assistance from FIs. Hence, FIs should pay special attention to the development of super apps and carefully evaluate potential risks and opportunities to take appropriate actions going forward.
Assessing the level of risk by considering the comprehensiveness of product offerings
The more comprehensiveness of financial offerings a super app provides, the higher the risks to FIs. High level of risk is from those that offer a fully comprehensive suite of financial products/services, such as Korea’s Kakao and India’s PayTM. Though there are only a handful of them, the number is increasing at an astounding rate. There may be some barriers to entry, such as requirements for banking licenses to offer banking services in most countries. Still, some super apps have already proved that they can find ways to either obtain or bypass those regulatory hurdles. A medium level of risk is found in super apps that offer limited financial services such as payment and money transfer, but lack some important banking services such as lending. Lastly, super apps that are low risk to FIs are the ones that do not offer their own financial products/services and just connect to other payment providers to offer in-app payment services.
Low-and-medium risk-level super apps today can become a high-risk super app tomorrow because super apps are equipped with data analytics knowhow and expertise and thus can quickly leverage their vast wealth of data to deliver better financial products/ services. Additionally, super apps have been building their brand reputations in financial services by exposing their massive user base with their offerings and partnering with reputable companies to assimilate super app’s branding with that of their partners’. As more financial products and services are being served and purchased through super apps, they are gradually disintermediating FIs from their customers.
Possible actions for FIs to ride with the trend of super apps
| Product/Service Offering | Occurrence Frequency | Opportunities for FIs to participate in super app’s growth |
| Payments
(transfer/payment) |
High | -Provide back-end infrastructure and services to super apps
– Increase switching costs to lock in users and merchants (i.e. offer incentives that are tied to other banking products) |
| Lending
(personal loans and business loans)
|
Medium | – Get data from super apps and provide loans to their users
– Partner with super apps to provide co-lending service – Provide banking license and/or underwriting services for super apps – Provide capital/funding with interest charged directly to super apps |
| Wealth Management (investment/advisory/brokerage)
Insurance Services (life/health/home /vehicle)
|
Medium | – Partner with super apps to integrate and sell FI’s products through their channel
– Leverage FI’s credibility and reputation to promote offerings on FI’s online channels and/or application |
| Checking & Saving
|
Low | – Partner with super app companies to get float from super app’s users’ deposits
– Improve online presence, sales channel and ensure customer’s satisfaction by leveraging both online and physical presence |
Closing Thoughts
Majority of super apps are struggling to become profitable due to price war from increased competition. Super app companies trade off their profitability to maintain and grow their market share through aggressive price discounts. Prioritization of customer’s satisfaction and company’s profitability should be the key focus to a sustainable future in the long term.
FIs may feel threatened by the potential of super apps because of the possibility that users may reduce their usage on offline branches and traditional banking apps and start using super apps instead. However, what could be viewed as a threat could also be an opportunity since FIs can consider partnering or providing backend infrastructure to super apps to expand their revenue stream in the short term.
Going forward, the financial industry will continue to change and evolve and there will be new ways that super apps and FIs can collaborate and leverage the capabilities from both sides. All in all, FIs should proactively assess risks and consider both external and internal factors in order to take appropriate action that would strengthen and leverage their differentiated strong suit in an effective and timely manner to remain a stronghold through this ever-changing future.
Author: Premika Bhongsudhep (Prink)
Editors: Panuchanad Phunkitjakran (Pook), Wanwares Boonkong (Pin) and Warittha Chalanonniwat (Paeng)