This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.
Recently it has become clear that several of the largest US fintech companies are striving to build the same Next New Thing, some more overtly than others. That “thing” is the superapp, which thrives in China but has to date eluded the US and European markets.
What, exactly, is a superapp? Think of all the apps you have on your phone today: one or more for ride-hailing; one for ordering food delivery; one for messaging; several for social media and other media; and one or more for handling payments. Then imagine you could do all of these things and more in a single app, with the payments seamlessly handled by one institution that might even make it easy to conduct the transactions in Bitcoin, should you choose. In China, Tencent’s WeChat began ten years ago as a messaging app but now offers more than a million different services; Ant Group’s Alipay offers fewer services but still has more than a billion users.
This week American Banker ran a longish story detailing PayPal’s ambition to become a superapp. It quoted a widely discussed remark make by CEO Dan Schulman in February during an investor presentation:
Basic financial services are just going to be a part of any platform that has hundreds of millions of consumers, because it’s all tied in to the everyday transactions that we’re going to see….Our digital wallet can bring together previously disparate capabilities that range from payments, to shopping, to financial services, and even new forms of digital identification into one super app.
PayPal isn’t the only fintech firm looking to extend its offerings. This week, Plaid announced a massive $425 million Series D fundraising round. In a corporate blog post Plaid CEO Zach Perret explained how the company plans to spend the money:
Looking ahead, Plaid is focused on creating a single, integrated platform focused on helping innovators build digital financial products. Doing so requires scaling to meet the increased use of fintech, expanding globally to meet international demand, and delivering an expanded set of platform products to our customers. This will include continued investment in APIs that help people connect a complete view of their finances, as well as tools and services to support enhanced privacy, personalization, decisioning, and automation.
Perret’s post touches on a critical aspect of building the superapp: If the Chinese giants are the model, then a key transformation needs to happen—these fintech firms need to stop thinking about themselves as mere enablers of financial transactions, and instead think about themselves as platforms on which merchants and developers can build new businesses and services. In other words, you’re not a credit card, you’re the App Store. It’s certainly arguable that Plaid, Stripe and Square have an advantage here because they are already embedded in the systems of tens of millions of businesses—but even for them, it’s no easy task.
For starters, there are considerable regulatory roadblocks on the path to a Western superapp. Increasingly, regulator temperament leans against such massive aggregation. This includes anti-monopoly actions in the US and Europe, but also tougher stances on privacy and customer-data encryption.
There’s also the crowded-market problem. It’s one thing to create a powerful, widely used payment or message app and then have companies build their services inside that supportive environment, as happened in China. It’s an entirely different thing to try to persuade multibillion-dollar incumbents in other categories to do more than partner with you. If the ultimate superapp goal is for customers to have fewer apps on their phones, the likes of Uber and Grubhub are not going to line up to be deleted. And even for the wealthiest of would-be superapps, those incumbents are far too pricey to be acquired.
Moreover, for all their wealth and niche innovation, fintech companies are not the only players here: Facebook and Google also covet the superapp space, as evidenced both their attempt to expand their role in payments/currency and their investment in firms like Indonesia’s ride-hailing firm Gojek. Other possible superapps could come from Amazon, Uber and Walmart.
Given all the incumbent crowding, FIN is somewhat inclined to think that a superapp might first appear in the DeFi space—imagine that you have payment, shopping, etc. apps all built from scratch on Ether, and they then gain broader adoption, in the pattern that Bitcoin created. The chances of that happening seem relatively low, but it’s in some ways a more friction-free scenario and also fun to entertain. Regardless, the trend toward superapp seems likely to last at least for the rest of this year; if you have thoughts about who’s ahead, why it won’t work, or anything else, please leave them as comments.
Consumers Not Thrilled with Digital Banking
FIN has written a great deal about how the COVID pandemic accelerated the use of digital banking and financial services. But even though millions more Americans are using these services than in early 2020, they aren’t necessarily happy with them, according to the J.D. Power 2021 U.S. Direct Banking Satisfaction Study. After several years of improving satisfaction, “direct banks”—a somewhat antiquated term for branchless banks—dropped 12 points to 852 on a 1000-point scale. (The best in the business, according to the survey, is Charles Schwab Bank, which has topped the poll for three years. John Cabell, J.D. Power’s director of wealth and lending intelligence, told FIN that the two biggest gripes American consumers have with digital banks are a perceived lack of communication and confusing or poorly functioning Web sites or apps. One potentially promising note for next year, according to Cabell, is that it seems as if at least some customer dissatisfaction stems from people being out of work and low on funds.
India Hatches Unicorns
During the dot-com boom, I worked at the weekly magazine The Industry Standard. Aghast and amazed by the tsunamis of cash splashing around the companies we covered, the Standard concocted a perfectly blasé cover in the spring of 1999 with pictures of Broadcast.com founder Mark Cuban and an executive from another recently acquired dot-com, under the headline THIS WEEK’S BILLIONAIRES.
These deals are not only more common two decades later, they are also now internationally distributed. The Bangalore-based fintech startup Groww announced an $83 million Series D round this week, giving it a unicorn valuation of more than $1 billion. As sizable as that may sound, Groww was but the fourth Indian unicorn announced this week. It’s worth recalling that ten years ago, there were no Indian unicorn companies.
This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.