The birth of fintech brought the break down of the traditional bank. Financial services of yesteryear were all rolled into one organization under one roof. Consumers relied on their bank to be the one-stop shop for monetary needs.
The “free” current account was the most effective acquisition tool, opening the door for cross-sale into other financial products.
Fintech broke the system. Smaller, mobile-first companies started popping up, focusing on specific financial services and bringing heightened competition to the economic landscape. Consumers use their phones to go to TransferWise for overseas transfers, Revolut for travel spending, and Zopa for loans.
We are seeing more of these financial institutions partnering up and developing. Even incumbent banks are jumping on the bandwagon, partnering with fintechs to diversify services with a specialized touch. What was once unbundled is becoming rebundled, paving the way for potential ‘super apps’ as seen in Asia.
Unbundling shifts to rebundling
The shift from unbundling to rebundling comes from a decision. Instead of further challenging specific service areas, some organizations go back to the original idea of the bank as a convenient financial “supermarket” for consumers.
“Fintechs have broken down entry barriers in financial services, which traditional banks still aren’t doing at scale,” said Danil Ovechkin, Head of US Growth at Revolut.
“There’s been a shift (for the better) of fintechs becoming not only an app but a financial and lifestyle companion.”
“Offerings have grown hugely, and customers now have much more power at their fingertips, not just to see how they’re spending money but also to do things like trade stocks and shares, buy crypto and open safe digital accounts for their children.”
Revolut was once a small UK-based fintech focused on assisting customers with travel spending. It has since developed into what some would call a global “super app” offering trading services, insurance, crypto exchange facilities, and payment and exchange services.
It is one of many fintechs that are trying its hand at diversifying. Transferwise has rebranded as Wise and is now offering current cross-border accounts. Klarna, the European BNPL giant, is expanding its e-commerce focus, offering delivery tracking services and deal alerts.
“There is a growing appetite for financial services beyond the traditional bank,” continued Ovechkin. “Standard bank accounts aren’t meeting the needs of the modern consumer. In the US, for example, 13%** of Americans who had a bank account in 2021 went elsewhere for alternative financial services such as payday advances and check cashing services. A sure sign that if traditional players don’t evolve, they’ll get left even further behind.”
Banks respond to fintech growth with rebundling efforts
With the growth of the fintech sector, it has become clear banks are being given a run for their money. As stated in a report by McKinsey, fintechs “have grown from a sideshow to the elephant in the room for banks.”
“By engaging customers in their daily lives to solve specific financial needs with a distinctive experience while delivering back useful customer insights with advanced analytics, these digital companies have gained customers by the millions and a rapt audience of investors attracted to their compelling growth story.”
In a survey conducted by PwC, it was found that only 53% of bank executives would describe their institutions as ‘consumer centric’ compared to 80% of fintech companies. A Banking Circle report found that an average of 35% of retail clients in the US and Western Europe are already banking with a fintech.
The consumer-centric approach of fintechs is proving to pay off.
McKinsey’s 2021 Global Banking Annual Review cited 2020 as the year that the fintech trend took off, capturing over 50% of the $1.9 trillion invested in the financial services sector. The report found that as a result, the incumbent bank’s return on equity fell by 4% in the US and halved in Europe.
In response, incumbent banks have started to undertake their form of rebundling, partnering with fintechs to offer additional services in an attempt at rising consumer demand.
A study by Cornerstone Advisors found that nearly two-thirds of banks and credit unions had partnered with at least one fintech in the past three years. Of those who hadn’t, 37% planned to partner with a fintech in 2022.
In addition, incumbents are reducing their bank branches. Digital banking has doubled in the past five years, and consumers are opting for services that are easily accessed from their devices that fit their lifestyle.
The rise of super apps
To this end, the rise of the financial ‘super apps’ is well underway.
WeChat started as a simple messaging app, launching in China in 2011, less than a year after Whatsapp. However, its aggressive expansion soon left the latter far behind, as WeChat added more and more facilities, integrating services that covered all aspects of the users’ life.
As well as using the app to meet new people, chat with old friends and video, users can connect cards, make payments, split bills, and do their online shopping.
Adoption is extensive, 64% of adults aged 16-65 use the app regularly, and usage has spilled internationally, with 23% of internet users in the US ages 18-24 using it daily. The company has registered over 1.2 billion monthly active users who spend an average of 87 minutes on the app daily.
AliPay and Meituan, other Asian super apps, have found similar success, each with 585.5 million and 100.8 million monthly active users, respectively.
“There’s clearly an appetite for ‘super apps.’ They give people the power to do whatever they need quickly and efficiently,” said Ovechkin. “Revolut has grown its customer base to more than 20 million customers globally in just seven years by doing the same when it comes to money.”
Met with resistance
Despite this success, ‘super apps’ in the US and Europe have been met with some resistance. An article in Forbes this month stated that the adoption of super apps was so strong in Asia because customers owned under-powered smartphones “which weren’t conducive to hold 40 to 50 seperate apps”.
In comparison, the average American has a smartphone with much more power to handle the many financial app relationships they have.
Insider Intelligence finds the super app adoption rate so high in Asia due to two factors. The first factor came from the unbanked jumping to mobile payments, while the second is due to the strict app regulations restricting access to many services. These factors are not so prevalent in other jurisdictions, which could change the super app model.
“While the ‘super app’ is a powerful proposition, it’s crucial to recognize that markets vary hugely and that what works well in one country may not in another,” said Ovechkin. “The right balance needs to be struck to gain momentum and be successful. It’s not only about offering everything in one place, but also about creating and developing products that bring the most value to customers in a specific market.”
Following this logic, Revolut’s focus has been on the financial market, while Klarna seems to be turning its eye towards e-commerce. Other super apps have developed to target other specific jurisdictions, each with varying success.
“Payments, card systems, and the FS industry vary hugely between countries – applying a one size fits all approach doesn’t work. Time needs to be taken to understand each market from the offset to deliver value successfully,” Ovechkin continues.
“In the US, the market is huge but very fragmented. Banking is also very community focused, making widespread adoption more challenging.”
The only way is up?
However, the super app wave is about to break for Ovechkin and many others. Fuelled by mobile phone adoption and changing open banking regulations, perhaps the only way is up.
“As adoption of apps continues to rise, we will see less fragmentation, and day-to-day money management will be easier. The cost of living crisis will drive more appetite for hassle-free money management resources, and financial preparedness will be prioritized.”
“We want our product to fit into our customers’ lifestyles and provide them with the tools and confidence to do what they want with their money. We’re working on exciting launches that will be game changers for the US market.”
