Europe may never have a super app, but with embedded finance you can get close
Super apps in Asia Pacific show the power of embedded finance
If you’re a young person in China spending an afternoon at the mall, it’s unlikely you’re going to use a bank card to pay for lunch or settle a taxi fare. More likely, you’ll get your phone out and scan a QR code using WeChat Pay or Alipay.
These two payment apps have more than a billion users each, despite the fact that neither one was launched by a company that started out in finance. WeChat is a messaging service that's comparable to WhatsApp, and Alipay was launched as a way to make transactions easier on the internet marketplace Alibaba.
Now, both products offer a huge spectrum of financial services, making it effortless to do anything, including investing money, topping up a phone plan, booking flights, buying and selling products via social media and more. They demonstrate a lesson almost any digital company can learn from: building financial services into apps and platforms can drive serious growth.
There are many ways that embedding financial products into apps can increase revenue. Customer stickiness, interchange and data are just a few.
A WeChat user might watch an influencer video, decide to buy a makeup product, then complete the purchase within the app using WeChat Pay. In this way, WeChat can facilitate an end-to-end consumer journey, from promotion to payment, accumulating revenue and customer data from each step, whilst making the transaction quicker and easier for the customer.
What European businesses can learn from the super app model
Super apps have proliferated not only in China but across the Asia-Pacific region. Grab started as a Singaporean ride-hailing service and now calls itself the “Everyday Everything App,” offering insurance, investments, loans and credit as well as food delivery and instant couriering.
Dubai-based Careem also offers taxi and delivery services. It launched a mobile wallet initially to allow users to transfer credits, but CEO Mudassir Sheikha says his ambition is to “become the leading digital financial services provider” in the region.
Super apps like these can flourish in places where credit card use is low and unbanked populations are higher. People in these regions may leapfrog straight from cash to payment apps, without ever using a credit or debit card. Super apps also benefit from ecosystems in which customers’ interaction with big banks is relatively low-tech, and where the regulations allow fintech innovation to flourish.
There’s been chatter about whether Europe will ever birth a super app in this model, but as things currently stand it’s unlikely. So far, the contenders either focus on banking and payments or on transport and delivery, without bridging the two. Messaging giant WhatsApp has been trying for years to launch a digital payments system in various markets, but has only been cleared so far for use in India and Brazil.
There are various regulatory hurdles that prevent the creation of a European super app, relating to data, privacy, competition and financial transactions. Another factor is that Europe already has well-established services for specific needs – like ride-hailing, communication, payments – that work well and fast. Bloated software may deter users: it’s been shown that a 100-millisecond improvement in the loading speed of an online shop could result in a 10% boost in sales.
While frustrating for those with big ambitions, there are benefits to this situation. Consumers get more choice, and businesses get a better chance at a slice of the pie.
Financial services present a huge revenue opportunity
European businesses can learn a valuable lesson from super apps, even if they can’t fully emulate them. Payments and other financial services can be integrated into a wide range of platforms, with big rewards.
Take Shopify. Its core offering is subscription software for merchants to create online storefronts, but it has built an entire fintech stack on top of that. Merchants can now use Shopify Pay as a payment processor, Shopify Balance to manage funds and pay bills and Shopify Capital for loans. They can also allow customers to “buy now, pay later” via Shop Pay instalments.
Enhancing the experience for both customers and vendors grows the Shopify platform and builds loyalty. Insights can be mined from the data gathered. Revenue is gained from transaction fees and interest on credit and loans.
After adding Shop Pay and Shopify Balance in 2020, the company grew by 86% in total year-on-year revenue. A huge 69% of its revenue now comes from “merchant solutions”: payment processing and other fees, with subscription storefront software making up just 31% of revenue.
Collaboration with fintechs is one route to launching financial services
Almost any platform with loyal, frequent users could profit from adding financial services to their stack. Successful examples span messaging, transport and food delivery. Given the particular market conditions in Europe, however, the sectors most suited for embedded finance are those that already have links to finance, payments and technology. SaaS and eCommerce companies are particularly well positioned.
To start building these services, there are a few options. Companies can build products themselves, plug in out-of-the-box software, or partner with experts to build custom solutions.
Wealth-management app Plum opted for this third route. The company uses open banking and automation to help clients understand their spending habits and invest profitably. In 2022, Plum partnered with Airwallex to integrate dynamic FX capabilities into their new stock investing feature, ensuring their customers enjoy the best rates when trading international stocks. New features were custom-built by Airwallex’s engineering team according to Plum’s specific needs.
By choosing to embed a third party solution into their platform, Plum was able to go to market with their new investment feature fast. The solution also created a closed loop customer journey which keeps clients in the app rather than sending them out to third parties, thereby creating a better user experience and enhancing the stickiness of their product.
The benefits of buying rather than building
Early adopters all over the world are already reaping the rewards of adding financial products to their services, and researchers predict that revenue from the sector will continue to soar year-on-year. By many people’s standards, Apple and Google have now become fintechs, a clear sign of the revenue potential that financial services hold for tech companies.
Apple Pay makes money by charging transaction fees to merchants. The company is presumably also looking to drive revenue through its buy now pay later service Apple Pay Later, and its savings account product which recently launched in the US.
As Shopify clearly demonstrated, payments can quickly become a company’s dominant revenue stream, overshadowing their core offering. We’ll have to wait and see how far Apple’s journey into fintech takes them.
However, even with Apple’s immense resources, there were murmurs when Apple Pay Later launched that Apple had arrived late to the party. It takes a long time to develop and launch a secure and fully licensed financial product, which is why many businesses decide to fast track the process and buy rather than build.
By embedding third party financial solutions (such as Airwallex) into their platform, businesses have the opportunity to launch new products before they’re pipped to the post by competitors.
Designed for developers by developers, Airwallex enables businesses to offer financial services to customers and unlock new revenue streams in a fraction of the time it would take to develop products in-house. Our comprehensive APIs and proprietary financial infrastructure enable businesses to launch products that put them ahead of competitors. From payment acceptance to card issuing.
Embedded finance has been described in Forbes as “the dominant trend in 2023”. A McKinsey report estimated that $20 billion was made from embedded finance in 2021, in the US alone. The era of embedded finance is here, and it comes with opportunities too great to ignore. For more information on how your business could benefit, reach out to our team.
Tilly manages the content strategy for Airwallex. She specialises in content that supports businesses in their growth trajectory.
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