12/07/2024 9:08 PM

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Mobile wallet and the rise of the Super App

The mobile wallet industry has seen significant advances in the last decade, changing the way people manage and spend their money, and the tasks that these wallets can perform have rapidly expanded.

In turn, the mobile wallet sector has become one of the fastest-growing industries in the world: it’s currently worth around $1 trillion and is estimated to grow to over $7 trillion by 2027, according to CB Insights Industry Analyst Consensus.

The following article is excerpts of a much longer report on the subject of Super Apps by CB Insights.

Digital Wallets – What’s at Stake?

Why it matters: Digital wallets are transforming the way people manage every aspect of their lives. A growing number of companies are striving to become the go-to app for all things finance — combining a wide range of payments, banking, credit, investment, and insurance products in a single platform — while others are allowing users to store important documents and access cards on their smartphones for everyday use.

With a wide reach and daily touchpoints, the digital wallet category is poised to have a substantive impact on individuals’ day-to-day lives — but only if new solutions can deliver on reliability, scale, and convenience.

Why now: Innovation within the digital wallet space is being driven by customer demand for convenience, automation, and customization, as clients increasingly seek to manage all their financial matters in one place.

The Covid-19 pandemic has also accelerated the need for contactless money management and ID solutions, resulting in the growing adoption of mobile solutions in payments, banking, and other financial services categories.

And without a clear leader in the US market, existing financial services players now have their eyes set on becoming the go-to mobile wallet app for all things finance and more.

The players looking for an edge: The future of the wallet is largely being shaped by fintech players like SoFiVenmoMoneyLionBlockM1 Finance, and Revolut, which offer easy-to-use, mobile-friendly platforms.

Tech giants like PayPal and Apple are also aiming to become the go-to money management apps, and looking to leverage their vast user networks, brand recognition, and UX expertise to gain quick traction among users.

The rise of super wallets 

Traditional physical wallets are primarily for making payments, carrying our cards and cash — and otherwise disconnected from other areas of our financial lives.

In contrast, digital “super wallets” are giving users access to a much wider range of financial resources and tools. They can still make payments, but they can also help make investments, take out loans, track accounts, and more.

What Are Super Wallets? 

Mobile wallets today are, in essence, a way of organizing existing financial accounts. The standard mobile wallet works as a safe, virtual storage for tokenized credit cards, debit cards, and bank account information.

But as the payments landscape evolves, a growing number of digital wallets are moving beyond the single-function app approach, adding on financial offerings that go beyond facilitating payments — such as loans, insurance, investing, and digital banking.

Different features can help players differentiate themselves in the already crowded mobile wallet market, and avoid becoming just another payments app on a user’s phone.

The result increasingly looks like what we can call a financial super app, or super wallet: a connected ecosystem where users can manage payments, savings, investments, crypto, budgets, loans, insurance, and more, all in one place.

First Movers

Asia has been a hotbed for this trend, with a number of digital wallets here evolving into successful super apps — diversifying beyond payments into food delivery, taxi-hailing, restaurant and hotel booking, and even gaming.

The most well-known examples include China’s hugely popular AliPay and WeChat apps, which both started out as digital wallets and later leveraged their vast payments infrastructure to add services.

Today, both apps can be used for a broad range of everyday functions, from buying groceries and clothing to purchasing insurance and stocks.

Outside of Asia, a number of European FinTech companies are following a similar strategy. Paris-based Lydia started out in the digital wallet category as a P2P payments platform, then later introduced debit cards, IBANs, and personal loans, as well as stock and crypto trading.

The company raised a $100 million Series C round in December, officially reaching unicorn status. Meanwhile, Revolut (a self-described “global financial super app”) offers a similar range of financial products and services in 20+ countries across the world.

The company launched its super app in the US in March 2020 and applied for an official bank charter a year later.

In the US, several FinTech companies are testing the super app waters. These moves signal that there could soon be stiff competition here, and for good reason: whoever secures the go-to super app status and gains widespread customer trust and adoption will likely become one of the most valuable companies in the US.

One well-known example here is PayPal, which launched its own version of a financial super app in the US in 2021, taking a deliberate step into the territory of other giants like WeChat and AliPay.

On top of the PayPal app’s existing mobile wallet, P2P payments, and charity donation features, the super app introduced banking and personal finance offerings, including:

  • High-yield savings accounts, in partnership with Synchrony Bank Financial
  • A bill management tool that helps users track, review, and pay their bills
  • A new direct deposit feature that helps users access paychecks 2 days early
  • Credit access and BNPL offerings
  • Gift card and reward offerings
  • In-app shopping function that offers loyalty rewards
  • Crypto buying/selling

By combining payments, banking, personal finance, and e-commerce in a single platform, PayPal aims to create an end-to-end financial ecosystem that users won’t need to — or won’t want to — leave.

Venmo, a Gen Z-friendly PayPal subsidiary, is taking a similar route. Since its acquisition, Venmo has added a cash account, a debit card, a credit card, direct deposit, in-store QR payments, shopping, crypto investments, and a bunch of other features.

FinTechs SoFi, MoneyLion, M1 Finance, and Block (formerly Square) also have their eyes set on super app status.

SoFi started out as a student loan financing company, later introducing banking, investment, insurance, and credit products.

MoneyLion branched out from lending to offer banking and investing.

The new Block app combines a similar range of services, including P2P transfers and trading on its Cash App platform, lending through its AfterPay acquisition, and payments on Square, its core merchant platform.

While the number of US-based super apps is expected to rise in the next few years, the quest to become the go-to super app will be a long journey, fueled by stiff competition that’s emerging between FinTechs, legacy players, and big tech.

Implications

Super apps will be the dominant FinTech strategy of the next decade, and pose a growing threat to legacy financial players as well as single-function fintech apps

FinTech based super apps will see substantial competition from tech giants like Apple and Google, which will leverage their vast user networks and product ecosystems to build similar functionality.

The first few super apps in the US will likely be limited to financial services, not offering food delivery, hotel booking, or social media within the same platform (unlike their Asia-based counterparts).

The wallets of the future will be safer and smarter, while continuing to become even more convenient.

Whether stored in a users’ smartphone or attached to their wrist, the next generation of mobile wallets will go beyond transaction facilitation, offering a variety of financial products as well as digital ID management and dedicated virtual assistants.

Equipped with advanced AI-driven analytics and customized user experiences, our wallets will play a larger role in our financial decisions over time, becoming reliable advisors and trusted sources of information for all things finance.

 

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