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Legacy Tech vs Super Apps: Can Banks Keep up with Fintech Innovation?

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The B2C consumer payments sector has witnessed significant disruption over the past five years as fintechs, neobanks, and big tech companies introduced innovative digital value propositions to the market. Apple and Google have become synonymous with digital wallets, while traditional issuers and payment networks have seen their brand prominence diminish to some extent.

However, the disruption of the payments sector is only just beginning. Even though consumers increasingly prefer Apple Pay and Google Pay for their payments, these digital wallets still rely on traditional card-based payment systems. Banks and payment networks may have lost some brand visibility, but consumers typically need their cards to make payments from these wallets.

This landscape may change rapidly with the emergence of real-time, account-to-account payments, which make it easier for consumers to make payments to each other and to merchants without requiring a physical card. Real-time payment schemes like Brazil’s Pix, India’s UPI, South Africa’s PayShap, and the US’s FedNow are gaining traction due to their convenience and the promise of lower transaction costs for merchants.

In conjunction with Open Banking, real-time payments pose a threat to the traditional financial institutions’ brands and roles in consumer payments. This sets the stage for markets outside of Asia, where super apps have taken the central stage in consumers’ lives and the payment journey.

What is a Super App?

Gartner defines a super app as a versatile application that offers a wide range of services and offerings within a single interface. Users can perform various activities, from peer-to-peer payments, shopping, and hailing a cab to buying cryptocurrency, job hunting, applying for loans, investing in equities, sending instant messages, and booking holidays.

Some of these services may belong to the super app itself, while others are sourced from various partners using application programming interfaces (APIs). This approach creates a seamless and enriched experience for users.

China’s WeChat is the largest super app globally, with over 1.2 billion users. It provides messaging, social networking, shopping, and payments, among other services. Other super apps in Asia include China’s AliPay, Indonesia’s GoJek, Careem in the Middle East and North Africa, and Grab in Southeast Asia.

While super apps haven’t gained as much traction in North America or Europe, many companies are eyeing the super app opportunity. For instance, neobank Revolut offers a range of financial and non-financial services on its platform, and other big tech companies like Uber, Amazon, and Meta are expanding into new services and markets.

What Does this Mean for Banks?

Super apps have faced challenges gaining popularity in the Western world due to regulatory barriers, data sharing concerns, and consumer preferences for specialized apps. However, the rise of Open Banking and API-powered ecosystems may enable super apps to find a significant audience in some regions and among certain consumer segments.

For consumers, super apps offer a simpler way to manage multiple services, a consolidated view of their finances, and a more seamless payment experience. Super apps can also offer highly personalized services and experiences, along with more extensive loyalty and rewards programs due to the rich consumer data they collect.

For banks, the primary risk is that more customers will use super apps for various activities, potentially bypassing traditional banking apps and card payment systems. Super apps may also make it easier for users to compare and access various financial products offered by ecosystem partners.

However, not all hope is lost for banks. They hold a strong advantage in terms of regulatory compliance and the trust they have established with their customers. Many users prefer the convenience of a single app for all payments and trust their bank’s app for secure everyday activities.

Forward-thinking banks have a unique opportunity to strengthen their brands and play a more central role in their customers’ lives by developing well-thought-out super-app strategies.

The Legacy Hurdle?

While banks may have regulatory advantages and consumer trust, legacy technology remains a significant obstacle for those aiming to create super apps. Many banks rely on a patchwork of older payment systems, making it challenging to integrate new features and services quickly. They may also struggle with data silos, whereas super apps require a holistic view of customer data for personalized experiences.

While most institutions have initiated payment modernization programs, including the adoption of cloud-based systems and Agile and DevOps practices, these transformations may take years to complete. This situation is particularly complex for medium-sized institutions with limited IT budgets.

Integration platforms that can connect traditional payment systems with new digital channels can bridge the gap, enabling banks to keep up with fintech innovation. Such a solution allows banks to deploy new functionality rapidly without making significant changes to their legacy systems, helping them enter spaces like super apps.

Seizing the Super App Opportunity

Fintechs and big tech companies have elevated customer expectations for payments and banking experiences. Consumers are seeking convenient, simple, fast, and personalized solutions, and banks that cannot meet these expectations risk losing market share and seeing their brands displaced.

For some banks, super apps represent an opportunity to revamp their customer experience and enhance engagement. Overcoming legacy technology challenges is crucial, and integration platforms offer a viable solution. Adapting to these changes is essential for banks to stay competitive and relevant in the evolving consumer payments landscape.

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