APAC SUPER APPS: STRATEGIC THREAT OR INSPIRATIONAL PARTNER?

Asia-Pacific’s super apps – mobile apps that offer a single gateway to multiple services – have taught the region’s banking industry important lessons about how to offer lifestyle convenience to customers and rapidly create customer-friendly ecosystems. However, the super apps’ strengths have also turned them into a strategic threat. With super apps continuing to capture the consumer relationship, banks fear their own role might be reduced to that of a mere router of transactions without a direct connection to customers’ daily lives.

Super apps quickly recognized that payments, while vital to consumer transactions in daily life, are not the end goal for most consumers, who want the mundane parts of a transaction to become almost invisible. Credit cards and traditional financial services often continue to underpin super app transactions, but they are behind the scenes and new payments channels are waiting in the wings. Meanwhile banks worry they will be disrupted beyond payments, across a range of financial products including interest-bearing accounts, loans and insurance – with some super apps in the region already offering a selection of these.

Financial institutions are still figuring out what to do about this strategic dilemma. Over the next few years, a large APAC-focused bank might try to resolve it by purchasing a super app, as a way of reclaiming the customer relationship, despite potential regulatory complications and culture clashes. A more common solution will be to try to partner with super apps, or compete with them, perhaps by setting up the bank’s own super app ecosystem. Banks are already starting to offer access to digital services beyond finance, for selected customer segments.

However, to compete directly with super apps in a compelling way, most banks would likely need to create the ecosystem outside their current technology architecture. That’s because banks face huge legacy system issues, while super apps have none. Some large banks are still relying on infrastructure that is many decades old. To compete with super apps, banks need modern technologies that are flexible enough to integrate and onboard partners and whole ecosystems much faster and easier.

To get themselves into the digital age, banks are trying to upgrade their core infrastructure, and rearchitect it around APIs – application programming interfaces. But while this mends some problems, it will not get banks onto a level technological playing field with super apps and fintechs.

The obvious answer is to start entirely afresh, and indeed some banks are creating separately branded digital-first platforms with new asset-lite architectures designed around a shrunken core, microservices and APIs. A cloud-based, containerized platform can deploy on the fly, even within the week, so these ‘sidecar’ neobanks are quite capable of competing in the mobile-first digital world.

Creating entirely new platforms is important because a modern tech stack is like a modular home built with interchangeable components – for example, plumbing and electrical systems flowing underneath the building that can connect or disconnect to any room to allow continual upgrading whilst the house remains habitable. Competing in a super app world requires a similar modular architecture, such as a cloud-native technology platform with a containerized, microservice architecture that makes it possible to assemble functionality rapidly by bundling a common set of core components into different combinations.

However, setting up neobanks that could begin to compete with a super app, at least on the technological front, is expensive – and not just because of the new technology. Neobanks are usually separate entities with a new strategy, new brands and often new people – and they won’t make money for the first few years. That can lead to a funding battle between those defending the interests of the core bank, which makes money today and needs money to upgrade, and those promoting the neobank concept, which is a strategic play for the future.

In Asia-Pacific, there are no easy answers to these strategic challenges, with super apps and some other digital-first banks seemingly well placed to offer services to a younger generation of customers, many of whom are presently unbanked, as they climb the wealth ladder. However, the biggest nightmare for banks is that a super app evolves and grows in the corporate space, offering a range of integrated, customer-friendly corporate services, and leading to the loss of highly valuable corporate revenues.

Some banks are wondering if they should try to turn that fear into an opportunity, by becoming the first into the market with a large-scale corporate super app. That would give them an edge against traditional competitors, while also claiming the space that a digital-first corporate super app might otherwise try to inhabit. However, success would require not only significant investment but also changes in bank culture and ways of working.

CONTACTS

Paul Sommerin, Partner, Paul.Sommerin@capco.com