The Rise of Super Apps: Will this Change the Payments Economic Model?

By: Kevin Kogler, President of MicroBiz

What is Super App?
A relatively new type of mobile app called “super apps” are gaining popularity around the world. These apps for mobile phones combine payment, social media, loyalty programs and lifestyle productivity apps and functions into one convenient package. After gaining wide popularity overseas, these apps are finally coming to the U.S. Here’s what VARs/ISVs should know about this new mobile trend in 2022.

The Super App Timeline
Super apps have been around for a while China and Southeast Asia. The apps initially started as single purpose apps (usually payment platforms, food delivery or social media site), and over time expanded by incorporating lots of ‘mini-programs’ that help manage all parts of a person’s life. 

To understand how much of Asia uses these super apps, imagine one application on your phone containing the functions of Facebook, Uber, DoorDash, Venmo, AirBnB, Slack, Amazon, Robinhood, Verizon Wireless, Chase and many more.

WeChat, a Chinese super app, has gained more than 1.2 billion users since its launch in 2011, and its user engagement is extremely high. About 35% of its users spend more than 4 hours on WeChat every day, dwarfing the 53 minutes per day Gen Z users spend on Instagram.  And two-thirds of Chinese consumers regularly pay for items by scanning QR codes through these super apps.

Why is the U.S. So Far Behind?
The rise of mobile-based super apps was helped by the inadequate network infrastructure in Asia 15+ years ago. Unlike the US, where early Internet applications were designed for people using computers over a land-based Internet network, China went from no Internet directly to a high-capacity mobile data network.  Because of this, from day one businesses in China designed apps for mobile phones.  Today, over 90 percent of Chinese connect to the Internet primarily via their mobile phones.

Mobile applications need to be built differently than websites.  Whereas it’s easy for consumers using PCs to hop around and log into different websites and portals, it’s much more difficult to do this on mobile phones.  Mobile users in China found it much easier to access different types of content and functionality within a single app rather than have to enter credentials into multiple apps.

Payments were also much less established and regulated in China vs the US and Europe 15 years ago, with China lacking powerful payment brands and infrastructure.  Bank accounts and credit cards were new to the rapidly growing Chinese working class, and the Chinese government was motivated to nurture a Chinese-based payment network not reliant on Western payment technologies.    As a result, the major Chinese mobile app providers were able to create their own payments ecosystem by offering contactless technology, QR codes, digital wallets and tight integration with Chinese banks (some of which was were owned by the technology companies themselves) on their apps. These apps expanded rapidly to become super apps by offering a seamless customer experience for one-touch payments for food delivery, reservations, ride sharing, ecommerce and utility payments.

Super Apps Becoming Super Platforms
WeChat and Alipay are not finished.  They are expanding their super apps further to fend off competition – becoming app store platforms by allowing third-party developers to build applications and publish them on the main platform. As of mid-2021, there were more than 4.3 million ‘mini apps’ on WeChat, and 3 million ‘mini apps’ on Alipay.  This dwarfs the number of apps and depth of integration offered by Apple through its App Store.  

Both WeChat and AliPay are also extending their networks outside of China to support Chinese users traveling internationally.  This has taken a backseat from COVID-related travel restrictions, but once restrictions ease external, expansion will continue.

Limits on Growth
Alipay and WeChat Pay together already hold 95% of mobile payment market in China.  The Chinese government has become concerned about Tencent’s (owner of WeChat) and Alibaba’s (owner of Alipay) duopoly status and market power.  The Chinese government has taken steps to limit the influence of the two companies, such as forcing both to open-up their walled gardens and become subject to more regulation.

Which Super Apps Will Emerge in the US
Historically U.S. mobile apps were built by companies to offer services to existing users.  Think about how many mobile apps you have on your phone.  In contrast, super apps do the opposite – they are built to offer all kinds of services for all aspects of everyone’s daily life.

Why have super apps not become established in the U.S.?  Because it’s very expensive!  Super app development presents a unique set of challenges, including satisfying user requirements and security concerns, navigating regulatory requirements, integrating with 3rd parties, building scalable infrastructure, and attracting huge numbers of users.  As a result, only the true giants of the global technology market have the money and resources to create super apps.

When Will Super Apps Come to the US Market?
There is no doubt that companies in the U.S. also want a piece of this enormous market opportunity, and in many ways U.S. tech companies have been laying the groundwork for super apps for years.  That being said, U.S. market participants must navigate a much more established market littered with legacy technology and services providers seeking to protect their current business interests. 

The U.S. government is pressuring Big Tech to allow more competition in the digital markets, and certain agencies are investigating the monopolist tendencies of key US technology players.  Despite these obstacles, the momentum towards super apps continues to pick up steam.  But it will take years for things to come to fruition in the current market and regulatory environment.

Each of the U.S. tech titans has unique sets of strengths and weaknesses, so all are pursuing different strategies.  Below is a high-level summary of some of these strategies:

Alphabet (Google) –Google Play Store and the Google ecosystem, including Android, position Alphabet as a strong candidate to serve the aggregator or gateway function of a super app.  Google also specializes in aggregating (and monetizing) information.   Alphabet continues to add features to solve every day financial tasks of consumers – such as paying bills and tracking income, savings and expenses – and is building lifestyle management apps around the Nest and Fitbit acquisitions.  Alphabet has been reluctant to allow “app stores within apps” or third-party payment into its app stores – and has not been successful the core areas of super apps such as mobility/delivery, financial services, ecommerce, and messaging. For example, it recently rebooted Google Pay and terminated its Plex bank account project.

Amazon – An early visionary in offering a seamless online purchasing experience, Amazon continues to expand its businesses and services outside of its core ecommerce offering through new technologies (Amazon Pay, Kindle, Echo, Fire), market expansion (pharmacy and logistics) and acquisitions (Ring home devices, Whole Foods).  Amazon has dipped its toe in financial services, mostly through partnerships, although a rumored Amazon checking account is anticipated. It’s estimated that 75%+ of American households have an Amazon Prime membership.  Although Amazon lacks a strong social media presence, its current set of assets position Amazon well to be a player in the super app market.

Apple – Given its early market lead from the successful AppStore and payment system, in a sense, Apple could already be considered a super app. Apple provides the platforms on which all of these third-party businesses and their apps operate — and collects a tax (from in-app payments) for that role. Through iMessage and FaceTime, Apple already has a strong position in communications.  Apple has historically been content with taking a small cut (0.15% on Apple Pay transactions), and would need to change its business strategy to add additional business lines such as social media, ride hailing or food delivery to become more like the Chinese version of a super app.

Block Inc (Square) – The Square Cash App has recently added equity investing and Bitcoin trading and allows users to pay merchants by scanning a QR code or swiping a button on their phone.  Block claims to have 70 million adopters of the Square Cash App.  Plus, Block shares a CEO (Jack Dorsey) with Twitter, which could add social media, messaging, content creation, and other pieces of the super app puzzle if the businesses were combined.

Meta (Facebook/WhatsApp/Instagram) – Besides owning Facebook, the most established social media platform in the U.S., Meta has several other key assets for a super app.  With 2 billion global users, WhatsApp is well-positioned to fill the communication requirements of a super app. WhatsApp has 50 million small businesses users and has become an important commerce platform, particularly for micro-businesses in emerging markets. In certain foreign markets, WhatsApp has added a small business directories and ride-hailing services.  Instagram has made a number of moves worldwide since Meta acquired it in 2014 designed to improve its monetization.  Instagram has increased investments in the in-app shopping feature, incorporating commerce and stores into brand and influencer posts so users can buy directly and spend money without leaving the app.  Meta is also launching the ‘Metaverse’ which is a persistent virtual world that continues to exist even when you’re not playing.  Metaverse will include a digital economy, where users can create, buy, and sell goods, both in the real world and the virtual work. Unfortunately, Meta’s attempts to make inroads in payments/crypto (Libra/Calibra) have met regulatory and market resistance – and have been divested.

PayPal – An early entry in market with Venmo app, PayPal launched a new version of its mobile app in September 2021 with a variety of new shopping and financial features.  PayPal is the first business to use the ‘super app’ moniker for its offering.  The PayPal Super App Includes features such as saving accounts, PayPal shopping credits on purchases, consolidated bill payment, direct deposit and ability to trade cryptocurrency.  It is planning to add and more investing features as well as new payment options for in-store and online shopping – including ability to scan a QR code at a merchant.  But PayPal lacks social media and communication assets.

Snapchat – Snapchat has an established social media platform and needs to diversify away from its reliance on ad revenue following Apple’s new restrictions on third-party tracking.  Snapchat was early in introducing mini-apps from 3rd party developers on its platform, allowing people do things like play games together, mediate, or book movie tickets — all without leaving the app. However, Snapchat lacks the scale of other super app players, and only has a couple dozen mini-apps in Snapchat.

Bypassing the Traditional Payment Networks
One unanswered question is how these super apps will interact with the tradition payments market in the U.S.  In China, the super app developers were able to create financial subsidiaries and a transaction clearinghouse enabling these businesses to bypass the established Western payment system.  As a result, Chinese consumers do not use Visa, MasterCard and Amex cards for purchases (these Western credit cards are only accepted in a minority of businesses catering to tourists).

In the US, Apple Pay set the early standard by operating on top of the traditional payment processing rails, and simply added a surcharge on top of the traditional credit card fees.  But this does not mean that future super apps will do the same.  If cryptocurrency becomes commonly used payment method in super apps, these transactions will bypass the traditional payment processing networks – offering lower transaction fees to consumers – and less revenue to existing participants in the established U.S. payment ecosystem.  Alternatively, the financial clout and scale of these tech giants may enable their super apps to facilitate peer-to-peer transactions directly with banks and users, also bypassing the existing credit card payments infrastructure and associated fees. 

It’s too early to predict what will happen, but Apple has shown an unwellness to cede control of payments in its AppStore and has been able to collect transaction fees on purchases within its marketplaces. Google has had the same philosophy with its app store.  If the other tech giants follow suit, they may view the super apps as a way to disintermediate the established payment processing ecosystem and capture more economics for themselves.

Is This a Winner Take All Market?
Super apps present significant economic incentives and profit potential to app developers – and also promise superior user experience and convenience. However, given the huge investments and technological requirements of building such apps and ecosystems, only a handful of companies in the world will have the resources to build true super apps. The process to build and assemble the assets for super apps will lead to further consolidation in the market and increased regulatory scrutiny.  It still too early in the game to determine who will hurt or helped by this trend.