EY estimates that the market size of global embedded finance will grow from $264billion in 2021 to $606billion as early as 2025. With the space set to dramatically disrupt the financial sector worldwide, The Fintech Times seeks to understand how.
Having already explored the factors driving the success of super apps, it is clear that some regions have taken to them more than others. To understand the reasons behind this, The Fintech Times reached out again to the experts.
Asia has “less stringent regulations compared to Western countries”
Andrew Latham is the director of content at online financial comparison platform SuperMoney.
Here, Latham explains one major reason behind faster super app adoption in Asia, compared to in the Western world.
“Super apps have gained significant popularity in regions like Asia, particularly China and Southeast Asia. This success can be attributed to factors such as high smartphone penetration, a vast underbanked population that benefits from financial services offered within these apps, and a thriving e-commerce sector.
“These regions also see less stringent regulations compared to Western countries. In contrast, in the West, existing apps are deeply entrenched, competition is fierce, and regulations more rigorous, making it harder for super apps to penetrate the market.”
“A mobile-first approach”
Vitalis Kavaliauskas, chief technology officer at Lithuania-based tech firm Baltic Amadeus, discusses how the evolution of tech in different regions has shaped different customer behaviours.
“I would bet on customers’ behaviour and infrastructure. In some regions, the whole eras of Yahoo, Blackberries, and Friendster were skipped, and they jumped directly to mobile penetration and a mobile-first approach. It formed totally different behaviour from another market and, as big players for a long time, didn’t satisfy smaller markets’ needs.
“Those markets established new services that grew rapidly and evolved into super apps. Also, not the last role played regulations, e.g., China’s regulations limited Google services, GDPR in EU, etc.”
The “vital role” of regulation
Michael Sindicich is vice president and general manager of Navan, an all-in-one travel and expense management super app. Sindicich touches on the role of regulation in deciding the success of super apps:
“The regulatory environment and infrastructure availability play a vital role in the success of super apps of specific regions. Countries like the US or regions like Europe have regulations that often restrict consolidating multiple services in a single app. While other markets in Asia and Latin America have the flexibility that allows innovative business models to thrive.
“But it’s not just the regulations alone that have driven the success of super apps in these regions, it’s also the culture and the government’s support of these apps that have propelled them forward – users are encouraged every day to use super apps that are convenient and efficient.”
Impact of consumer habits and established players
Bhavin Turakhia, co-founder and CEO of credit card processing platform Zeta, explains how the maturity of the financial services market in different regions can effect consumer habits, and therefore :
“Super apps have seen varying degrees of success in different regions, and one contributing factor is the maturity of the financial services market and consumer habits within those regions.
“Financial super apps, in particular, have gained significant traction in regions where the financial services market is less mature and consumer habits are less established.
“One example of this is WeChat in China. WeChat started as a messaging app but quickly evolved into a super app offering a wide range of services, including payments, e-commerce, transportation, and more.
“Similarly, Paytm in India is another notable example of a financial super app that has seen significant success. India’s financial services market has experienced rapid growth and transformation in recent years, with a significant portion of the population still lacking access to traditional banking services. Paytm capitalised on this gap by offering a mobile wallet and a wide range of financial services, including payments, money transfers, bill payments, and even banking services.
“In regions with more mature financial services markets and well-established consumer habits, the adoption of super apps may face greater challenges. Consumers in these regions may already have established routines and preferences for specific apps or services, making it harder for new super apps to penetrate the market. Additionally, the presence of established players in the financial services industry, such as banks and payment providers, can make it more difficult for super apps to gain traction.”
“Banks have decades-old relationships with customers”
Daniel Belda, head of product strategy at embedded finance provider OpenPayd, suggests that the relationships banks have with consumers in the Western world makes it harder for super apps to break through.
“In Europe and North America, banks have decades-old relationships with customers. But in Latin America, Africa and Asia, many people are unbanked or under-banked. Their first experience with financial services is happening on their smartphone and it’s probably through a super app that also handles messaging or social media. In these markets, super apps are playing a vital role in expanding the reach and accessibility of financial services.
“Demographic differences across regions may also play a role. Countries with a younger population have seen faster adoption of super apps because they haven’t got that history of using cards, ATMs and bank branches.”
“Regulation against technology monopolies”
Matthew Little, head of product at payment technology firm Episode Six, also discusses market saturation and the role of the regulators:
“The opportunity to entice super app adoptions for customers in regions like Asia our South America has been significantly stronger than Europe and North America, although super apps are becoming increasingly more popular in these regions too.
“However, gaining traction with a super app becomes more challenging in markets where numerous problem spaces are already saturated with providers.
“Super apps tend to thrive when they effectively address multiple problems simultaneously, offering a comprehensive and holistic solution. Specifically, payments and banking are highly saturated with both traditional financial services institutions and fintech companies in these markets, making entry and growth even more arduous.
“Regulation against technology monopolies in some jurisdictions is also a key barrier to the growth of super apps. More matured markets are likely to have more regulations in place, which naturally slows down or create roadblocks to the rise of super apps. So much so, that state actions against such technology monopolies will either break up potential super apps or create a deterrent for potential investors who are looking for regional expansion.”