Square, PayPal and Google are racing to create "super apps" with an array of digital financial services as they amp up efforts to lure customers from the traditional banking system.
The new apps, usually accessed on smartphones or other mobile devices, rely on multiple programs that provide a variety of financial services, from basic bank accounts to investing services to peer-to-peer (P2P) payment options. The tech giants are targeting business and consumer clients alike with the expanded app features.
Last month, Square started testing the use of checking and savings account features for its small to medium-sized business customers. The San Francisco-based company altered the way small businesses accept and process card payments and is now taking aim at banking giants like JPMorgan Chase and Bank of America by seeking to provide a digital-first banking experience.
PayPal, the digital payments processing company, also announced in its Q1 2021 earnings call that it plans to morph its Venmo and PayPal mobile apps into a "super app," which the company said will function as a one-stop shop for consumers' financial needs.
The COVID-19 pandemic accelerated the adoption of mobile payments as consumers looked to avoid contact that might lead to contracting the deadly coronavirus, and as they stayed away from public places like stores.
Even in-store shoppers are increasing their use of mobile payment options. Of Americans 14 years or older, some 101.2 million are expected to choose that payment method at some point this year, a 9.7% increase from 2020, according to recent research by Insider Intelligence and eMarketer. Average annual spending per user is expected to jump to $2,439 this year, from $1,973 in 2020, with a forecast of $4,064 by 2025, the report said.
“Consumers are looking for more seamless and integrated financial services apps that allow many functions from the same app,” OLS Payments Senior Director Sumit Varshney told Payments Dive. They "can pay for food, transportation, have banking accounts, enable P2P and use money management tools,” said Varshney, who has responsibilities for sales, business and product development at the electronic payments processing company.
Multi-functionality of apps
The Google Pay app, which started off as a P2P payment app, is expanding its features through partnerships with other companies. In the last few months, Google Pay added features for public transit payments across 80 cities in the U.S. and enabled P2P cross-border transactions. It also created new marketing channels, with promotions from Safeway and Target aimed at consumers.
“As we began the process of redesigning the app, we heard in our user feedback that managing money is too often complicated and fragmented and that insight drove us to create a Google Pay that was helpful for different payments and money needs – for example, finding the latest deals or offers, paying your friend back for dinner, or seeing what bills you have coming up," a Google spokesperson told Payments Dive by email.
Fintech companies are trying to provide additional services on their apps to win customer engagements, capture a bigger market share, and tap into alternative revenue streams.
Square's Cash App product, also a P2P payment app, introduced stock and bitcoin trading options in 2019 and 2017, respectively. Since the launch of the trading feature, user engagement has “seen a strong relationship between product adoption and greater engagement,” according to the company’s Q1 2021 shareholder’s letter. Bitcoin revenue in the first quarter of this year rose about 11-fold to $3.51 billion compared to $306 million in the year-earlier quarter and the quarterly gross profit jump about the same amount to $75 million, from $7 million, letters to shareholders this year and last year showed.
The app's bitcoin services, including a peer-to-peer option that lets users send bitcoin through the app, are "part of the reason that we've been able to drive awareness" of the product, Square CFO Amrita Ahuja said during the Q1 2021 earnings call.
Features drive user engagement and revenue streams
“There are many different apps on our phones for different functions and remembering usernames and passwords for them can be a bit difficult,” Perfecto Software Product Marketing Senior Director Eran Kinsburner told Payments Dive. “The market kind of has reached a saturation level where it's looking to consolidate as many of these applications into a single service or application,” said Kinsburner, whose company tests apps.
Companies are looking to provide additional services to consumers to increase engagements and drive other revenue streams, Kinsburner said. Fintech companies have an edge over incumbent financial service providers because they're “early adopters of technology and they've gained momentum,” he noted.
In March 2021, Square bought TIDAL, a music streaming service, and aims to integrate Cash App into the TIDAL streaming service to drive user engagement and provide revenue streams for content creators.
PayPal is also tinkering with its Venmo and PayPal mobile apps to make them into multi-functioning financial mobile apps. The company added a buy now-pay later payment option and a cryptocurrency trading option on its app last year and plans to add more features to the P2P payment app.
“We will begin seeing some of these experiences roll out in the third quarter,” PayPal CFO John Rainey said during a conference with JP Morgan held last month. PayPal plans to improve the way a user navigates the app, including adding machine-learning to customize service for users, Rainey said.
Recent research from Capco, a financial services technology consulting firm, found that "72% of respondents rated personalization as 'highly important,' while just 8% said it was not and 20% of respondents were neutral on the topic."
“Super apps at the end of the day are trying to win the game of owning the client relationship through the digital channels, and recognizing that more and more mobile experience is the critical one to win the relationship with the customer,” Rodrigo Dantas e Silva, Americas payments leader at Ernst and Young LLP said. “One of the major opportunities for financial service providers, is to really be able to understand the customer's life cycle, and to provide a more holistic view of their financial needs."