There’s a major gap in how consumers are currently managing their finances compared to how they would prefer to manage their finances. Many consumers have 30 to 40 relationships with different financial services providers, which creates complexities for the consumer and their financial health. A recent PYMNTS.com survey confirmed that the majority (67% of respondents) would like to consolidate their digital financial activities. 11% went as far as to say that they would like one app for managing their digital financial lives. With an estimated 173 million people interested in bundling their digital activities, financial institutions have an opportunity to consolidate these relationships, regaining their position as first-app status from the super apps and power platforms.
The Move to Super App, Power Platform Status
When Jack Henry asked banks and credit unions about their future technology investments, 78% of respondents reported plans to increase their investments over the next two years. Why? Because 70% of them consider fintech firms to be the biggest competitor, followed by big techs (53%). Consumers still trust their financial institutions, but the trust of fintechs and big techs continues to rise. For example, trust in PayPal increased 14% from 2019 to 2020. These companies are capitalizing on brand name recognition to build trust and have taken $250 billion worth of payments from banks in one year alone.
Competitors aren’t stopping there – they’re moving toward super app status. China’s shown us what this future could hold through WeChat and AliPay– they bundle financial services, instant messaging, social media, marketplaces, and other services into a single experience. The U.S. is not far behind; PayPal, Square, Venmo, and others are wrapping traditional banking products (i.e., deposit accounts, credit cards, rewards, and other credit options) around P2P. Big tech is gaining traction as well – and not doing this alone – they have the help of fintechs as well as big banks and credit unions. Take Amazon’s partnership with Chase – the company can offer credit cards, pre-paid cards, business credit cards, lines of credit/loans, insurance, and merchant services.
But super apps aren’t the only threat; power platforms are offering bundled solutions, creating one ecosystem for both the consumer and merchant. Shopify markets itself as a service for its 150,000+ merchant clients to set up eCommerce websites, yet the majority of the company’s revenue c0mes from payments. They offer Shop Pay, an online checkout experience, credit cards, Shopify Capital, loans and are now partnering with Stripe and Evolve Bank & Trust to build Shopify Balance, the business account designed to help merchants take control of their finances.
Super apps and power platforms are disrupting the industry by disintermediating relationships, offering enhanced and more targeted financial products, and building their brand reputations in financial services.
The Opportunity for Open Banking
Consumers enjoy super apps for their multi-functionality, one-stop-shop and advanced experience and personalization. The same goes for power platforms, and they offer more benefits to businesses, such as collaboration, speed and efficiency, cost-savings, differentiated services. While they continue to expand their efforts through embedded finance, super apps and power platforms can’t fully own the customer relationship if they don’t have outbound aggregation, financial health, and personal service – these are major competitive differentiators for financial institutions.
Institutions can win by embracing the open banking ecosystem. They must be willing to leverage partnerships that enable safe and secure connections to third-party apps and empower consumers to own their financial data. By offering these connections, consumers gain full visibility and transparency into their finances through a simplified, integrated digital banking experience (unlike the fragmented, one-off app experience today). Those offering consumers options to connect with third-party apps of choice can become the first app for all their customers’ financial needs.
Jack Henry has offered an open API layer where hundreds of fintechs (competitors included) can integrate and offer services to clients. The Banno Digital Toolkit provides fintechs and financial institutions with the same API the Banno Digital Platform is built on to offer more differentiated services. Jack Henry is the first fintech to offer access to all four major financial data aggregators (Fincity, Plaid, Envestnet | Yodlee, and Akoya). There are also partners like Autobooks that have leveraged the Toolkit to embed their functionality, making small business banking services a standard feature within financial institutions’ digital banking experiences.
As super apps and power platforms continue to compete for banking relationships, it’s never been a better time to become part of the open banking ecosystem. By choosing connection over the competition, financial institutions can solve the financial fragmentation once and for all.