Dan Schulman, CEO of PayPal, recently said he sees a future where their technology could be the “ one-stop for all things ‘Shopping & finance’, I believe he’s right. They are entering a new era of super apps.
What’s a super app?
A super app is an ecosystem — it’s one location where consumers can manage a wide array of tasks in one place. We’re talking about the ability to engage in shopping, social interactions, and financial affairs all within one experience. This is already a reality in China, à la WeChat.
What’s embedded finance?
Embedded finance is the ability to interact with financial services (saving, investing, lending, insuring, etc.) in places that are not native financial services apps. This is the first step toward creating the super app.
The next big disruption
There are a few reasons why I believe super apps will soon become a reality and why embedded finance is the next big disruption:
- Finance is disconnected. We shouldn’t have to put our money into one place to save, then another to invest, yet another to get a loan, and then access a completely different place to make a purchase. It’s beyond inefficient — it’s nonsensical.
- Wealth inequality has taken center stage. Consumer companies like Walmart and Nike have invested in wealth tech — they want to build an equitable future, where their target customers can afford their products.
- Traditional investing and banking models have been shaken. With an abundance of challengers storming the incumbents, consumers have started to put their trust and money in different places. Banks are focused on expanding and embedding more finance digitally and challengers will keep the pressure on.
- There are BILLIONS of dollars, doing nothing. For one example, 34 percent of the working American population is participating in the gig economy. These people are getting paid in-app or via some digitally connected service, like PayPal. Today, there’s no easy way to put that money to work.
What will embedded finance look like?
Imagine being able to save for your goals right where you shop. The efficiency! Think about how you currently shop for a house or car, an appliance, or renovation. Sure, financing options are offered at many purchase destinations, but what about saving and investing?
Picture being able to invest your money right where you receive it — maybe that’s PayPal, or Uber, or Instacart. You will soon automatically parse your payments directly into investment portfolios and savings accounts. Envision returning an item to Amazon and seeing the prompt, “Do you want your refund credited back to your credit card, or do you want it deposited into your investment account?” Opportunities like that make an impact, and experiences like this are coming — soon.
Why should we care?
Okay, so we’ll have super apps and embedded finance everywhere. But, why is this important?
First, embedded finance is going to become a new category of financial services. Matt Harris, a Partner at Bain Capital, estimates that this category will be worth 3.6 trillion dollars by 2030 in the U.S. alone. This is money that won’t be going into banks and traditional brokerages — at least not from the same entry point. These are accounts that currently don’t have a central view or dashboard. These are customers that might not have financial advisors, yet.
Investing and saving will happen differently. They will be purpose-driven, enabled by a whole new demographic of consumer companies that know how to engage users, how to speak their language, and how to make experiences seamless and fun. These consumer companies will be changing the literal language of finance.
Think about investing in a climate change portfolio through Amazon or Uber, and then trying to make a transition to self-directed investing through a retail brokerage firm. It doesn’t fit. And that’s why this is a big deal — tracks are being laid, and the destination for future investors isn’t the same.
In December 2020, Zomato announced partnering with Incred, an NBFC, to offer lending services to its restaurant partners and delivery executives. This was to manage their financials uninterrupted better.
This initiative will remove the burden of many business owners’ shoulders who could be struggling during this crisis. Indeed thoughtful, no doubts there! Incred will enable Zomato, which is not inherently a company with a financial backdrop, to offer risk-free credit options.
From Zomato’s perspective, these are brilliant ways to lock in the customers as well as restaurant partners even further into a loop of increased loyalty & benefits. At the same time, Zomato can generate extra revenue for itself on both channels.
This powerful digital revolution in the finance ecosystem is tremendously changing the world that reshapes the way the companies are earning revenue and how the brands are interacting with their consumers.
Embedded finance has not only paved the way to offer a better consumer experience and engagement but also, offers new opportunities to improve the financial service landscape.
Interested in a deeper dive into embedded finance? Embedded finance is the next big disruption. Are you ready?
** The information, analysis, and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of SeedVC. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.