What superapps offer; The evolution of SoftPOS; So much fintech M&A; Digital wallet growth largely bypassing banks;

In this edition:

1?? Digital Wallet Growth Largely Bypassing Banks

2?? The Evolution of SoftPOS

3?? What superapps offer

4?? Coinbase and Binance diverge in outlook for 2023

5?? What happened in fintech in 2022

6?? So much fintech M&A

7?? Buy with Prime

And many more….

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Digital Wallet Growth Largely Bypassing Banks

Digital wallets enable consumers to make payments without carrying cash or cards. The wallets are accessed via an app on the consumer’s phone or other mobile device.

The underlying payment method is often, though not always, a card. So operationally, they have one foot in the world of traditional payments and one in the world of mobile payments.

Because of this, some bankers have not viewed digital wallets as worrisome.

In fact, during JPMorgan Chase‘s 2022 investor day, Marianne Lake, its co-CEO of consumer and community banking, shrugged off the notion of competition from digital wallets and buy now, pay later being a threat. The reason: The new channels rely on the existing card system, so card issuers still book the volume. “As they grow, we grow,” said Lake.

But Accenture’s Agarwal contends that the gradual erosion of banks’ payments dominance will become increasingly costly. He advises banks to act quickly to protect their competitive advantage before it’s too late, as cards appear to be losing favor with many consumers as the main payment method within their digital wallets.

Digital wallets can be of the general use type, such as PayPal, Apple Pay and Google Pay, and those can be used at many places. Alternatively, there are digital wallets created for use at a particular major retailer or hospitality brand. (One example is the Starbucks app, which allows payments through the user’s method of choice, whether that is stored cash value, a credit card that’s been entered into the app, or the user’s Starbucks Card. The app also tracks rewards.)

Beyond payments, general-purpose digital wallets can also hold travel and admission tickets, boarding passes and other secure documents. In this category of digital wallets, PayPal is the most popular by far.

Accenture’s report notes that PayPal ranks as the top digital wallet in nine of the 13 countries studied. The leading markets are Germany, where a whopping 60% of consumers use PayPal at least five times a month, followed by 51% in Mexico, 50% in Italy and 46% in the U.K.

PayPal’s digital wallet also leads in the U.S., but has far less penetration. Only 35% of U.S. consumers use it. Apple Pay is next at 12% and Venmo at 11%.

Source The Financial Brand

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What superapps offer

Gartner expects that by 2027, more than 50% of the global population will be daily active users of multiple superapps. The superapp concept will also expand to include enterprise mobile and desktop experiences, such as workflow, collaboration and messaging platforms.

A superapp, super app or super-app is an application that provides end users (customers, partners or employees) with a set of core features plus access to independently created miniapps. The superapp is built as a platform to deliver a miniapps ecosystem that users can choose from to activate for consistent and personalized app experiences.

There is no separate app store or marketplace for miniapps. They are discovered and activated by the superapp users, and once used, they can also be easily removed from the user interface.

Superapps run on a platform that provides numerous, commonly used app services, such as messaging and payment. Superapp users can create personalized user experiences (UXs) by selecting and installing their chosen miniapps (focused on performing a single task). Superapps will eventually expand to support chatbots, Internet of Things (IoT) technologies and immersive experiences like the metaverse.

How superapps work

Users access a range of discrete services through an ecosystem for which internal development teams and external partners build and deploy modular microapps to the superapp. This provider ecosystem also amplifies the superapp’s value by providing convenient access to a broader range of services within the app.

A number of technology vendors already provide tools and platforms that help software engineering leaders build superapps.

Examples include:

- Platform as a service (PaaS) vendors providing a cloud platform solution

- Front-end frameworks enabling deployment of miniapps in web and mobile apps

- Multiexperience (MX) development platforms

- Low-code application platforms (LCAPs)

- Development services providers

Users can customize their superapp experience by selecting the miniapp they want to use when they need it in the superapp. The key is data sharing and includes simple user authentication, such as single sign-on (SSO) and tracking user preferences or app usage.

What superapps are used for

Superapps are often created for customers to consolidate services, features and functions of multiple mobile apps into a single app — such as financial services.?

Software engineering leaders also build superapps to provide a more engaging experience for their employees. These superapps can help achieve economies of scale and leverage the network effect of a larger user base and multiple miniapp teams. Most importantly, they can improve the UX by enabling users to activate their own toolboxes of miniapps and services.

Source Gartner

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Coinbase and Binance diverge in outlook for 2023

Few predicted the extent of last year’s carnage in crypto markets so a little caution is understandable. Still, it’s striking how differently two of the industry’s biggest exchanges, Coinbase and Binance, are planning for the coming year.

Coinbase has had a rocky start. After settling a fine with the New York attorney-general’s office last week over poor compliance standards, its rough January continued when it announced on Tuesday that it would cut a fifth of its workforce — amounting to almost 1,000 employees.

In a blog post, chief executive Brian Armstrong took a cautious tone and spoke about the need to “make sure we have the appropriate operational efficiency to weather downturns in the crypto market”.

Still, he assured the world that Coinbase was well capitalised “and crypto isn’t going anywhere” — judging by the crypto market’s sideways performance in recent months, he’s right.

Fines and job cuts aside, Armstrong is also facing a Grand Canyon-scale gap that has emerged between his exchange and Binance, which has left the US-listed trading shop in the dust.

Binance, by far the world’s largest exchange, seems to be impervious to the crypto pressures plaguing its competitor.

Not only has its market share increased over the past 12 months but chief executive Changpeng Zhao said on Wednesday that he planned to increase the exchange’s workforce by up to 30 per cent this year. This would inflate Binance’s total headcount to roughly 10,000 if we take the chief executive at his word.

Most traditional exchanges employ far less than that (and still have to cut costs, as Crypto.com proved earlier this morning). I’d love to know what most of Binance’s army would be doing all day.

Make no mistake: failing on compliance standards and growing too quickly are two examples of Coinbase scoring some serious own goals. But Binance’s soaring ambition is particularly eye-catching because of the environment both are operating in.

Exchanges are, ultimately, operating in an environment that isn’t kind to crypto writ large. High inflation, rising interest rates and war in Europe have whipped up the perfect storm for downward pressure on the digital assets market.

Bank of America and S&P Global downgraded their ratings on Coinbase this week over concerns that the customers just weren’t coming back any time soon.

Still, Coinbase is a listed company and therefore subject to transparency that Binance does not need to concern itself with. Plus, Binance is an especially private private company. Zhao’s predictions thus ought to be taken with several grains of salt.

“I don’t know how much reliable information we have on the financial success of Binance. Is it profitable growth?” said S&P’s Alexandre Birry, adding that it was only possible to rely on data from companies “putting themselves to the public scrutiny test”.

Source Financial Times

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What happened in fintech in 2022

Fintech is still going down.

Fintech startups raised $79B globally in 2022, down 38% from last year, but still almost double pre-pandemic level. This pullback has been slightly worse than the overall market, which is down 36%. Looking closer however, funding slowed down significantly in second half of 2022 painting an even less rosy picture. Megarounds have been the most hit, Q4 has seen just 21 of them, down from a peak of 102 in Q3 2021.

Valuation are still resetting.

The return of the down round. The public and private market still have to converge. While the combined value of public fintech startups is down a massive 50% from last year, private ones are still up 24%. In fact, most of the repricing in private markets still has to come. Just 22% of VC-backed fintech startups raised a round in 2022 and we started to see notable down rounds such as Klarna, SumUp and Checkout.?

All segment down from last year, B2B is holding on a bit better.

Payments and Crypto & Defi attracted the most funding in 2022, but all fintech segments are down from last year, but all fintech segments are down from last year. Overall, B2B focused fintech have suffered less downturn than consumer ones. B2B SaaS has been even more resilient.

Source Dealroom

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So much fintech M&A

- On Friday, January 13, investment giant BlackRock announced it was acquiring a minority stake in SMB 401(k) provider startup Human Interest. Terms of the deal weren’t disclosed, but it definitely caught my attention for a few reasons. For one, as one source told me, BlackRock’s investment is a show of faith in the SMB 401(k) market — one where the firm hasn’t historically played.

- Remote payroll startup Deel acquired fintech Capbase for an undisclosed amount in a cash and stock deal, the companies shared with me exclusively. Last valued at $12 billion, Deel is one of the buzziest fintechs around, and its decision to pick up Capbase reflects its intent to enter the equity management space.

- Investment giant Fidelity acquired Shoobx, marking its first buy in 7 years (!). Jason Furtado and Stephan Richter founded Boston-based Shoobx in 2013, according to Crunchbase. The pair went on to raise a known $10 million in funding for the company. Fidelity said its purchase of Shoobx is a sign of its commitment to the private market “and will help to satisfy an increasing demand Fidelity sees from private companies to support them as they scale and grow.”

- Vouch, an insurtech focused on startups, acquired lending startup Level for an undisclosed amount. As reported by Life Insurance International: “Level has created a tech-driven underwriting process for early-stage fintech startups that is claimed to have brought new efficiency and speed to the debt-raising process. Vouch hopes to leverage Level’s expertise in developing underwriting technologies to underwrite and support complex insurance products. Level was founded by Vladimir Korshin, Asa Schachar and Molly Hogan in 2021.” In September 2021, I covered Vouch’s announcement of $90 million in new funding. Both Vouch and Level are Y Combinator alums.

- American Express announced that it has entered into an agreement to acquire Nipendo, a company that aims to automate and streamline business-to-business (B2B) payments processes for global businesses that has raised a known $12 million in funding.

Source Techcrunch

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Buy with Prime

Amazon announced this morning it’s expanding its Buy with Prime service to U.S.-based merchants by the end of the month. The service, which allows third-party merchants to offer Prime benefits like free shipping and returns on their own apps, was initially only available to those merchants who were already using Fulfillment by Amazon (FBA) to handle their shipping and logistics.

The service was first introduced in spring 2022, with FBA merchants and other select merchants on an invite-only basis.

With Buy with Prime, consumers get fast, free delivery, similar to Amazon.com ’s Prime service, plus seamless checkout and easier returns, allowing merchants to establish their own direct relationships with customers, Amazon says.

Since its April debut, Amazon claims the offering has increased shopper conversion by an average of 25%.

It notes that it measured Buy with Prime’s success by comparing conversions on the sites where Buy with Prime was offered as a purchase option to those where it was not during the same time period. In a press release, Wyze confirmed it was seeing a 25% higher conversion rate on Buy with Prime and noted it has added the option to all items in its catalog. Meanwhile, skincare brand Trophy Skin said the option to check out using Buy with Prime had resulted in a conversion rate increase of over 30%. An electrolyte drink mix brand, Hydralyte, meanwhile reported a 14% increase in conversion.

In addition to the expansion, the retail giant also introduced another new feature, Reviews from Amazon, which will allow Buy with Prime merchants to showcase reviews on their own online stores to help further increase conversions and consumer trust. The feature will offer the ability to display ratings and reviews from Amazon customers at no additional cost. After a shopper leaves a review on Amazon.com , that review will then appear on the merchant’s site wherever Buy with Prime is enabled.

“We’ve been working closely with merchants since the launch of Buy with Prime and have been thrilled to hear the results it’s helped drive for them so far,” said Peter Larsen, Amazon vice president of Buy with Prime, in a statement. “We’ll continue innovating and investing in new features, such as Reviews from Amazon, to help merchants of all sizes succeed and give Prime members the shopping benefits they love, whether it’s on Amazon or beyond.”

Buy with Prime will open to all interested U.S.-based merchants on January 31, 2023 and no invitation will be required at that point.

Source Techcrunch

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Incorporating social media throughout commerce

Social commerce is often catalyzed by online relationships, whether with friends, family, influencers, or business. Social media can strongly influence purchasing decisions because the interaction is more personal and can be tailored and individualized. It is no wonder that a recent poll showed over 70% of businesses surveyed rely on social media for engagements, where it was the preferred channel.

Another aspect of social commerce driving the super app trend is the circular nature of the buyer's journey – a good purchase experience typically builds trust and encourages returning business. With increased reliance on the overall customer experience, apps can expand their relevance across multiple customer journeys that target consumers – from transport and travel to shopping and groceries.

The social media phenomenon

Consumers' attachment to social media channels also contributed to the focus on apps. While adoption and comfort with social media have been rising across ages and segments, we witnessed a noticeable uptick during the pandemic. This usage led to increased social media's influence on digital commerce.

Industry definitions tend to place social commerce within the larger e-commerce umbrella – even though some social commerce transactions often take place offline. Most agree a given transaction is tagged as social commerce if social media tools were utilized via one or more interaction points during the journey. As social media platforms increasingly focus on the monetization of their audiences, there is a clear runway for brands to engage with shoppers in meaningful new ways.

Source Mastercard

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The Evolution of SoftPOS

SoftPOS is a mobile application (and related solution set) that enables an approved smartphone to capture card data, encrypt that data, and then route that encrypted data in the form of a transaction request via the internet to a payment processor and services provider. SoftPOS is built for NFC-based contactless payments, not for physical card reading.

SoftPOS started as a concept in c. 2012 with the founders of the first start-ups in the space including MyPinPad and Mobeewave. It took another half-decade for the market to establish technical standards for the safety and soundness of transacting via SoftPOS. The PCI Security Standards Council released its initial technical standards for SPoC (defining standards for PIN entry on mobile phones) and CPoC (standards for contactless payments on mobile phones) in 2018 and 2019. The establishment of these standards defined the technical legitimacy and certification requirements for trusted solutions.?

Major commercial launches then followed, for example First Data and Samsung (along with Visa), announced their first forays into SoftPOS in September 2019. Apple made its first big move into SoftPOS when it acquired Mobeewave in August 2020. Visa and Mastercard (V/MC) then announced advancements of their SoftPOS programs near the end of 2020. The year 2022 clearly established momentum with the launch of Apple's Tap to Pay program and the launch of numerous SoftPOS products from fintech leaders such as Stripe, Square, and PayPal.

Most recently, the PCI Security Standards Council released its MPoC standards, which many see as the first truly mass-market-ready and scalable foundation for the technology. Under MPoC previous limitations around usability (e.g., PIN ready, phone ready, no transaction limitations, etc.) will fall away.

The CPoC standard is limited by the lack of PIN enablement. CPoC certified SoftPOS solutions are therefore limited to NFC transactions that do not require a PIN (plastic initiated below transaction limits or NFC-based wallets). SPoC certification is effectively a stop-gap that allows PIN on glass but only with a separate card reader, and therefore no real value-add versus an mPOS solution. The MPoC standard announced last month merges the two prior standards and will allow market participants to be PCI compliant, and enable secure PIN entry directly on approved phones (aka a COTS devices). Given the recent release of the new standards, certifications will come only later in 2023.?

Source Flagship Advisory Partners