Historically, grocers have provided low-income shoppers access to financial services via racks of prepaid debit and gift cards; on-premises ATMs; and business centers that processes utility and telecom bill payments, money orders, international remittances, and other cash transactions. By providing convenient access and quick transaction processing, grocers play an important role in the “cash economy”.
Four recent trends disrupting the financial services industry create a new profit opportunity for grocers that reaches all
shopper demographics and is easy to deploy.
- Consumers prefer self-serve via mobile apps and user experience is the new customer service.
- New financial technology companies (Fintechs) have emerged with B2B2C business models.
- “Super Apps” combining access to many services in a single app have become popular.
- Users primarily motivated by price are not loyal, marketing costs have increased, and a trusted brand that can promote financial services cost effectively can win huge market share.
Because grocers already have face-to-face contact with shoppers 1.6 times per week (per Statista), the ability to do highly effective low-cost in-store promotion, and a trusted brand that provides savings, they are in a prime position to capitalize on these trends with a private-label, fully-mobile Super App. Benefits include recurring monthly profits, a powerful marketing engine, and “closed loop transactions” that boost core grocery sales margin over 50%.
A “Super App as a Service”(SAaaS) platform provider can launch a 100% outsourced private-labeled brand in under 3 months with no upfront capital investment.
Disruption in Financial Services
Legacy financial institutions (FIs) face existential threats from deregulation, changes in consumer preferences, and technological innovation. Banks took 20 years to slowly roll out ATMs and online banking (primarily as cost saving measures) but competition and user demand drove immediate adoption of mobile apps. 80% of customers now access banking services via their mobile app and user experience has become the new customer service.
The remainder of the financial services industry has become specialized and fragmented. Customers once loyal to a single bank that provided checking/savings accounts and loans for tuition, auto, and mortgages throughout their lifecycle now turn to single product Fintechs powered by data analytics that offer faster/better/cheaper services available 24/7/365, and a better user experience. Financial service users are primarily motivated by price and customer loyalty is a thing of the past.
Banks and other FIs need to shutter brick-and-mortar locations with waning foot traffic but regulators and socially conscious investors push them to provide “inclusion and access” to the underserved/cash economy. This has led to a search for partnerships.
Financial services are generic, the differentiator being how they are delivered, and this has forced FIs and Fintechs alike to increase marketing budgets. Marketing is the largest cost for a financial services company, representing up to 40% of total expenses. As a result, FIs and Fintechs now also provide wholesale service to marketing partners, accessible via back-end APIs in order leverage the client’s brand and marketing budget. Power has shifted in financial services to those with efficient marketing/distribution channels.
User experience is now focused on reducing the “friction” users experience navigating between disjointed apps. This is being solved by the emergence of “Super Apps” that integrate multiple services into a single UI. China, Africa, and other international markets have dominant Super Apps (Ant Financial, WeChat, mPesa, etc.). No dominant Super App has yet emerged in the US, LATAM, or EU but everyone is moving in that direction.
What’s a Super App?
Consumers want a frictionless, combined service offering and the “Race to Super App” is on. While it seems that every FI claims they have one, most are not super at all but rather 1 or 2 additional services added to a core product.
Many Services in One App
For the US market, a complete Super App service offering should include bank account(s), debit card, credit card, P2P transfer, international money transfer/mobile top ups, marketplaces for loans and insurance, stock and cryptocurrency trading, rewards programs, and credit building. Integrated into a single app, these services should be wrapped by a powerful Personal Finance Manager (PFM) that organizes the user’s financial life and promotes financial health.
Diagram 1. Names of popular FinTechs providing services
are for illustrative purposes only.
Power of the Personal Finance Manager (PFM)
73% of Americans rank finances as the number one stress in their life, 60% live paycheck to paycheck, and 46% say they do not have enough money to cover a $400 emergency expense. The average American has 2.3 credit cards, over 50% have more than 1 bank account, and the user must access all these accounts separately. Keeping track of Buy Now Pay Later (BNPL) installment payments becomes overwhelming when each is on a different payment cycle. 82% of video streaming viewers have more than one service, with 35% having 3 or more. Late payment fees for credit cards, telecom, and other bills add up.
A PFM solves these problems. It provides a consolidated dashboard of all accounts, organizes the user’s entire financial life in a single screen, and includes notifications, reminders of upcoming payment due dates/late fee windows, budgeting, goal setting, transaction history, and expense summaries. Enhanced with new “open banking” features, a PFM also enables money movement between accounts, payments, and other tasks within the Super App user experience rather than having to access separate apps.
Transaction, account balance, and other data used by the PFM is provided by “data aggregators” (ex: Plaid). As part of the onboarding process, the PFM links to user financial accounts and pulls up to 6 months of prior transaction data. Applying analytics against this data provides insight into end user spending, interests, who they do business with, for how much, and how often. A PFM analyzes every transaction, from every account, everywhere.
While a standard PFM organizes and presents transaction and balance data, open banking-enabled PFMs go one step further by providing control of multiple services from one UI without having to access multiple apps. While PFM is offered as a stand-alone product (ex: Mint), an open banking PFM fully integrated with other services becomes and creates a true Super App user experience.
Savings and Utility for Shoppers
The primary benefits for shoppers are savings on the cost of financial services, insight and control provided by the PFM, and a frictionless user experience accessing fully mobile services that are available 24/7/365. While all of these benefits apply to all demographics, some are of more importance than others depending on the shopper’s particular needs. Low income shoppers who must pay a “Poverty Premium” will appreciate savings while affluent shoppers will appreciate insight. All will appreciate a great user experience.
Benefits for Grocer Operations
Profit from Super App Services
Revenue from Super Apps comes from resale of underlying financial services (ex: banking, international money transfer), commissions (ex: insurance, loans), end user transactions (a percentage of VISA/MC debit and credit card merchant processing fees), and optional subscription fees (ex: PFM, stock/crypto trading, credit building, or the Super App in its entirety). A single app/platform generating profit from 11 financial services comprising 8 financial service business models (inside and outside rings of the services pinwheel Diagram 1) yields a conservative estimate of $7 per month recurring profit per end user.
Closed Loop Transactions Eliminate Card Processing Fees
The end user and MNO both having accounts in the Super App ecosystem enables “closed loop transactions” that eliminate debit and credit card processing fees, move money real time, and eliminate most dispute and chargeback risk.
Industry data from Pymnts.com indicates that 75.3% of grocery POS transactions use debit or credit cards. With average gross margin of 2.2%, and VISA/MC merchant processing cost at 1.2%, closed loop transactions stand to increase the profit margin on grocery sales by over 50%.
Stand-alone PFMs are accessed on average 8 times/week. Engagement from use of banking and other financial services will rise significantly, increasing the effectiveness of in-app promotion of grocer products and services (ex: private label groceries, pharmacy, wellness, fuel, car wash, delivery).
Manufacturers and brands that pay slotting fees for placement on the grocery store shelves also pay digital slotting fees for mobile ad placement. SKU data analytics on past grocery purchases combined with a personalized digital ad delivery engine enables micro-targeted, real-time digital coupon and offer delivery. Shoppers could manually select a “Coupons” icon, receive an automated push of personalized offers as they pull into the parking lot, or be notified between trips of promotions for favorite brands.
In-App Product Marketplaces
PFM data enables Contextual Commerce (“the right offer at the right place at the right time”).
Consider insurance payments that occur on 6-month cycles. PFM data including the shopper’s current insurance carrier, premium payment amount, and payment due date triggers a notification prompting the shopper to access the insurance marketplace for a competitive quote. Auto insurance commissions exceed $100 annually and automatically recur for renewals.
The lending marketplace presents another high commission opportunity. Student loans after the federally mandated moratorium ends, mortgages in the current housing boom, or loan consolidation in a climbing interest rate environment are just 3 potential use cases.
Expansion of Rewards Programs
Existing grocery reward programs can be complemented and expanded beyond the grocer’s four walls inconjunction with grocer partners in non-competitive businesses or providing incentives to use financial services.
Super Apps include fun, engaging “gamification” tools to promote grocer or partner products. Spin-to-Win couldearns a shopper free coffee at an in-store café or serve as a useful tool encouraging use of closed loop payments.
Social Consciousness Brand Equity: Helping Solve the Poverty Premium
Too many underserved Americans have limited access to financial services. “Banking Deserts” exist in urban and rural areas. Immigrants, students, newly divorced and others with no prior credit history are excluded. “Poverty Premium” refers to the fact that those who can least afford it pay more. A mobile Super App makes all services available everywhere, 24/7/365, and connects to Fintechs that provide a better deal.
Those living in the cash economy require access to brick-and-mortar locations that accept cash to pay for goods, process bill payments, and provide access to other financial services. Internet purchases require conversion of cash to prepaid debit cards or digital wallet accounts. Making those deposits is difficult, time-consuming, and expensive. Because grocer Super Apps provide sources of revenue after deposits are made, grocers can provide low or no-cost cash deposits.
Employee Benefits and Retention
The Super App that saves money and helps improve financial health it can be offered as an employee benefit (that generates revenue rather than being an expense). Most grocery employees are in an age and income range where savings, budgeting, and financial management tools are most beneficial.
The SAaaS platform can administer recurring revenue share incentives for employees who promote the Super App(much like MLM marketing) and send payments directly to employee Super App accounts. Receiving monthly “bonuses” increases job satisfaction. Losing the same may help improve employee retention.
Why Grocers Win
In today’s financial services industry, marketing represents the major cost of entry. Enterprises who can promote cost effectively win.
Grocer brick-and-mortar stores, people, and weekly shopper contact have an inherent competitive advantage. In-store promotion via face-to-face contact, advertising, QR code displays in aisles and checkout, existing grocery apps can all be delivered with minimal cost and effort. Business centers present an optimal sales opportunity and moving those services to mobile will generate more revenue and reduce employee costs.
Additional grocer advantages include tight cash management systems, existing connections to payment networks, and business centers already offering some financial services. They have a trusted brand. Saving money is a core part of their mission so financial services is a natural extension.
The Competitive Landscape
Top grocery channel competitors are moving quickly into financial services with a goal to own more of the whole life shopper experience.
Walmart, with 26% share of US grocery sales(per foodindustry.com) operates its own “Woodforest National Bank” on-location, has made several fintech acquisitions to support the development of a private label Super App, and in January 2022 announced a major push into financial services under the name One combining a mobile Super App with in-store services.
In rural America, Dollar General launched Spendwell in March 2022.
To date, grocer activity has been limited to basic debit card/bank account programs as a replacement for prepaid debit cards. These are a limited offering targeting a limited demographic, providing limited utility to users or profit for grocers. In contrast, a Super App is services all aspects of a shopper’s financial life, provides savings and utility to all demographics, and provides the grocer with sophisticated data, analytics, and cross-marketing engines.
“Super App as a Service” Enablement
A Super App as a Service (“SAaaS”) platform provides an end-to-end, “Just Add Water” solution including a private-labeled Super App, services, compliance, and customer service. Grocer requirements are limited to promotion.
The SAaaS platform accesses services from multiple Fintech providers via a backend API hub. APIs enable rapid integration of new providers ensuring services will always be faster, better, cheaper and new products can be adopted quickly as a “Fast Follower”. Multiple vendors serve a broad customer base with differing demographics and user profiles rather than “one size fits all”. If a grocer has preferred bank, card processor, or other FI relationships they can be added.
Subscription offerings include all services, smaller bundles, or individual services. Pricing is set by the grocer and might include “freemium” and tiered subscriptions. Low operating and marketing costs combined with competitive per-transaction wholesale rates provide grocers with a choice of being the low-cost provider or maximizing profit. Shoppers are able to retain an existing bank or FI relationship overcoming account switching as the major hurdle to adoption.
Super App is effectively a digital SKU promoted at retail. All services are a fully-mobile experience with direct interaction between shopper, platform, and Fintech providers.
The shopper downloads an app via scanning a QR code placed on signage in grocery aisles and checkout or by tapping a URL contained in an SMS message. Onboarding is simple and is completed in 1-2 minutes. The user interface is simple and intuitive. All customer service is handled in-app. Recurring profit requires no effort. Revenue share distributions are received monthly.
A new opportunity has arisen, competitors are moving quickly, and smart grocers will move beyond limited finanical services provided out of in-store business centers and mobile financial services.
A private label, full-feature financial Super App provides recurring profit, a 50% margin increase on core grocery sales, expanded shopper transaction data for analytics, cross-promotion of other grocer products, and savings and utility to shoppers from all demographics.
With a Super App as a Service platform, grocers can launch a 100% outsourced program in under 3 months.
About Paul Posner
CEO / Owner Valorus Super App
Paul has 30+ years’ experience as CEO/owner of a Mobile Network Operator, Dealer, SaaS, and hardware/software development enterprises in the cellular, paging, satellite, IoT, fintech and consumer electronics industries. He has 3 highly successful exits and over 35 patents issued.
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Valorus is a private label service platform enabling large enterprises to offer their customers a complete portfolioof mobile financial services.