The Super App Disrupting Central American Finance

September 29, 2020

The smartphone has changed society forever. It means most of us are constantly connected and live more of our lives online. Picture a typical night out in the UK. You arrange to meet friends via WhatsApp, use Uber to get there, order some food with JustEat, then check Revolut to find out how much it all cost.

But imagine if you could do all of that with just one ‘super app’. That’s the growing trend in Asia, where popular apps have expanded to offer a whole ecosystem of services to users. It began in China, where messaging app WeChat, branched out into other areas such as taxis, e-payments and food deliveries. Then Alibaba, a Chinese marketplace similar to Ebay, launched Alipay. Initially an online payments system like Ebay subsidiary PayPal, Alipay has evolved to become a super app with a world of services that include ride hailing, ticketing and fintech.

Both of the Chinese examples sprang from large parent companies – for example, WeChat’s owner is Tencent, one of the world’s largest internet firms – yet in south-east Asia, smaller rivals have emerged. Singapore-headquartered Grab and Indonesia-based Gojek both began life as Uber clones – traditional ride-hailing and food delivery apps. But they have since grown into super apps that offer e-payments and financial services. Now they battle for market share in the densely-populated Asean group of countries that are home to more than 650 million people.

Offering more services allows apps to enter into more sectors and increases the potential for growth. While on the consumer side, super apps could completely change our digital lives. But that’s only part of the story. The real revolution – and the ultimate goal for the tech firms behind the apps – is the financial payments system that supports all these extra services. It will change how money moves around the economy as traditional cash or card payments are replaced by digital transactions.

OMNi – Central America’s first super app

Competition in the Asian super app market is fierce. Gojek is now valued at $10billion while Grab is worth more than $14billion. Neither firm makes a profit yet but the heady valuations allow them to raise fresh equity investment and invest in new businesses for their super app. Each extra product attracts new customers or increases engagement with existing ones. And that paves the way for the ultimate goal – selling financial services.

But while super apps are well established in Asia, they are virtually unknown in Central America. Sandwiched between South and North America, the isthmus of Panama, Costa Rica, Nicaragua, El Salvador, Honduras, Guatemala, Belize and Panama has typically been the poorest, most-violent part of the Western Hemisphere. So, it was hardly the top target for tech investors. But if you include some of the neighbouring islands, such as the Dominican Republic and Jamaica, you have a population of more than 60 million people. And just like in South East Asia, the traditional challenges in Central America – poor infrastructure, limited banking penetration and weak public services – make it ripe for a super app’s solutions. And that enticed tech start-up OMNi to launch the region’s first super app.

if you include some of the neighbouring islands, such as the Dominican Republic and Jamaica, you have a population of more than 60 million people…

OMNi, which has a technological partnership with Grab, started in Costa Rica, Central America’s most digitally-developed country, with a bike sharing scheme in October 2019. That was rapidly followed by Moni – a fintech platform. OMNi was an instant success. With more than half a million downloads, in a country of just five million, it soon became Costa Rica’s most downloaded app. It now has more than 150,000 users, who spend an average of $295 per month in OMNi. That quick start means it has already captured 5% of the bankable population, more than Monzo in the UK. It is also the largest bike-sharing scheme in Costa Rica, with its 1,000 bikes being ridden almost 3 times a day. The next to launch is the ride hailing app and 75% of the country’s taxi fleet have already downloaded the app. Eventually the app will offer a range of products in health, lifestyle and mobility. But the core business, that will facilitate the payments for all these services, is fintech.

Beating the banks

Let’s be clear – OMNi is not a bank. Rather it partners with local financial institutions to gain the regulatory approval and banking infrastructure it needs to offer products directly to consumers. In Costa Rica, OMNi has partnered with Coopenae – the largest financial cooperative in Central America with assets of $1.6billion. That allows for OMNi to host user funds, operate without regulatory restrictions and utilise financial infrastructure, such as Mastercard. Coopenae has also granted a $120million credit line that OMNi will issue as microloans to its users.

So OMNi is not a bank – and that’s a good thing. Central American banks, like their South East Asian peers, only provide limited financial services to the people. Banks in the region tend to focus on commercial banking – ie to companies. While on the personal banking side, they serve the middle to upper income brackets, which are always a minority in poor countries. In Indonesia more than 50% of the working-age population is unbanked. In Central America’s largest economy, Guatemala, it is even worse with 56% of the bankable population without an account.

That’s why it’s good that OMNi is not a bank – because it isn’t hampered by any of these restrictions…

Traditional banks in small emerging economies are often very profitable, because they focus on lucrative sectors and don’t face much competition. This restricted banking sector is a product of income inequality – ie it doesn’t make business sense for banks, with their large overheads, to offer accounts to low-income customers with tiny assets – but it also exacerbates inequality, as poorer people are denied access to financial products, such as loans. It’s also caused by informality. Workers in the informal sector earn cash without any official records, which makes it difficult for a bank to assess their credit rating.

And that’s why it’s good that OMNi is not a bank – because it isn’t hampered by any of these restrictions. Using an app, rather than a traditional bank branch, to reach customers means it has much lower overheads. That means it can offer financial services to the lowest-income segments. Meanwhile its network of 15,000 affiliated shops, known as ‘Hey OMNi’, gives it a much larger physical presence than even Costa Rica’s largest banks. Users visit these merchants to top up their OMNi app with cash, which is then converted to digital money to be spent on services within the app. People will only be happy with digital money if they are able to spend it wherever they want, so OMNi has developed QR Pay, a practically free digital payments solution that allows even the smallest vendor to take digital money.

And the data OMNi gleans from user behaviour and spending habits on the app means that it is well placed to evaluate credit risk – even for informal workers. That information also allows OMNi to build a closer, direct relationship with customers, which helps it create and sell more products in the future.

It’s little surprise then that OMNi is the country’s most downloaded app. But despite the rapid progress, this is just the start. Over the next year OMNi will add a host of new services. Food delivery, electric moped hire, live streaming music gigs and telemedicine are just some of the products about to come to market. They will attract new users, encourage existing ones to spend more and generate data about consumer patterns. And that sets OMNi on the long-term path of replacing cash and revolutionising Central American finance. It’s not just Central Americans that will benefit. As OMNi cements its position as the region’s dominant super app it will create incredible value for investors.