The fintech and payments ecosystem can most appropriately be described in emoji: 🔥 🚀 🤑. There is enough news to cause whiplash. Ant Financial’s IPO that wasn’t. Stripe valued at over $100b. Bitcoin crossing $54,000 for the first time. Plaid agreeing to be bought by Visa, only to (rightfully) say, “Yeah, no thanks” and getting SPAC interest the same day. It goes on and on.

Amidst all the ruckus, one company quietly going about its business has been on quite a tear over the last year and a half. Its user base increased by over 72 million people, it signed mega deals with multinational partners and saw its valuation nearly triple. Who is this hot new company? PayPal.

Last year PayPal grew its user base by 25% to almost 380 million accounts. It now supports 29 million merchants, with the PayPal/Venmo QR code is accepted at 600,000 merchant locations including CVS, Foot Locker, and Nike. Total TPV reached $936 billion. The stock is up over 165% since January 2020 and, with a market cap exceeding $340b, PayPal is now more valuable than Mastercard. Not too shabby for a company that is not going to make anyone’s list of “hottest companies in Fintech”. Now the Original FinTech is attempting to do what no company has successfully done before (in the US): create a super app.

According to reporting in Protocol:

PayPal CEO Dan Schulman thinks there are too many financial apps. So he wants to build a "super app" for consumers to manage payments, shopping, savings, investing, budgeting, crypto, and identity — all in one place...This includes "not just any financial institution, credit card, debit card, ACH, but we'll also include things like rewards points redemption, utilizing cryptocurrency as a funding instrument, utilizing central bank issued digital currencies, when that becomes a reality."

The theory of a super app makes sense. Consumers can access relevant products and services without having to interrupt their workflow and switch apps, and the app provider can generate more revenue by cross-promoting more of your services to the consumer. The success stories for super apps, most notably Alipay and WeChat, are clear and obvious, and Schulman certainly has to have some level of Ant Group envy given the variety of financial products and services that are offered to Chinese consumers under one banner. However, believing one can recreate the success of Alipay here in the US is a fool’s errand, particularly for PayPal.

First, let’s get into why I think the notion of any super app in the US doesn’t make sense. Setting aside the glaring differences between Chinese consumers and US consumers, one of Schulman’s central points is that we are all suffering from app fatigue, and most people “want 8-10 apps”. While that might resonate in the abstract, research shows consumers have an average of 80 apps on their phones. There are so many apps on phones that in Apple’s latest iOS update they gave users an App Library to help organize all those apps on the phone. From The Verge:

If you’re an organization junkie and an iPhone user, then iOS 14 has provided you with a new tool: the App Library…an interesting addition to the iOS arsenal, allowing for increased organization of apps and a cleaner, less crowded home screen.

Apple dedicating part of an OS-level update to organizing multiple apps strongly indicates that US consumers are happy using multiple apps, often ones that do the exact same thing. Take messaging; I personally use five apps for sending messages: iMessage, WhatsApp, Facebook Messenger, Telegram, and WeChat. And that doesn’t even include email, and work apps such as Slack, Zoom, Skype, and Microsoft Teams. Now, you might be protesting, “PayPal isn’t building a social super-app Rishi! They are building a financial one!” Ok, sure. But did you know the average consumer has more than 5 accounts across all types of financial institutions? Consumer inertia will present PayPal with a particularly difficult challenge as they attempt a super app.

People are resistant to change. We get more resistant to change as we get older. During PayPal’s Q4 earnings call, Schulman said the biggest user group added in the past year was “the over 50 demographic”. Which demographic is least likely to consolidate all things financial — from banking and trading to payments and lending — away from their already established institutions onto a new platform? The over 50 demographic. Younger users earlier in their financial journeys, less wedded to old habits, are more likely to switch platforms. Unfortunately for PayPal, companies like Square, Robinhood, Chime, Digit, and others are winning over the 18-34 cohort with their flashier and more robust apps.

Now, for the sake of argument let’s say Schulman is right and US consumers want fewer, not more apps. And let’s say older consumers are willing to fight inertia and switch their service providers across a variety of financial categories to a tech-enabled service. Is PayPal the eventual winner in a red hot market against both fintech and non-fintech-focused companies that include Apple, Google, Amazon, and JP Morgan Chase? Unlikely. Everyone is battling for the same user, and user trust is a key factor. A recent survey suggested that consumers who were open to the idea of a super app would trust Google, Amazon, and Apple to deliver the experience before PayPal.

A single, super app is a powerful Siren’s song, offering the promise of increased attention, retention, and revenue. Unfortunately, attempts to build them in the US have led to mediocre results after spending millions (or billions) of dollars and thousands of man-hours. For PayPal, trying to build the financial services super app in the face of the entrenched US consumer habits, an aging user population, and tough competition seems a Sisyphean task. The company has proven naysayers wrong before, but this might be a step too far. The fintech ecosystem will evolve across multiple dimensions, and PayPal is in an enviable position given a combination of scale, consumer and merchant trust, and willingness to innovate. Instead of trying to transform PayPal into an aggregator or lifestyle company, Schulman should focus on strategic new user acquisition on the core products, double down on the company’s unique opportunity in China, and use his appreciating stock price to shop for some more innovation that will yield value as the decade unfolds. As tempting as the super app strategy may seem, there are better bets for PayPal to make.

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