The Government Super App is Just Around the Corner

Public services are about to enter the e-wallet marketplace, with potentially adverse effects on the public good

Photo by Rodion Kutsaev on Unsplash

Digital wallets have been taking the consumer marketplace by storm, with seemingly every retail brand trying to get in on the act by adding e-wallet features to their existing shopping apps or building new wallet apps from the ground up. Every company is becoming a financial services company.

And the reasons are obvious:

  • Stronger lock-in and customer loyalty
  • Lower transaction costs, i.e. no commissions to banks & credit card companies
  • Positive working capital by selling first, i.e. top-up, then providing the product/service later
  • And the opportunity to even offer financial products via the wallet

The deluge of e-wallets, filled with initial enticing discounts and cash-back offers, have left consumers trying to understand each wallet’s distinct advantages while also attempting to track their little caches of money across a multitude of apps.

And if that wasn’t enough, it appears that governments are also looking to get in on the action.

IstanbulKart: the Public Transportation Digital Wallet

In Istanbul, the public transportation card (IstanbulKart) has already functioned as a e-wallet for buses, ferries, subways, etc. for many years. More recently, it’s has moved from a transportation-only closed wallet to a semi-open wallet, allowing you to pay via IstanbulKart at public parking lots, museums, municipal restaurants, and even grocery stores. Additionally, these partner locations also advertise special deals and campaigns for IstanbulKart holders on the website and app.

The IstanbulKart e-wallet mechanism, and its accompanying app, originally Mobiett and now IstanbulKart Mobil, enables multiple revenue streams to the municipality via:

  • Transactions charges on top-ups via the app
  • Sales of public transportation tickets
  • Commissions on non-transportation spending at partner locations
  • Potential financial income on unspent balances

In October 2021, IstanbulKart also ventured into the financial services realm, offering card holders a 1200 TL no-interest, no-fee loan via a partnership with DenizBank. This will increase spending via the card e-wallet, since the loan will be paid directly into the wallet and must be spent via the wallet, and offer DenizBank unparalleled access to the financial & contact information of potentially 20M+ IstanbulKart holders.

And Now the Turkey Card

At the beginning of October 2021, the Turkish Postal Service (PTT) also announced they are planning to launch a nationwide public transportation card, currently titled the Turkey Card, valid for public transportation in any city anywhere across the country.

The Turkey Card has the potential to overshadow the public adoption gains made by IstanbulKart, and essentially provide e-wallet penetration to entire population. Although specifics have yet to be released, the possibilities are endless.

Soon will every public entity also be a financial services entity?

Photo by Jonas Leupe on Unsplash

A “Black Mirror” Moment

Now close your eyes and imagine the ultimate government-backed super app/digital wallet. You declare and pay all your taxes via the app; you get your tax refunds and government support checks directly to the app. All public services, from public transportation to emergency services to even library book transactions, are conducted via the app.

And the potential benefits to the government are enormous. The government doesn’t need stronger lock-in from their digital wallet, but, via their app, they could theoretically expand their revenue gained on every purchase transaction, i.e. double dipping, via…

  • commissions on purchases made via the app
  • sales taxes on those same purchases

all while bypassing the banking and financial services industry, thus not paying transaction fees to payment providers. And while it does make life easier for its citizens, i.e. one place for all public services, while ensuring practically 100% digital penetration, its end uses may not always be for the public good.

For example, rather than an open wallet, the government super app could be constructed as semi-open, and likewise make agreements with companies that are partial to the ruling party’s politics, meaning that wallet spending could be guided to partisan brands and retailers. Companies that fall on the wrong side of the line would be locked out of the entire ecosystem.

The super app would also have exclusive access to financial and personal information of every citizen, and could serve as a direct channel to offer personalized government-backed financial services, such as issuing government bonds directly to citizens or promoting advantageous exchange rate deals to prop up the local currency, potentially leading to government-sponsored market manipulation.

How close is this danger?

Digital Currency to Digital Wallet to Super App

According to the Atlantic Council’s Central Bank Digital Currency Tracker, as of October 2021, seven countries have already deployed a central bank digital currency (CBDC), with 17 more currently in the pilot phase. Initial interest in CBDCs sparked from the rise of cryptocurrencies, and the potential for governments to lose control over the monetary system. But its potential goes much further.

A government-backed digital currency, accompanied by a government-backed digital wallet, essentially paves the way for the eventual government-backed super app.

As for Turkey, in September 2021, the Central Bank of the Republic of Turkey (CBRT) announced partnerships for its digital currency pilot program with defense and technology firms Aselsan and Havelsa and the country’s Information Security Research Center, Tubitak Bilgem. The pilot program will be conducted in late 2021 and results will be published in 2022.

We are still just at the beginning of the digital wallet revolution. Stay tuned.

Make Innovation Work

Core Strateji is a strategy consulting firm that specializes in supporting leading companies to transform into ambidextrous organizations. Are you ready to move your innovation activities forward?

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Jason Lau

Jason Lau

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Introvert, Tech & Corporate Entrepreneurship, Instructor @ Istanbul, Turkey