OBSERVATIONS FROM THE FINTECH SNARK TANK
Google has a compelling partnership pitch to banks and credit unions:
“You’re lagging in technology. Your current vendors are years behind. Consumers think you’re irrelevant. We’re hip, we’re cool, we have all the latest technologies, and boy have we’ve got data! Come partner with us on our new checking account!”
It’s enticing. There’s nothing that we old people (and financial institutions) fear more than becoming irrelevant.
To date, 11 financial institutions—three big banks, four community banks, two credit unions, and two digital banks—have announced partnerships with Google for the 2021 launch of the Google Plex checking account.
When I spoke to representatives of six of the then eight partners in August, not one would comment on what the product would look like or what features would be included. My guess was that they didn’t know what it looked like.
Now we know.
The Google Pay Relaunch
The new checking account will be integrated into the Google Pay app which re-launched just before Thanksgiving. The updated Google Pay app has three new or redesigned components:
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1) Pay. The redesigned Pay tab has two pieces: Person-to-person (P2P) payments and retail payment. The new P2P features represents Google’s attempt to be like Venmo. According to The Verge, users will be able to:
“Set up group payments, put multiple people in a chat and let them send and request money from each other. It will also track who has and hasn’t paid their share and let you tap a button to pester them.”
The app will still let users make tap-to-pay payments to merchants. But Google has added two new buttons to the app: “Get gas” and “Order food.”
Google claims that the food ordering system will work with more than 100,000 restaurants. The company also says that users will be able to pay for gas or parking directly from the app in 30,000 locations.
2) Explore. This completely new tab is where Google will aggregate merchant offers for app users.
The default option lets users see generic offers, but gives them an option to receive customized offers based on their spending activity.
Users can associate an offer with any credit card stored in Google Pay. To redeem the offer, users simply need to use that card.
And if users redeem a cashback offer, the money goes directly into a Google Pay account.
In addition, the new Explore tab has a QR and bar code scanner enabling users to scan a product in a store and use Google Shopping to buy it somewhere else.
3) Insights. The third tab, Insights, provides Google’s version of personal financial management (PFM) tools available in many banks’ digital banking platforms today—with some important differences.
Insights scans through transactions rather than requiring users to manually enter and/or categorize them.
And the redesigned Google Pay app can access users’ Gmail and Google Photos accounts to automatically scan for receipts. With Photos, it uses optical character recognition (OCR) to automatically read receipts and associate them with the correct transaction.
Google Plex: The Digital Banking Platform Banks Want
The Google Plex account, slated to launch in 2021, basically integrates a checking account into the Google Pay app.
Google Plex is what banks want their mobile banking app to be: The hub for their customers’ payments and financial management activities.
Banks have three challenges in making that happen, however. They don’t have the: 1) Data that Google has; 2) Merchant relationships that Google has; and 3) Technology resources and capabilities that Google has.
So the vast majority of banks and credit unions turn to technology vendors like Fiserv and FIS for their digital banking platform needs.
These vendors supply richly-featured, well-designed digital banking platforms—although some bankers will disagree with that. What they won’t disagree with is that those platforms don’t match up to what Google is offering.
With their acquisitions of First Data and WorldPay, Fiserv and FIS have access to a wide range of merchants, and they certainly have strong technology resources (and can acquire what they don’t have in the way of AI and other emerging technologies).
But what these—and other vendors in the banking space—don’t have is the ability to: 1) Attract consumers like Google can, and 2) Integrate banking into the search and browsers experiences like Google can.
Do Consumers Want a Google Checking Account?
To use Google Plex, Google will ask users to choose one of the financial institutions it has partnered with.
Will consumers go for it?
A July 2020 survey of US consumers from Cornerstone Advisors found that, among consumers who said they’d open a Google checking account, three-quarters are frequent Google Pay users, and 60% said they would make the account a secondary account—which won’t sit well with most banks and credit unions.
Will consumers even choose these community-based institutions?
I conducted an admittedly unscientific poll of my Twitter and LinkedIn connections, asking them who they would choose if they opened a Google Plex account. Of the 345 respondents, 69% chose a big bank or digital bank and 31% selected a community bank or credit union.
I was surprised. I thought more of my follower base—which is heavily skewed towards people who work in community banks and credit unions—would’ve chosen the community-based institutions.
Are the numbers more favorable to the community-based institutions among the general population? I’ll find out the next time I field a consumer survey. I’m betting the numbers will look even worse for those institutions. Outside of the geographic areas where they have a footprint, who has heard of most of these institutions?
Partnering With Google is a Tough Decision For Banks
Another big question is: Why would a bank or credit union partner with Google on the Plex account?
Google’s partners are doing this because they believe it will help their customer (and member) acquisition efforts.
The published accounts of the Plex account don’t mention, however, how the partners will be able to grow relationships with Google Plex customers.
Will the banks be able to use the data these customers generate to make loan offers? And who provides customer service? Will Google Plex customers be able to get service from the branches and call centers of the institutions they chose?
Could Partnering With Google Backfire?
In fact, the strategy could backfire. If you’re a customer of one of these banks, what is the chance that you’re currently using a better mobile banking platform today? Pretty low.
What is the chance that you’re currently paying monthly service, overdraft, or ATM fees? Maybe not pretty high, but definitely some number greater than zero.
So why won’t existing customers close out their accounts, and sign up with the same bank through Google Plex where they can have a better mobile banking experience and an account with no fees for monthly service, low balances, overdrafts, or in-network ATM transactions?
Bottom line: It’s not an easy decision for banks and credit unions to decide to partner with Google on the Plex account. If they do it, they should do it for a far more strategic decision than just acquiring a few more customers.
They should do it because they’re willing to commit to using Google as a strategic vendor.
Google Will Become a Fintech Vendor, Not a Bank
According to a recent TechCrunch article:
“Google’s strategy is to let banks provide the underlying financial infrastructure and navigate regulation while it builds smarter interfaces and user experiences. It’s foreseeable that one day Google might cut out the banks and take all the spoils for itself.”
First, as I mentioned earlier, the vast majority of US banks don’t provide their own financial infrastructure—they rely on vendors.
Second, without regulatory changes, it’s inconceivable that Google could just “cut out the banks.” Without the bank or credit union (and its license), there is no Google Plex.
The question to ask is: Why does Google need more than one partner? The answer: It doesn’t.
Google is pursuing the multi-bank partnership route because it sees bigger money ahead by becoming a technology vendor to banks.
Google’s Products for Banks
In addition to the Google Plex product, Google provides cloud computing services to financial institutions, and earlier this year released a PPP AI lending solution which:
“Enables lenders to integrate underwriting components into their existing lending systems to allow them to accelerate and automate the process of handling the massive volume increase in loan applications.”
Although the PPP may be ending, the service may be a preview of other AI-based lending tools Google will offer to banks.
Bottom line: Google doesn’t want to be a bank—it wants to be a technology vendor to banks. The decision to “partner” with Google on a checking account should be made in the context of an institution’s broader business and technology strategy.