How Google’s checking account will pressure smaller payment fintechs

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Google doesn’t want to be a bank, but its move to offer checking accounts through Citi and a Silicon Valley credit union is a digital wallet architecture shift that will have far-reaching implications for technology-backed payment companies.

“Big tech is finally making moves in financial services and payments that will prove to be far more disruptive than the venture capital-backed fintech companies,” said Ali Raza, a principal with Atlanta-based payments consultancy Blue Leviathan.

The tech giant next year will offer checking accounts to consumers through its digital wallet, Google Pay, opening up a range of potential services for shopping and loyalty to expand Google’s capabilities without the regulatory and competitive burdens of directly offering financial services.
The decision to partner with Citi and Stanford Federal Credit Union to offer consumer checking accounts bearing those institutions’ brand names—while keeping open the option to add more banks—hints at Google’s vision of sharing risks and rewards with financial services providers.

Avoiding the kind of industry concern that’s greeted Facebook’s Libra cryptocurrency project, causing many initial financial services companies to jump ship—and Apple Card’s recent credit-scoring blunders—seems to be a core goal of Google’s approach.

Google’s move to connect its vast consumer services with checking accounts is potentially one of the boldest, even with Facebook’s recent moves to consolidate its payments and Amazon sending signals it also wants to get into financial services.

Google likely has multiple objectives with its checking account initiative, code-named Cache, Raza said.

And Google isn’t afraid to experiment and fail, which we’ve seen in the eight years since the original Google Wallet launched with Citi as its partner, and ultimately fizzled.

“Google’s core business is advertising, and Google has flirted with many initiatives in recent years that didn’t stick,” Raza said.

In an interview this week with the Wall Street Journal, Google exec Caesar Sengupta said Google is willing to take a “longer path” in jointly developing financial services, which fits with the company’s steadily evolving payments strategy.

Google Pay adoption has significantly lagged that of Apple Pay, which launched five years ago, but it’s recently gained momentum in the U.S. and in global markets including India, where its integration with the domestic mobile payments scheme UPI has accelerated usage. A Singapore bank this week announced a similar integration with Google Pay following the same model.

What Google is aiming toward with its checking account offering is extending a streamlined, contextual approach to shopping and payments via Google Pay with methodical connections it’s building to merchants and banks, said Bryce VanDiver, a partner with the consulting firm Capco.

“The whole movement toward frictionless, contactless commerce is not just about banking but it’s woven into the fabric of everyday life and Google sees that,” VanDiver said.

Google and Citi are natural partners for the venture because of their history in co-developing Google Wallet. Citi also is making aggressive moves in the broader consumer banking war for deposits. Citi has relatively few branches, but it’s leveraging its strength in consumer payments to attract funds.

Earlier this month Citi announced new programs to give its customers with its cobranded AAdvantage credit card rewards mile bonuses for opening bank accounts. Citi noted that through the first 10 months of this year, it’s gathered more than $4 billion in digital deposit sales, and roughly half of that total came from credit card customers who previously had no retail relationship with the bank.

Google’s interest in working with a credit union could have other advantages, suggested Richard Crone, a principal with Crone Consulting LLC.

“Part of Google’s offering here could be using the credit union to define and expand the field of membership to include anyone who’s been KYC’d and validated for banking services, and that’s significant because the field of membership could be extended to consumers using Google’s services,” Crone said.

Working with a credit union also could provide regulatory cover for Google, Crone suggested.

“We’ve seen what happens when the forces of congressional and regulatory scrutiny come down on fintech operators, but beating up on a nonprofit credit union is a different story. It may be harder to pick on a lowly credit union that just wants to expand its field of membership,” Crone said.

Credit unions also are an untapped resource for fintechs, because they have the infrastructure for supporting banking and payments, and broad flexibility for adapting to new models, he said.

“If you look at what Amazon and Facebook have signaled this year with payments, Google was the last one standing to make a move capitalizing on the momentum of digital wallets, and this is going to be a very interesting one to watch,” Crone said.

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