Coronavirus should expedite a new banking/payment combo

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As concern about COVID-19 keeps more people working and banking from home, branches are looking even emptier.

A robust mobile banking app with online account opening is more essential than ever. Yet many financial institutions are challenged to open new accounts completely online, a differentiating feature of fintechs, challenger and neo-banks.

What if banks and credit unions could harness the pre-authenticated credentials and vast reach of the large established online platforms to open and serve new accounts instantly, with real-time insights and functionality not available from their mobile banking providers?

Google Cache, anticipated to launch later this Spring, may give a first look. Partnering with very large (Citibank) and very small (Stanford Federal Credit Union) financial institutions, Google will set a new standard for instantly opening accounts through the online platforms of others, what we call Embedded Payment and Banking (EPB).

EPB is an expansive distribution strategy for the entities originating new accounts entirely through a mobile or online user interface.

An EPB strategy is premised on leveraging the pre-validated, multi-factor authenticated, Know Your Customer (KYC) credentials of an existing mobile platform to facilitate the instant issuance of an online account. All the participants, whether the entity hosting the online platform such as Google, Facebook, Amazon, et al., or the participating banks, retailers, billers, etc., benefit by increasing their collective addressable market: scaling digitally beyond their own proprietary mobile apps and walled gardens and extending their services to the edge of each other’s network.

This is what Apple Pay is to the Apple Card and Goldman Sachs, or what the Uber Driver App is to Green Dot. The distribution strategy is not new; credit unions pioneered the concept by integrating with automobile dealers to provide loan origination capabilities in showrooms. Another example is Synchrony providing Private Label Credit Card (PLCC) programs for retailers.

Google Cache is a new “distribution channel” to increase the utility of bank accounts, as were ATMs, debit cards, online bill payments, P2P, direct deposits and the other functions added to improve reach and functional utility. Crone Consulting, LLC estimates that 82% of retail banks and 96% of credit unions would be losing money if they didn’t support these account-access channels. So will it be with Google Cache and other EPB channels.

The return on investment for EPB and Google Cache in particular is derived from reducing application abandonment rates up to 60% with instant issuance; lowering servicing costs by 5% to 30% by increasing preemptive customer self-service; increasing sales by 2% to 8% through higher card spend with greater enrollment in recurring/embedded payments and less friendly-fraud; market-making net new data and AI-driven personalized offers driving loyalty with higher net promoter scores.

For Google Pay, we estimate that personalized offers alone can generate $300 to $500 in new revenue per active account annually, twice the typical gross revenue generated for a checking account or retailer-sponsored PLCC.

Bank account-based offer programs are starved, limited to merchant sponsorships, which account for only 5% of promotional spend. Google knows purchase intent at the product and Storage Keeping Unit-level, across multiple sources (search, history, third parties, etc.). This combined with payment data will command even higher advertising rates across all levels, impressions (CPM), click-throughs (CPC) and account acquisitions (CPA), from Consumer Packaged Goods (CPGs) and product manufacturers, who account for 95% of promotional spend. Google’s artificial intelligence, data feeds and offer inventory to deliver personalization at scale is unmatched.

Achieving the benefits of EPB such as Google Cache starts with three immediate action steps:

Support Mobile Payment Platforms. Integrating with the major Pays (e.g., Google, Apple, Samsung, Walmart, LG, et al.) is the first step to “embedding” payment in the online platforms of others. A financial institution can’t provision a new account using Google Cache without first supporting Google Pay, the catcher’s mitt for provisioning and activating the new account. Surprisingly, Google Pay is offered by only 2,400 financial institutions vs. more than 7,000 for Apple Pay and an addressable market of over 12,000 financial institutions in the U.S. alone.

Implement True Mobile Account Opening. Only financial institutions capable of originating an account entirely online through a mobile user interface will be able to take advantage of EPB. Google Cache can deliver a pre-authenticated applicant but the financial institution lacking the mobile infrastructure, process, compliance and originating procedures to act upon it will not benefit from the EPB program. Financial institutions must put on their own oxygen mask first, meaning, if they are not using artificial intelligence and machine learning to provide customized credit in their own mobile banking app, they will not be able to do it through Google Cache and the like.

Protect Data Rights with an EPB Strategy. If you are fortunate enough to be one of the first to participate with Google Cache you’ll have an opportunity to implement a proprietary design strategy and create a unique service advantage for your organization vs. being a single, one-off deployment and dumb pipe or ledger for Google alone. This can be done by preserving your integration rights to reuse the APIs, patentable processes, etc. to embed your payment and financial services not only in Google Cache but also in the mobile platforms of many others. Start by defining your EPB strategy to protect your data, user interface and integration rights. Without such a plan, you risk simply donating market value to Google and others, because “the one who enrolls is the one who controls.”

For more than a decade, mobile banking, and more importantly, mobile payment has been quantifiably proven to be an effective new account acquisition tool, especially for millennials, a majority of whom value these features enough to switch banks. Lagging mobile banking and payment functionality by smaller financial institutions has created a downward spiral of attrition by younger cohorts. We have more than 14 years of longitudinal data for community-based banks and credit unions clearly charting an aging customer and membership base; the result of not prioritizing the mobile functions that attract and keep new customers. To not pursue embedded payment and banking options such as Google Cache, Facebook Libra, etc. could turn out to be not just self-limiting, but a self-liquidating strategy.

Heritage financial institutions that don’t have board of directors’ support for EPB strategy risk further erosion of younger cohorts and losing material franchise value to fintechs, challenger or neo-banks equipped to originate and service accounts at the edge of partner networks.

This article was written by Richard Crone, principal, and Heidi Liebenguth, managing partner and research director, of Crone Consulting LLC.

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