Another week, another tech giant spreads its wings into financial services. Or so it seems.
Move over, Ross and Rachel. We have Big Tech and Big Banks to deliver the most nerve-wrecking will-they-or-won’t-they storyline these days. In the latest episode, first reported by the Wall Street Journal, we learned that Alphabet’s Google is planning to offer current accounts to consumers starting next year.
The Internet search giant is reportedly partnering with Citigroup and Stanford Federal Credit Union to make inroads into finance. Code-named Cache (get it?), the service will offer co-branded “smart” current accounts through Google Pay with the banks handling related financial and compliance activities.
But what does this all mean for the banking industry?
To bank or not to bank
“Let’s make one thing clear: Google is not becoming a bank. It’s entering into a partnershipwith banks to roll out a current account service. That’s a completely different thing,” József Nyíri, W.UP’s Vice President of Business Development says. “It makes perfect sense. This way, Google will not be subject to a multitude of financial services industry regulations,” he adds. What’s more, József and the majority of analysts agree that Google’s ambitious move is not even about creating new revenue streams. Or not in a way banks would anyway.
What is it about, then? Well, to the surprise of absolutely no one, data. Or more data, if you will. To be even more specific, more data than what Amazon has. Seeing what people spend money on can be a huge competitive edge in Google’s long-standing online search battle with the retail behemoth. “Google is likely entering into these partnerships to increase its insights into consumer purchase behavior (and consumer finances more broadly),” Wells Fargo’s Brian Fitzgerald is quoted to say by The Financial Brand.
Spot the difference
If Google is indeed forging ahead with its plans for worldconsumer domination, it will certainly make a splash. But will it make a difference? “The fact that Google is huge doesn’t guarantee that it will gain a whole lot of customers. It has to come up with ways to differentiate itself and its service from others in the market,” József explains. Money management and financial insights might be a good start. Think helping customers spot savings opportunities, set up and achieve smart saving goals or make the right choices when it comes to investments.
Especially in the US where 1 in 5 adults apparently spend more time planning their holidays than managing their finances. “Banks must be able to proactively address their customers’ money management issues and offer them tailored solutions, making use of the wealth of existing customer data they have,” Gellért Vinnai, product manager at W.UP, has recently pointed out when asked about consumers’ expectations from next-generation digital money management solutions. And the same goes for tech giants partnering with banks.
So what’s it gonna be?
Alyson Clarke, Principal Analyst at Forrester, told The Financial Brand that she didn’t “see this making a significant dent in the market. At the end of the day, I see this as a ‘test-and-learn’ effort. I don’t think this is going to be a case of world domination.” She added: “This could end up being an ecosystem and platform play.” She, too, thinks that what Google first and foremost wants is data. Being an advertising company, developing a better understanding of payment patterns would allow it to charge more for advertising, The Financial Brand sums up her argument.
The principal analyst also believes that this test effort has the potential to catapult Google into becoming a financial and data hub in the very near future. József Nyíri agrees: “Google collects an enormous amount of data about users. What they’ve browsed on Chrome or searched for with Google Search. Through YouTube, it can track entertainment preferences and, with Android, mobile behaviour. If it can turn all this into a smart solution that creates real value for users and an answer to their needs, this project has every chance to be a hit.”