Bankers have long feared technology giants would take a crack at digital banking. Google LLC has plans to do just that, but the company appears to be taking a cautious approach that might allay those concerns.
A Google spokesperson confirmed a Wall Street Journal report that checking accounts will be available in 2020 through the company's Google Pay app. The Alphabet Inc. unit is partnering with Citigroup Inc. and Stanford FCU to offer checking accounts, with plans to put the financial institutions' brands front and center, a contrast from some fintechs that promote their brand over the banks that provide the regulatory and technical plumbing.
Stanford FCU President and CEO Joan Opp said in an interview that Google customers will have the option of selecting the financial institution that holds the account. Google will develop the interface for the accounts while the credit union handles the account and deposits. Any fees or revenue sharing agreements have not been determined yet, Opp said.
"Google is evaluating the monetization for all parties involved — [financial institution], retailer, processor. All of those decisions haven't been made," she said. Google customers interested in the credit union account will have to meet the institution's "common bond" requirements of having some connection to Stanford University or to an employer based in Silicon Valley.
Opp said the partnership is a natural step for her "low-branch, high-digital" credit union that already has members in all 50 states. "The people we serve are high-tech, and the functionality in this product is the type of convenience our members expect," she said.
Citigroup has also been focused on developing its digital offerings. The bank recently announced plans to offer a high-interest-rate online savings account for certain credit card holders. Citi's partnership with Google appears to have a similar goal: to expand digital deposits and acquire new customers.
"This agreement has the potential to expand the reach and breadth of our customer base while complementing our continued investments in digital," Citi spokesperson Drew Benson said in a statement.
Citigroup seems a natural fit for the partnership since its branch footprint is geographically limited compared to the nation's other mega-banks, JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., said Jeff Harte, a principal in equity research for Sandler O'Neill + Partners. That means the bank should have fewer concerns about duplicating its digital efforts or cannibalizing its existing customer base, and Harte said the elevation of Citi's brand name in the Google product should further minimize risk of client attrition.
"It gives them another avenue to digitally reach customers with a very well-known name, not unlike what Goldman is trying to do with the Apple card. It gives them quick exposure to more clients. It's not the end-all, be-all, but it is another tool," Harte said in an interview.
From Google's perspective, the move appears aimed at deepening the breadth of services the company offers its customers as opposed to the beginning of a transformation into a full-fledged financial institution, said Brad Gastwirth, chief technology strategist for Wedbush Securities.
"I don't think Google has the ambition to become a bank," he said in an interview. "I think they're trying to offer more services to make their platform stickier."
Todd Baker, managing principal for Broadmoor Consulting, a financial services consulting firm that specializes in fintech, also said he is skeptical that Google has ambitions to become a bank. In recent years, technology companies have moved away from the concept of competing with banks in favor of mutually beneficial partnerships.
"They're trying to make this feel like it isn't a takeover by Google of the banking system but a financial partnership with a large bank and a small credit union," Baker said in an interview.
At the same time, Baker said Google is likely aiming to become a "facilitator of seamless commerce" on its platform. Brian Fitzgerald, an analyst for Wells Fargo Securities LLC, made a similar point in a Nov. 13 note, writing that Google is looking to "ultimately maintain/expand its influence over consumer demand," as research shows Amazon.com Inc. has taken a lead in online product searches. By integrating financial services with Google's suite of consumer-facing products, the company could eventually increase Google Pay's wallet share by making it easier for customers to find and pay for products.
Baker said the partnership fits the broader trend of "open banking," in which financial institutions team up with tech companies to develop consumer-friendly banking interfaces.
"Open banking is about allowing the front-end app developer to maintain the customer relationship and fundamentally turn the incumbent banks into the service provider for the app developer," Baker said. "In any arrangement like this, the question is: Who owns the customer and for what purposes?"