By Ray Birch
PALO ALTO, Calif.–Plans by Google to get into the checking account business by initially partnering with one credit union and one bank has far less to do with getting further into the financial business and far more to do with another motivation—and it’s going to have strong implications for CUs, analysts told CUToday.info.
The CEO at the CU partnering with Google, Stanford FCU, believes such technology partnerships are a strategy for CUs to grow in the future.
As CUToday.info reported, Google plans to begin offering checking accounts in 2020 through Stanford FCU and Citibank. According to the company, Google will not be front-and-center on the offering and instead the Stanford FCU and Citi brands will be consumer facing, with the financial institutions responsible for all of the back-end operational support and compliance. Partner banks and credit unions will offer the so-called “smart checking” accounts through Google Pay. Google has not yet announced whether the accounts would charge fees and, if so, what the fee structure might be.
Google, which said it plans to expand beyond Stanford FCU and Citibank in the future, already has more than 2,000 banks offering virtual card transactions via Google Pay.
‘Excited About Vision’
“I think strategic partnerships are important for financial institutions to continue to meet consumer expectations,” said Joan Opp, CEO of the $2.8-billion Stanford FCU, which is located approximately eight miles from Google's headquarters. “The motivation (for the partnership) is meeting the expectations of the users we seek to provide financial services to.”
Joan Opp
Opp said Stanford FCU has had a strong partnership with Google for many years.
“They are an SEG of ours and we serve thousands of Google employees, as well as employees from many other technology companies,” Opp said. “As Google was preparing to launch the initiative, they reached out to discuss the project and our interest. We are excited about the vision for the product and enthusiastic about partnering on it as we feel it aligns well with our membership base and our digital focus.”
Richard Crone, principal of Crone Consulting LLC, suggested that strategic partnerships with fintechs and tech giants have the potential to signficantly boost a credit union’s growth. He suggested Stanford FCU might even consider including Google users in its field of membership–which would be anyone with access to the Internet. But the credit union said that is not the plan.
“Technology companies and credit unions are awakening to the benefit of leveraging a credit union charter to reach a new set of constituents and gig economy workers,” stated Crone. “Not just employees, but those empowered and connected through tech companies’ online platforms. So who’s next?”
A ‘Feeding Frenzy?’
Crone believes the move by Stanford FCU will create a “feeding frenzy” for other financial institutions to gain a competitive response to Google, Apple, Amazon—the “challenger banks”—by supporting Facebook Libra.
Richard Crone
“It puts pressure on credit unions, especially on those credit unions that include Facebook, Google and Amazon already within their field of membership, which includes not only Stanford Federal Credit Union but also KeyPoint Credit Union and Technology Credit Union,” said Crone, who termed Libra “nothing more than a glorified general purpose reloadable account.”
But Stanford FCU’s Opp said expanding the CU’s field of membership is not part of the plan..
“We are not expanding our FOM to Google users,” she said. “SFCU serves the Stanford community—the university and hospitals, employees, faculty, staff, students, alumni—as well as a very large list of technology companies, including Google.”
What’s Really Happening
While details around how the new Google account will work or be priced are not clear, some experts contend the product offering is really just a play for data by the tech giant.
“Google already has contractual relationships with a couple of thousand financial institutions to have their credit and debit cards active in Google Pay,” said Lou Grilli, AVP of product development and thought leadership at Florida-based Trellance. “That’s not driving a whole lot of activity. Apple Pay usage spiked recently due to the Apple Card, which is tied closely with the Apple Wallet and Apple Pay. I believe, to counter this, Google took a different direction. Rather than issue a Google co-branded card, why not allow access to the FI’s checking account through the app? That would drive usage. But more importantly, that would yield much richer data.”
Grilli noted credit card information provides spending data, but checking account data includes where people work, how much they take home in pay, bill pay activity, other ACH activity, and more.
“Even if Google never sells this data to third parties, like they promise, they can still combine it with other data they have about you—tracking your location in maps, your search history, etc.—to target and promote things we probably can't even imagine yet,” he said.
Lou Grilli
‘Super Valuable’
Brian Scott, PSCU’s chief growth officer, said Google’s checking account may be a “good early start” towards open banking in the U.S. He concurred that Google’s decision is largely a data grab.
“And that's the same whether it's Amazon getting into banking or Google,” said Scott. “They want the data information that goes with those accounts, especially with a checking account. That information is super valuable for a company like Google.”
Like Crone, Scott sees Google’s entry into checking as opening the doors wide for more financial institutions to partner with fintechs and tech giants.
“I think you'll see a lot more financial institutions get involved with Google,” he said. “Google has already said its looking for other institutions to get involved. I think this will help them make their main business, which is search, more relevant.”
Monetizing the Data
J.V. Proesel, director of client services at Moebs $ervices, noted Google has not given a clear reason why it is entering the checking arena.
“They publicly state they want to partner with banks and credit unions in the U.S. to offer smart checking account through Google Pay, but I suspect the driving factor is data collection, which is Google’s entire business model,” Proesel said. “As we know, checking accounts contain a tremendous amount of valuable information about consumer behavior. They may not sell the data, but they will use it and monetize it.”
Brian Scott
Michael Moebs, economist and CEO at Moebs $ervices, offered another perspective.
“This will go through the Google app,” said Moebs. “This means this is a Google account. While Citibank and SFCU will provide compliance and do most of the operations, it will be Google Checking. We have not seen the full checking account agreement yet, so it is hard to say who is liable, but if this goes through the Google app, then Google, Inc. is liable. This will be online banking.”
Other Implications
Moebs sees several implications from the new checking account.
“This will be good for the consumer, with another big competitor in the nationwide marketplace,” said Moebs. “The commerce clause of the U.S. Constitution is being tested, and the Federal Reserve may force a ‘Google Bank’ to do the Fed’s oversite as the Fed did with the investment companies like Goldman Sachs during the mortgage meltdown of September 2008. This will add cost to the Google checking account. Also, privacy concerns may bring Congress into Google’s financial picture—the question being will Google use the checking transactions to determine consumer behavior and sell this information, or use it for its own services?”
Local Doesn’t Matter
Crone emphasized that more and more, banking is not limited by geography and that Google’s move will only further that viewpoint.
“The globalization of banking by other challenger banks—such as Revolut, Monzo, N26, Starling, Chime, Varo, Moven and others—is similar to the march towards true interstate banking started in the 80s in the U.S., culminating in the passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 allowing for nationwide banks,” Crone told CUToday.info. “Mobile has made it possible for internationally oriented challenger banks to continue this natural ev
Michael Moebs
olution beyond the heritage parochial point of view of physical branch banking and paper-bound processes.”
To compete, the “manifesto” for credit unions should be to go back to their roots and go “deep” with SEGs, insisted Crone.
“Credit unions need to find new ways to partner with the SEGs for a new set of constituents and gig economy workers, not just employees, but those empowered and connected through these online platforms like Google, the Uber driver app, the eBay marketplace or some other mobile platform,” Crone said.