Banks and credit unions are certainly not on their way out, even as they face more pressure from challenger banks, FinTechs and Big Tech in the coming decade. Consumers, after all, tend to trust their financial institutions (FIs) to safeguard their money – and the data about their money – and they remain largely satisfied doing business with them.
But as a recent Google announcement demonstrated, FIs are engaging with technology players in new ways as together, they seek to create ecosystems that offer new value to consumers.
That was one of the main messages from a recent PYMNTS discussion featuring Karen Webster and Vaduvur Bharghavan (he goes by VB), the president and CEO of Ondot Systems. PYMNTS caught up with VB in the wake of big news from the Big Tech, payments and banking world: Google plans to launch consumer checking accounts next year in partnership with Citigroup and the Stanford Federal Credit Union.
Code-named Cache, the accounts will be handled by Citi and Stanford Federal. They are described by Google as “smart,” since they will provide account holders with money management tips to optimize and manage the funds in those accounts. The idea is to more seamlessly link those funds to payments and identity credentials that consumers can use to buy things, pay bills and send money to others in and outside the Google ecosystem.
While much is yet to be announced about Google Cache, VB expects them to provide an experience layer, while letting the financial institution provide the account and deal with regulatory compliance. “Google’s expertise is in UX design,” he noted. “By providing a streamlined user experience, they can add value to the financial institution and the cardholder, putting themselves into the commerce stream.”
The reaction to this news has taken the conversation about Big Tech, FinTech and traditional financial services players to a new level – and it comes at a point in time when FinTechs, Big Tech and challenger banks are all trying to use payments to monetize consumer interactions and the data that comes from those interactions, while keeping consumers happily transacting inside their ecosystems. The notion of creating an everyday app ecosystem – à la WeChat and Alipay in China – is the ambition of every player, from Amazon to Apple to Facebook to PayPal … and Google.
The unanswered question is whether “fin” is embedded into “tech” platforms – or if it’s the other way around.
“Banks are never going to become obsolete,” VB said, “but they could end up becoming stored value accounts. Banking services could be decoupled from banks.”
Race to the Top
The tension between FinTechs and FIs is real, as PYMNTS data shows. The Where Will We Bank Next? Survey, a PYMNTS and Green Dot collaboration, found that 57.5 percent of consumers would be interested in banking with companies that are not financial. That holds true even though nearly 91 percent of consumers said their primary bank or credit union fits their needs.
As VB told Webster, that suggests we should expect to see more of the kinds of moves Google announced two weeks ago. In his view, the race to the top in this area of payments will depend on bringing banking together with non-banking ecosystems in a way that uses data to provide greater insights into consumer behavior and payment flows, with the goal of building a better commerce and payments experience for the consumer.
“If you can bring consumer payments and consumer data together, that’s where I think [the future] of payments and banking lies,” VB said.
He offered a general illustration to make that point.
Consumers are increasingly using online and mobile channels – and living in ecosystems like Google and Amazon where they shop for, discover and buy products. Linking banking services via Google – or others – could add real value by helping consumers keep a closer view of their spending, as well as integrating offers and money management tips to help their funds stretch into the future.
“Consumers get a holistic perspective of all their accounts and get a view of third-party data, and could bring all of that into a single platform,” VB said. After all, he added, clarity is the first step toward effective action and planning.
Webster, in a recent PYMNTS column, described why the move makes sense for Google. Instead of trying to be the bank, Google is leveraging the brand name, banking infrastructure and trusted reputation of two banks, one of which is among the world’s largest global FIs, to acquire new users for that product and for Google Pay. If successful, these accounts could become the cornerstone for the everyday app ecosystem that every Big Tech and FinTech player has its sights set on developing – and that WeChat and Alipay have already created with great success in China. The idea is to bring more consumers to that single payments flow.
That doesn’t mean numerous issues and challenges won’t abound for this new Google effort, along with similar plays in the world of digital commerce and payments. One big question is the balance between Google’s brand and role in all of this, and the role of participating FIs.
As VB explained, if Google’s brand and role are more prominent, that’s a fairly different experience than if the bank is more prominent. Consider, he said, how the Apple Card came into the market. Its advertising campaign very explicitly describes the product as “made by Apple, not a bank.” From what we know so far, at least, that’s not the direction Google, with its new DDA account, seems to be taking. Citi and the Stanford Federal Credit Union will remain visible – but how visible remains TBD (at least publicly).
The other big question is that of trust. As an advertising platform, Google uses a raft of search data to refine its algorithms and serve up results that reflect those preferences and behaviors. Consumers largely understand (and are okay with) how that data is used to serve up recommendations for flights from Chicago to Austin or home remodelers in Baltimore. But will consumers trust Google to keep their bank account information private and secure, and within the circle of trust between them and their banks?
It’s clearly uncharted territory, even as banks themselves use data analytics on consumer spend to serve static offers to cardholders. The difference is that those offer platforms live within the bank firewall, and consumer data from Bank A isn’t commingled with that from Bank B. Google – and the banks they will partner with – will have to convince consumers that they can be trusted with access to highly sensitive data, like how much money they have and how they spend it.
What also remains TBD is whether Citi and Stanford are the first two banks to participate – or the only two banks to participate. As VB posited, if Google is highly successful with Project Cache and mobile-first customers gravitate toward this experience, small banks could be left in the lurch. Even today, he said, smaller banks with Apple Pay and Google Pay are sounding off that they may not be equipped to deal directly with the thousands of small FIs that want to be part of their payments network.
All of this begs the question about Google’s deeper aims with this move. Is this an effort to leverage the FI brand today to flip those consumers to more Google-centric financial services and payments play down the road? Or will Google use its new “smart” DDA as a platform to seed the participation of banks to move them closer to an everyday app ecosystem linking payments, commerce and banking services?
VB firmly believes it’s the latter.
“It’s an opportunity to bring all user data together,” he told Webster. “The question is how to get banks and FinTechs to collaborate in the market like this. [What Google is doing] seems better than the competition. Collaboration just makes the most sense.”