When Google announced that it had partnered with six more banks and credit unions on a checking account — in addition to its original two partners — it had many in the banking and fintech space scratching their heads and speculating on what a bank partnership with Google could look like.
Lately, it would seem that every major tech firm has set its sights on banking. In 2019 Apple partnered with Goldman Sachs on the Apple Card, which currently has over three million customers in the U.S. In 2020, Samsung announced a competitive product to the Apple Card in the U.K, and now Google is cooking up its own option.
Google has more than 67 million Google Pay customers, which could give its banking partners access to a huge potential customer base. It could also allow them to offer consumers a digitally focused experience, something that many traditional financial institutions — notably smaller banks and credit unions — struggle with.
This is critical, because a digitally-focused customer experience is no longer a differentiator for banks — it’s required. COVID-19 has been a catalyst. Digital banking had been growing steadily before the pandemic with 60% of customers under the age of 70 using digital banking tools in 2019, according to McKinsey. But, in April 2020 alone digital bank consumption exploded with banks seeing a 200% increase in new mobile banking registrations, while mobile banking traffic rose 85%, according to Fidelity National Information Services (FIS).
A growing number of those new digital banking users have been going to fintech providers. Through the first quarter of 2020, for example, Chime doubled its customers from four to eight million over the previous year.
‘Undreamed of’ Opportunity for Community Institutions
A partnership with Google could help smaller banks and credit unions compete by enabling them to offer a digitally focused customer experience quickly without the need to invest heavily in a rebuild of their technology infrastructure, something that most cannot afford to do. “For us, this is a great opportunity to leverage Google’s expertise with technology and offer enhanced customer experience that we could never dream of,” said the CEO of one community bank.
Google’s banking experience will likely be highly automated, with an emphasis on digital systems to provide service for routine banking tasks and transactions including everything from customer service to product marketing. This is true of every Google service where technology owns the customer experience.
Specifically, Google has partnered with BBVA on an artificial intelligence (AI)-driven budgeting application. Deutsche Bank is working with Google to access the tech giant’s AI, machine learning and data science capabilities in order to make digital and online financial services simpler, faster and easier. Expect to see more AI-driven banking experiences from Google.
Access to a Non-Apple Payment Option
COVID is speeding adoption of digital wallets. An estimated 25% of consumers are said to have used contactless payments during the pandemic, with a third of those using a mobile phone as their only form of payment and just under half using both cards and mobile phones at checkout.
The digital wallet market in the U.S. is currently being dominated by Apple Pay, with nearly half a billion users already out there. But still, a partnership with Google could give partner institutions access to the fast-growing contactless market through the installed base of Google Pay users, with the chance to turn those customers into bank customers, not just payment customers. For banks and credit unions, Google could be a great acquisition channel.
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There Are Also Risks to Be Weighed
All of these upsides also come with risks for financial institutions. First, we know as an industry the role that trust plays in the relationship with the customer. Some financial institutions, as well as consumers, may feel uneasy giving Google access to even more personal data. There are also questions around data privacy, specifically how much account data Google will have access to.
“This could bring significant customer and deposit growth, but means ceding control over the customer relationship and experience.”
— Jake Tyler, Finn AI
Second, how will Google’s banking partners be able to differentiate? Google is essentially turning partner banks into banking-as-a-service providers. While it’s true that this is a huge opportunity to be exposed to great numbers of digitally active consumers and could offer very significant customer and deposit growth at a low acquisition cost, doing so means ceding control over the customer relationship and experience.
At the end of the day Google is likely to accrue most of the value out of the relationship given that the bank partners are interchangeable (Google can switch out partners as it wishes), and because Google is working with a range of partners from big banks to credit unions. Each will have access to the same products and services from Google, leveling the playing field but also making it hard for each bank partner to differentiate.
Greater Pressure on Digital Laggards
Finally, for the banks and credit unions who choose pass on a Google partnership, Google will still be a threat. Such institutions will now compete with Google directly for customers, as well as on customer experience. 27% of consumers said they would open an account with Google and 11% said they would make it their primary account — the latter driven by existing Google Pay users. Banks who have not partnered with Google are now competing directly against it.
If Google is successful with its forays into banking, it will have reverberations across the industry. Google will likely make it easy for unhappy customers to switch. It will keep customers engaged by offering AI driven products, such as budgeting and customer service, and elevate consumer expectations for all banks. Those who are laggards in digital innovation will risk falling by the wayside.