Google relaunched Google Pay with an all-encompassing product. What can be best described as Venmo (Pay, peer-to-peer) meets Apple Pay (Pay, tap-to-pay) meets Drop (Explore, deals and rewards) meets Mint (Insights, aggregated personal finance) meets Ally (Plex coming in 2021, digital checking and savings), overlaid with Google’s search algorithm. In a truly densely populated consumer segment, will Google’s newly revamped consolidated app along with its leading search algorithm and existing app ecosystem, entice users away from the existing disparate collection of banking and FinTech apps?
From a customer acquisition perspective, Google has amassed over 150 million users in 30 countries during the five years in the FinTech market. This is particularly important as Google will not have to start from ground zero on customer acquisition. Many FinTech’s fail due to high customer acquisition cost, amongst other factors, and the subsequent inability to monetize those customers. But Google will not have to face this challenge as the FinTech challengers have before them.
The upcoming Plex account will aim to compete in both the millennial and Gen Z market with its fee-free and no minimum balance requirements features. Plex is where things get interesting with Google Pay. Neobanks have been able to differentiate themselves from the incumbent banks through not only their digital tech savvy nature, but also it’s fee free offerings. There are primarily two types of neobanks, one that partners with traditional banks to power its offerings, and one that has successfully maneuvered through the regulatory system to obtain a banking license. The latter is a costly journey for neobanks to navigate. Although the journey has certainly been easier recently with federal regulators examining the regulatory burden, only a handful of FinTechs have obtained the illusive federal banking charter. Varo Bank is the leading example having gone down the bank charter path, receiving approval from the FDIC, OCC, and Federal Reserve earlier this year after a 3 ½ year journey and over 5,000 pages of paperwork.
Google will begin its neobank journey with partner banks and credit unions. This decision will allow Google to focus on its strengths, such as design and technology, while leaving the regulatory aspect to their established bank partners. The name of the game is data. The more data Google gains, the more valuable its product becomes to the customer (don’t forget about the advertisers, who some would say is the primary customer). What is particularly interesting about Google and the bank partnership model is the incredible opportunity that the Google brand brings to the bank partners. Google’s largest bank partner is Citi, the fourth largest U.S. bank with approximately $1.6 billion in total assets. Jane Fraser, the CEO and President of the consumer bank noted that “by unlocking the power of our respective ecosystems, we can deepen our existing relationships and serve an exponentially larger and new generation of customers.” Not only does this mean that Citi will be able to reach a broader customer base without having to geographically expand its branch presence, which is a costly endeavor, Citi and Google could have first dibs on a new generation of banking customers, who do not have deep banking relationships like generations past.
With Google’s strength and power, it could be hard for competing FinTechs to maintain customer loyalty with the notoriously fickle generation of millennials and Gen Z. The natural next question is whether we will soon see similar forays by fellow Big Techs like Amazon and Facebook into the traditional banking space. Amazon has already assembled various banking capabilities such as Amazon Pay and Amazon Go. They have thus far taken the unbundling approach to banking, including credit card offerings with both Chase and Synchrony. The underlying financial services infrastructure is there for Amazon. Earlier this month, we saw Amazon jump right into the healthcare industry by launching Amazon Pharmacy. Although they have been plotting this move for years, with the acquisition of PillPack in 2018, they have swiftly disrupted the future of the healthcare industry.
There is no doubt that Google Pay will change the financial services landscape through its all-in-one solution app and Plex bank partnerships. How the other Big Techs will approach this industry, only time will tell. What we have seen is a potential roadmap for a Big Tech’s financial platform. The Bank of Big Tech is here to stay.
“Welcome to the Bank of Google, how may I assist you?” — your Google Nest speaker, probably.
