It has been nearly two weeks since Google threw its hat into the competitive ring of large tech companies trying to leverage their respective customer bases by associating in some way with the payments industry. Financial institutions control the payment arena from the consumer through the merchant sector, but banks tend to be slow in adapting to the latest innovations in the tech world, something that Google, Apple, and Facebook take seriously on a daily basis. Industry experts are now speculating how the latest entrant, Google, will manage to create a unique value proposition and succeed.
As we reported, the “gauntlet” was cast down two weeks back:
Alphabet Inc’s Google just announced that it will start offering personal checking accounts in 2020 via its Google Pay application, a project supported by Citigroup and a credit union at Stanford University. The project is named Cache and is a direct rival to Apple and Facebook, two giants who are also trying their best at consumer finance products. While it may seem unorthodox for tech giants to be involved in consumer finance solutions, it is not that surprising, since these digital payment apps can cater to variety of needs such as brokerage services, loans, bank accounts, and many more.
In a recent discussion conducted by PYMNTS.com, two industry experts shared their insights and views on what Google may be attempting to accomplish with its Cache project. PYMNTS’s own Karen Webster, an advisor and expert on emerging payment systems, sat down with Vaduvur “VB” Bharghavan, the president and CEO of Ondot Systems, to ruminate about the latest big tech entry into the payments space.
The union of Google with the banking industry does allow a window for improving the overall experience of the consumer, but attempts in the past have failed to achieve critical mass. They have either run afoul of regulatory issues or have shrunk highflying PE ratios in the tech world closer to those for banks, which average below double digits. Previous tech firms had decided quickly enough that their forays into banking were not the boon to shareholder value that they had once thought possible.
But today’s tech giants are different. Google, Apple, and Facebook have enormous customer bases that look to them loyally to connect them to today’s digital eco-sphere in a way that is so unfamiliar to banking, which banks could never hope to replicate. However, if the collaboration is laid out effectively enough for all parties to deliver their best value bits and pieces, then, perhaps, all could profit, and consumers could also benefit by this unique union of disparate service providers.
When VB views the project from above, he sees Google providing what he calls an “experience layer”, while allowing banks to do what banks do. Google wants no part of the regulatory compliance headache. He explains:
Google’s expertise is in UX design. By providing a streamlined user experience, they can add value to the financial institution and the cardholder, putting themselves into the commerce stream. Banks are never going to become obsolete, but they could end up becoming stored value accounts. Banking services could be decoupled from banks.
Webster shared a few results of a recent collaborative survey effort between her firm and Green Dot to assess what is going on in the consumer’s mind today regarding his or her banking partners. 91% of respondents said they were pleased with their primary bank or credit union. Their needs were being met, but the “kicker” in the study was that 57.5% of consumers would be interested n dealing with a non-financial company for their banking services. VB’s take on the survey results:
We should expect to see more of the kinds of moves Google announced two weeks ago.
He sees the current race to the top of this new payment environment “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.”
These major moves in both high tech and fintech are in uncharted territory. It is unclear how the product will be marketed. Will banks take a backseat, as in Apple’s proposed product offering, or will all share equal billing? Will Google include more banks in its program as it rolls out? Will Google try to brand its style of banking as a “smart DDA account” that creates an eco-system with better linkage between payments, commerce and banking services and seeks other banks to participate on its platform?
VB leans toward the latter value proposition, but concludes:
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.
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