Google, Checking Accounts, And The Emperor’s New Clothes

OBSERVATIONS FROM THE FINTECH SNARK TANK

“MANY years ago there lived an Emperor, who was so excessively fond of grand new clothes that he spent all his money upon them, that he might be very fine. One day two rogues came: they gave themselves out as weavers, and declared they could weave the finest stuff any one could imagine. And the Emperor gave the two rogues a great deal of cash in hand, that they might begin their work at once. As for them, they put up two looms, and pretended to be working; but they had nothing at all on their looms.”

Response to Google’s recent “announcement” that it was launching a checking account was swift–and varied.

The initial reaction from the Twitterati tended towards tweets like “And so it begins...” alluding to the potential onslaught of Big Techs onto banks’ turf. Pymnts.com called it the “the gasp heard ‘round the world.”

That sentiment quickly shifted, however, to comments like “Google isn’t getting into banking–it’s getting into banking data,” and “Silicon Valley giants are after your data, not your money.”

Are these analyses correct? Hard to say. After all, how do you analyze nothing?

A Quick Recap

According to a New York Times article:

• “[Google] is teaming up with two banks, Citigroup and the Stanford Federal Credit Union, to begin offering a smart checking account next year. What fancy new features will smart checking include? Google isn’t sure. Neither are its partners.”
• “The project, code-named Cache, is envisioned as an extension of the Google Pay digital payments system. Its goal is to help banks’ customers ‘benefit from useful insights and budgeting tools,’ according to a Google spokesman. The focus will be mobile-first users, he said, but the specifics of what will be offered are still being worked out.”

And here are some of the “facts” from the Wall Street Journal article that broke the “news:”

• “The financial institutions’ brands, not Google’s, will be front-and-center on the accounts. And Google will leave the financial plumbing and compliance to the banks. According to one Google executive, ‘Our approach is going to be to partner deeply with banks and the financial system. It may be the slightly longer path, but it’s more sustainable.’”
• “Google said it wants to bring value to consumers, banks and merchants, with services that could include loyalty programs, but it wouldn’t sell checking-account users’ financial data.”
• “Both Citigroup and Stanford Federal Credit Union could bring in deposits and establish relationships with younger, tech-savvy savers who might one day need a mortgage or credit card.”

A Whole Pile of Nothing

If the public relations industry gives itself awards (and what industry doesn’t?), Google’s “announcement” should win an award for the Best Non-Announcement Announcement–it’s nothing but a whole pile of, well, nothing:

• Google is going to offer a “smart” checking account, but neither it nor its partners know what that is. That didn’t stop pymnts.com from saying “these accounts could become the cornerstone for the everyday app ecosystem that every Big Tech and FinTech player has its sights set on developing–which WeChat and Alipay have already created with great success in China.” Wow. All that from an account that no one knows what it can do.
• The checking account will help consumers “benefit from useful insights and budgeting tools”–but the specifics of the offering are still being worked out. Apparently, we’re being asked to ignore the reality that budgeting tools have done little to influence consumers’ behavior or choice of providers over the past 15 years. Has Google really found the holy grail of personal financial management?
• Google’s partners “could bring in deposits.” The Financial Times wrote, “The partnership may prove a cheaper way to gather deposits than the combination of channels Citi is trying now—even if Google takes a big cut.” Takes a big cut of WHAT? Deposits? If Citi is paying Google to help it gather deposits, that’s a vendor relationship, not a partnership.
• Google’s partners “could develop relationships with tech-savvy savers who might need a mortgage or credit card.” This must have Rocket Mortgage, Apple, and Goldman Sachs (and its Marcus unit) laughing uncontrollably. Should we just forget the fact that most banks struggle to cross-sell customers who have just a checking account relationship, or should we believe that Google has found a solution?
• Stanford FCU’s CEO said “Google will develop the interface for the accounts while the credit union handles the account and deposits.” So Google will develop an interface that sits on top of the vendor-provided digital banking platforms that the vast majority of US-based banks and credit unions use? How’s that going to work?

Debunking the Data Argument

The “Google is getting into banking data, not banking” argument doesn’t hold water.

If Google’s intention was to get into banking data, there are easier and faster ways to get that data than partnering with banks one at a time. Not to mention partnering with a credit union that already serves Google employees, who Google presumably already has data about.

In addition, the timing of the non-announcement couldn’t have been worse, coming on the heels of allegations that Google was secretly attempting to collect consumers’ health data.

So what does Google have up its sleeve here?

Four Speculations

Purely speculation here, but Google might have been spurred to make this momentous non-announcement for one or more of four reasons:

1) It’s a Google Pay play. Google Pay is a laggard. eMarketer’s 2018 estimate of mobile wallet adoption has Google Pay at roughly 50% of Apple Pay users through 2022, despite Android’s 45% market share of smartphones. With the recent success of the Apple Card, Google might have felt compelled to announce something that would bolster the prospects of driving Google Pay volume, even if it was just a pre-announcement announcement. Can’t imagine what’s in it for the banks, though.

2) It’s a “preclude someone else’s smart checking announcement” play. Few consumers care about budgeting and expense categorization tools. But new tools have emerged to automate savings, analyze bill payments, and manage disputes. Google knows this. So why announce something so nebulous as “smart” checking with no details? Maybe Google thinks someone is on the verge of announcing something similar and wants to preclude that announcement.

3) It’s an Android play. The Stanford FCU’s CEO’s statement “Google will develop the interface” could mean that Google will embed banking functionality into Android devices–functionality provided by Google’s partners. On the heels of the Apple Card–which is very tightly integrated into the iPhone experience–Google might have felt compelled to tell the world it has something similar on the way, as well.

4) It’s a bank services play. Financial institutions are increasingly looking for new customers outside their branch footprint and for better ways to cross-sell their existing customers. Does Google have a service it wants to sell to banks to help them improve acquisition and cross-sell? Or, with some snazzy new interface, does Google want to become a digital banking provider altogether? The term “partnership” in Google’s announcement could be a misuse of the word, similar to how nearly every tech vendor calls its customers “partners.”

Predicting the Impact of a Non-Announcement Announcement

Bottom line: How can anybody predict the impact of Google’s announcement–when there is no announcement?

What we have here is a case of the “emperor’s new clothes.” There is no there there.