Ron Shevlin Senior Contributor
Observations from the Fintech Snark Tank
OBSERVATIONS FROM THE FINTECH SNARK TANK
In an article titled Amazon’s Impending Invasion Of Banking, I wrote:
“Amazon has no incentive to cut banks out of the lending or deposit business. Amazon can make more money by providing technology services to help financial institutions underwrite, process, and service loans. Banks will gladly pay for this, because Amazon will do it for a lower cost that what banks incur to do it today.”
My argument then, as it is now, is that Amazon is poised to be a vendor—not a competitor—to financial institutions.
Google’s Banking Forays
Four recent stories regarding Google signal that it, too, is following a similar path and is on its way to becoming the next big fintech vendor:
1) Google checking account. In November 2019, the Wall Street Journal reported:
“Google will soon offer checking accounts to consumers, becoming the latest Silicon Valley heavyweight to push into finance. The project, code-named Cache, is expected to launch next year with accounts run by Citigroup and a credit union at Stanford University, a tiny lender in Google’s backyard.”
2) Google debit card. In April 2020, Tech Crunch revealed that:
“Google is developing its own physical and virtual debit cards. The Google card connects to a Google app with new features that let users easily monitor purchases, check their balance or lock their account.”
3) Google AI tool for Paycheck Protection Program loan processing. In May 2020, Google released marketing materials which said:
“Google Cloud is offering the PPP AI Lending Solution, which enables lenders to integrate underwriting components into their existing lending systems to allow them to accelerate and automate the process of handling the massive volume increase in loan applications.”
4) Google Cloud bank deal. In March 2020, Finextra reported:
“Google Cloud has landed a five-year deal with Lloyds Banking Group, part of the UK bank’s commitment to spend £3 billion on digital transformation projects.”
This follows Google’s 2018 deals with HSBC to provide the banks with cloud and machine learning services.
Google Will Become a Fintech Vendor, Not a Bank
According to the TechCrunch article on Google’s reported debit card:
“Google’s strategy is to let banks provide the underlying financial infrastructure and navigate regulation while it builds smarter interfaces and user experiences. It’s foreseeable that one day Google might cut out the banks and take all the spoils for itself.”
First off, the vast majority of banks in the US don’t provide their own “financial infrastructure” which likely refers to the applications that banks run versus the hardware. Most rely on vendors like Fiserv and FIS.
Second, it’s inconceivable that Google could just “cut out the banks.” Its Cache service and debit card are part and parcel of the partnering bank’s checking account. Without the bank’s product, there is no Google product.
In other words, there are no “spoils” for Google to take.
Google’s Strategy: Become a Technology Vendor to Banks
Google’s value proposition to banks is simple: “We help you monetize your customer relationships.”
With all the talk in the industry that Big Tech firms like Amazon and Google are going to “cut out the banks,” why would a bank hire Google as a technology vendor?
1) Consumer prowess. Tech vendors like FIS and Fiserv may provide great technology, but consumers don’t know them from Adam.
Google has (dare I say it) cache with consumers. Many banks—large and small—will see Google’s name recognition as a way to help them drive better utilization of their checking account and debit card.
There’s research to support that.
A consumer survey conducted by Cornerstone Advisors and Strategy Corps found that a quarter of Millennials would be very likely to use a debit card from Google, and might even make their primary card. Another 30% said they’d be somewhat likely to use a debit card from Google.
2) Technology and analytics expertise. For all the talk about AI technologies like chatbots and machine learning, few banks have actually deployed them. Just 4% of the banks surveyed by Cornerstone Advisors have deployed chatbots, and just 8% are already using machine learning tools.
Heading into 2020, however, nearly one in five banks anticipated deploying machine learning. Who better to turn to than the leader in the space, Google?
Google Will Make an Acquisition in the Fintech Vendor Space
Based on the November 2019 Wall Street Journal article, it appears that the Cache service and debit card is coming from the Google Pay group.
The AI lending solution is coming out of the Cloud group, which has seen more success in Europe than in the US (and other parts of the world, for that matter).
According to one report, the Cloud unit was the single-largest driver of headcount growth at Google in Q1 2019. In February 2020, the company revealed, however, that it had reduced headcount in the enterprise unit as part of a restructuring effort.
This suggests some organizational misalignment hampering Google’s attempts to penetrate the US banking market.
The easiest and fastest way for Google to overcome these hurdles is by acquiring an existing fintech vendor—not organically growing its own sales and service staff.
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Disclosure: Smita Nair Jain has nothing to disclose. She doesn’t own stock in any publicly traded companies and does not hold investments in the technology companies. She has equivalent of the American 401(k) plan in India that is automatically managed. (Updated: May 28, 2020)
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