Google Pay’s latest rollout is big news for the banking industry. While the tech giant’s foray into financial services has been live since 2015, the newest upgrade signals a notable change. The upgrade retains the app’s core functionality but will offer users more features to manage their finances.
The news is the latest in a long line of encroachments that big tech companies – from Uber to Apple – have been making in the financial services industry. Faced with the threat of disintermediation and the prospect of a new landscape, some banks and credit unions have decided to embrace change. Acceptance and collaboration could be key strategies moving forward, which may not only help incumbents to ride out the storm, but thrive in it, too.
The Google Pay upgrade
On November 18, Google Pay unveiled its new app for android and iOS in the U.S. The revamped version includes many new features. Most interesting among them (for our purposes, at least) is Plex: “a new mobile-first bank account integrated into Google Pay.”
Plex will allow users to handle basic checking and savings in the app, engaging directly with an online bank. Google won’t be the banking provider, though; rather, it will let its partners use Google Pay as their banking app. The main selling point for a Plex account is that it simplifies money management with “all your transactions, automatically organized and searchable in the Google Pay app.”
As Google consolidates services and ramps up its retail offerings, its app, which already has 150 million users in 30 countries, is now arguably a direct competitor to a wide range of other apps and services, including Apple Pay, Samsung Pay, PayPal, Venmo and some neo-banks.
Impact on the banking industry
There are few companies in the world better than Google at leveraging data to deliver a hyper-personalized user experience, and even fewer that have its stellar reputation, with the Silicon Valley company being named the third most trusted brand in the U.S. in 2020. Some speculate that, thanks to these favorable traits, Google has the potential to disrupt the banking industry and prize customers away from incumbents.
It goes without saying that competing with Google isn’t an enviable prospect for any company. So it’s good news for banks that many of them won’t have to. In a recent interview with The Financial Brand, Felix Lin, VP of Payment Ecosystems at Google, said, “Google has no interest in ever becoming a bank.”
Lin also alluded to his company’s openness to collaboration: “we’ve worked for many, many years with banks in the financial ecosystem and we are continuing to do so in a way that enables our banking partners to offer their financial services and products in the most helpful way to as many users as possible.”
While Google may not be trying to become a bank, it is becoming a major player in financial services, and that means more change is coming. Industry incumbents need to be ready for that change.
Collaboration will be key
Some banking leaders see big technology companies as a threat. Others see them as an opportunity to scale and enter their ecosystems as partners. For instance, Google is partnering with Citi, BBVA, Stanford Credit Union, and eight other U.S. banks to launch its Plex service.
This is one strategic response. And other banks will likely follow, forming relationships with similar services like WhatsApp Banking or Apple Card. In doing so, banks meet consumers where they are, they open a new acquisition channel for digital-first consumers and move forward with strong security guarantees. In short, they ensure themselves a relevant position close to their customers.
The downside for banks is that accepting the emergence of big tech in their industry could also mean surrendering their own customer-facing services, most notably mobile apps. Of course, given the popularity of mobile banking – in 2019 in the U.S., more than 75 percent of people used a mobile device to check their bank balance – such a move could be deemed risky, to put it mildly.
Furthermore, Google’s ascendance to being a major player in the industry could see the brand be the go-to app people interact with, driving down engagement banks have with their retail customers.
However, this is largely speculative at this stage, and banks can rely on the well-established behavior patterns of their existing customers.
Even if Plex proves to be a runaway success, the partnership route offers a shortcut to a next-generation user experience. And given the U.S. market’s size, there is plenty of space for different financial institutions to compete within the ecosystem.
A sign of things to come
Google is not the only tech giant making ominous movements around the financial services industry — similar steps are being taken by other major tech companies, including Apple and Amazon. In 2019, Apple launched a credit card in partnership with Goldman Sachs and Mastercard, which already has 3 million customers in the U.S. For its part, Amazon is also pushing deeper into banking in the post-pandemic world.
While others are set to follow Google’s lead, there are still questions to be answered about Google Pay. For example, how will customer data be used by the company, considering how their algorithm works to serve ads? Is Plex going to allow data sharing inside its own network of banks? Do people fundamentally trust Google with their finances?
All of these questions will impact Google Pay’s future and the role it ultimately plays in the financial services ecosystem. Neither Google nor Apple may be angling to become a bank, but there’s a strong chance they’ll become a key part of the customer-facing side of banking.
Rather than fight this, banks should invest in their brand and position themselves as enablers, providing their expertise and experience. For the banks, these tech partnerships can power customer deposit growth, help the retail side of the bank scale, and attract a new, younger demographic.