BigTech in Finance

Late last year, we heard that Google was looking to get deeper into the financial world by partnering directly with banks. In early August, Google announced its foray into the banking world with another six U.S. banks pledging to offer digital-only bank accounts through Google Pay. Google is already working with Citigroup, Stanford Credit Union, and added to its partnership roster, Bank Mobile, BBVA USA, BMO Harris, Coastal Community Bank, First Independence Bank, and SEFCU. The digital accounts will launch in 2021 in both checking and savings flavors and will be insured FDIC or NCUA. Google is looking to boost the usage of its digital payment services in North America by partnering with banking institutions. Google’s strategy is to let partnered banks and credit unions provide the underlying financial infrastructure and navigate regulation while it builds smarter interfaces and user experience. Lately, it would seem that every major tech firm has set its sights on banking. In 2019 Apple partnered with Goldman Sachs on the Apple Card, which currently has over three million customers in the U.S. In 2020, Samsung announced a competitive product to the Apple Card in the U.K, and now Google is cooking up its own option.

Ilias Louis Hatzis is the founder and CEO at Kryptonio “keyless” wallet, that lets users manage bitcoin and crypto, without private keys or passwords.

COVID-19 has been a catalyst. Before the pandemic digital banking was growing steadily, with 60% of customers under the age of 70 using digital banking tools in 2019, according to McKinsey.

Since the onset of the pandemic, digital banking and the the use of digital wallets exploded, with banks seeing a 200% increase in new mobile banking registrations, while mobile banking traffic rose 85%, according to Fidelity National Information Services (FIS).

COVID-19 has boosted the use of contactless payments and an estimated 25% have used contactless payments during the pandemic, with a third of those using a mobile phone as their only form of payment and just under half using both cards and mobile phones at checkout.

In the US. the digital wallet market is dominated by Apple Pay, and worldwide Apple Pay counts nearly half a billion users.

In the last 12 months, Google Pay has grown to 67 million monthly active users, driving transactions worth over $110 billion on an annualized basis, with hundreds of thousands of offline and online merchants. That’s is huge.

In a July 2020 survey, 27% of consumers said they would open an account with Google, while 11% saying they would make it their primary account.

Google’s bank accounts will be built on top of the banking institutions’ existing infrastructure, while Google will provide the front-end, user experiences and financial insights.

Google’s banking experience will likely be highly automated. This is true of every Google service where technology owns the customer experience. A Google bank account could integrate seamlessly into a user’s Google Calendar and Gmail to create reminders when bills are due and make payments automatically. It could use predictive technologies and artificial intelligence to monitor personal budgets and send alerts when a user has spent too much on dinner with friends

Various partnership models between big tech companies and financial institutions have emerged. In some cases tech companies provide technology infrastructure to financial institutions. In others, tech companies also compete directly with existing financial firms. The overall response of incumbent financial institutions to big tech companies’ entry in financial services and its effect on their business models varies across institutions and markets.

In the case of Google, there is a large opportunity to leverage its massive direct consumer relationships to attract banks to sign up for co-branded checking accounts. For small and mid-size banks, offering a Google checking account makes sense as they play catch up to large banks. Google’s offering is an opportunity to scale business away from the larger players and get the brand recognition of being aligned with Google.

Some banks simply hope to find new customers from Google’s 1 billion monthly active users. Another element to the partnership is Google’s data. Google will be able to bring its data, marketing and innovation expertise to this joint effort.

The question for Google and its banking partners, is whether connecting its ecosystem to their primary paycheck, will help consumers more effectively make that connection. The success of the Apple Card has proven that it can. If Google can properly address privacy concerns, consumers will open accounts, because of the convenience and ease of use.

Personally, creating crypto-based rails and wallets to provide financial inclusion to billons around the world, is far more appealing than a big tech giant making a deal with a 200 year bank. Google delving into banking will only strengthen the narrative and need for a decentralized global currency.

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