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Holy grail of digital banking is, at first glance, a new channel, not a new concept

Details of Google’s plans in the financial services sector have emerged with nothing groundbreaking so far, but the sector is guessing what comes next

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Google’s entry into the retail banking sector with plans for a US current account are, at first glance, less revolutionary than you might expect – but this is only the beginning.

It was always unlikely that a company like Google would want to become an actual bank and the internet giant’s decision to work with traditional finance companies to provide a checking account – the US equivalent of a current account – is no surprise.

Google is working with Citigroup and Stanford Federal Credit Union on a project known as Cache, which could see such accounts available next year.

By working with existing banking companies that have already jumped through all the regulatory hoops, Google can avoid huge costs.

Google executive Caesar Sengupta told the Wall Street Journal: “Our approach is going to be to partner deeply with banks and the financial system.” He added: “It may be the slightly longer path, but it’s more sustainable.”

However, will it be quicker to get started but longer for Google to put its DNA into the banking sector?

Back in 2014, analyst Forrester proposed this partnering model as the best way forward for companies such as Google trying to enter the banking sector. In its report Why Google bank won’t happen, Forrester said the high costs and strict regulation of setting up a traditional bank – alongside advertising revenue coming from banks – would push internet firms into roles that supported the relationship between banks and their customers.

Recently, we have seen how Apple’s work with Goldman Sachs on a credit card has seen the latter – as issuing bank – give $10bn in credit to Apple Card users since August.

That is why Gareth Lodge, an analyst at Celent, believes that what is known of Google’s plans in the banking sector are interesting, but not unexpected. “I think them using a banking partner makes sense,” he said. “The regulatory aspect shouldn’t be underestimated.”

There is a significant opportunity for Google, added Lodge. The US retail banking sector has not seen anything like the number of neobanks that the UK has, and Google could spur consumers to change their banking suppliers, he said.

Read more about Google Bank theory

  • The journey to Google bank is happening as the UK’s Lloyds Bank signals its intent to move to a platform inspired by the workings of the Google engine room.
  • Like Uber, Google has become a default name for digital disruption in industries. But Google, the internet giant, has even been talked of as a potential bank.
  • Consumers in Europe increasingly consider companies such as Facebook and Google as potential financial services providers.
  • The search for the holy grail that is Google Bank has been going on ever since digital banking took hold. It makes sense: a company that processes millions of transactions on a daily basis whose bread and butter is making online services user-friendly.

“Many younger people may feel greater affinity with the brand they use on a daily basis, like Google, than a bank they rarely interact with,” said Lodge. “This could see them win customers from traditional banks who will stay with them for many, many years to come.”

This model will see Google and its financial services partners become channels for each other. One senior IT professional in the UK banking sector said: “I think it is inevitable that brands like Google will resell banking products. This will allow Google to offer banking products in multiple countries by choosing whichever bank to support them in different locations.”

David Bannister, an analyst at Aite, said the initial plan is not changing the world of banking, but what comes later could. “At one level, I do wonder how much of a ‘Google current account’ it is in reality – is it just a badged product like a British Airways credit card, which is really an American Express card that incentivises the holder to fly BA?” he said.

“The key thing will be the data, of course – how much customer data will the bank be able to share with the partner, and what will they do with it?”

Sengupta told the Wall Street Journal that Google would not sell checking account users’ financial data. He said the introduction of more online banking would benefit Google in other ways. “If we can help more people do more stuff in a digital way online, it’s good for the internet and good for us,” he added.

Celent’s Lodge said: “I think the other interesting aspect was the claim that Google won’t use the data. That’s surprising, but suggests it sees a different value in having them as customers.”

But the news should not necessarily mean a final destination is agreed. It was reported last year that Amazon was in talks with US bank JP Morgan about setting up checking accounts for younger people or the unbanked. But this does not appear to have developed as a proposal, with a report last week even claiming that the plan had been pulled.

Chequebooks unlikely

Although Google will be using bank financial expertise to legitimise its offering, the digital banking services it will offer will take no lead from the banks. Hinting at what could come next, the anonymous senior IT professional said: “It is also ironic that the term ‘checking account’ is still used as I expect chequebooks will not feature in the Google offering.”

Meanwhile, banks – huge IT processing units themselves – are attempting to become more like Google, whose tech leadership is the envy of businesses in many sectors, with its software engineering resources second to none.

Banks of all sizes need to get the tech right if they are to prosper in the future. For example, they need to process transactions securely and in real time with as little effort as possible for the bank’s customers. When asked about how they want to receive services, customers think of Google – and banks are now on journeys to provide Google-like experiences.

But while the customer-facing end of Google offers the kind of services the banks dream of, the engine that underpins them is what makes it possible.

It is not just about funky functionality, such as the bank knowing who you are and what you like, it is about automatically switching to a new datacentre when things go wrong, making software upgrades with no downtime and doing this without the need for human intervention.

Google continuously upgrades its running systems without human involvement. By comparison, when banks upgrade their systems, it involves large IT projects, communication with customers, planned downtime and, quite often, unplanned downtime.

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