I was quite surprised to see the front page of my Saturday WSJ emblazoned with “Google Is Scrapping Its Plan to Offer Bank Accounts to Users”. As the former guy responsible for Citi’s online banks globally, and also a guy working in creation of the original Google Pay (as consultant), I thought I would provide some much needed clarity here (consistent w/ blog Google’s Bank Plans and the 20 others I’ve written on Google Pay over the last decade).
There are 7 simple questions that drive the “design” of Google Pay and Google’s interaction with Banks.
- What can Google uniquely deliver? A: Mobile experience and value based on data
- Who does Google want to serve? A: Everyone (consumers, merchants, big banks, neo banks)
- Does Google want to enable markets/competition? Absolutely. They want to be a consumer friendly “neutral” enabler.
- Will a “Google Plex Bank Account” enable competition? No. While they can force rates down, a Plex ACCOUNT will not enable “all banks”.
- What is the core “problem to be solved” based on Google’s unique ability to deliver value? A: See below.
- Can Google create an economic model where banks and consumers are incentivized to participate? A: I believe they can.
- Does Google have a success model here? Yes, India and UPI (see blog), as discussed last week, banks no longer hold any unique data.
Let me start with a story. In 2011, when Google Pay was rolled out Google worked with the large issuers to get purchase summary information into the mobile app. Only Amex would provide this to their customers, as Banks (led by JPMC) viewed Google as a threat. In addition to this basic info problem, banks also refused to “provision” their cards into the NFC wallet (this was before the MDES/VTS services). Banks wanted to veto GooglePay unless GOOGLE PAID them a toll.
Google thus worked (2011/2012) to create a proxy card that wrapped the other cards in the wallet in a common tokenized platform powered by TXVIA acquisition (a precursor to the design that Marqeta uses today) and run on MA (blog). This approach allowed consumers to use ANY card they wanted. Google was planning to take a loss on CNP interchange for a POS purchase (see 2012 blog). The issuers banded together and forced V/MA to update rules on “wrapping” to kill this product (see blog). Google spent over $1B creating an economic model for: MNOs, Banks, Consumers, and Merchants (see blog). Banks and partners asked for $1B+ commitments, when all Google had was a great experience and beginnings of a model that operated at a loss. There was no path toward partnership.. Banks were successful in throwing sand in the gears of this innovation (blog). It is with some irony that I see Apple get 15bps for cards in the wallet (2014) AND launch a competing card product.
Google’s Plex – It’s all about bank enablement
It is obvious that there was some internal Google friction on the design of Plex. A team had envisioned Google defining a checking product (with pricing/features) supported by multiple bank sponsors (ie Citi, Sanford CU). This approach rightly died.. Per Google’s Bank Plans, the value Google enables has nothing to do with account control. Google’s success is centered around being a consumer enabler.. It can create great consumer experiences that operate on the simple fact that the value of data is based upon its intersection (and permissions to act on them). There is no ability to scale a bank partnership model involving a pre-defined product. The strategy change is at the margin. There is no “plex account” that Google owns.. But rather a “plex experience” that can be enabled by any bank willing to participate.
The Bank partnership agreement becomes much more streamlined.
- Google publishes Plex APIs from account opening, registration to transaction management with testing and certification requirements.
- Google publishes marketing material to bank: “plex enabled”
- Bank accepts Google’s End User License Agreement with bank customer (includes data sharing/rights).
- Optional services may include
- Targeted Advertising/Account Opening
- Debit/Credit card integration to Google Pay
- Universal Bill Pay (like Google’s India UPI success)
- Integrated offers (a new form of CLOs at SKU level)
- Google Cloud hosting (discount)
- Predictive analytics/cross sell on life events
What is the core problem to be solved?
As Bank services become commoditized and embedded infrastructure (blog) the challenge is in plugging these services into consumers lives: commerce, investment, retirement, healthcare, travel, media/entertainment …etc. Who can connect bank services to consumers within these use cases? The very concept of a “mobile bank” is dissolving. People don’t think about their bank in these uses.. Banking has become an embedded (ex Amazon payments).
For example, why use a banking app to deposit a check? India’s UPI allows Google, Amazon and WMT to provide all banking services within the context of your daily interaction. You can initiate a bill pay from any bank inside of Amazon (see blog and pic below). There is no need to visit either a bank or a banking app.
Historically, Banks held an advantage in understanding a consumer (identity) and predicting their behavior (risk). Both have now atrophied completely in mobile (see Observer Effect and Authentication in Trust Networks). Bank data in isolation provides no value (outside of banking) as it cannot be combined, nor acted upon. Today transactional data leakage (ex payment data and SKU leaves retailers real time) enables tech companies to take action within the context of a consumer’s current behavior (and channel of interaction).
Most consumers accept the loss of privacy for value and convenience. The future of mobile is more predictive interactions and integrated experiences. For example, Google maps pulling up my favorite pizza place and instant order just before Monday night football.
In addition to Google’s approach, Europe’s PSD2 and US start ups like Plaid have opened banking transactional data to any start up. The challenge for these approaches:
- Tech only – no economic model
- No connections to Merchants (and other areas)
- No control of mobile
- No existing data for intersections
- Precise Consumer permissions
Apple and PayPal are providing bank products that compete. Google is acting in a neutral enablement role with global success. Google still needs someone that can get the Banks moving. Historically, Google likes the big win with a major bank. My recommendation would be go to FIS/Fiserv and start with the mid-tier. Mid-tier banks have the biggest challenge in “keeping up” in mobile.
Biggest threat to banks from Google? The India UPI model is a proven model that has upended consumer payments. Google would love to see this work globally. However, Google wants consumers to pay the way they want to pay. They have a profit engine driven by this model. I don’t see Google building a new V/MA.. I see them enabling established banks and improving their competitiveness with neobanks.