Google is reorganizing its banking strategy

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Ten years ago, when the biggest consumer tech companies first showed interest in financial services, the banking world went into all-out war. Now that Big Tech is finally going deeper into finance, hostilities between the two camps have subsided. But given the scale of the ambition of tech companies, this is unlikely to be the end of the story.

Google’s attempt to promote a new style of mobile banking account is the latest sign that a new rapprochement between the two camps is in full swing. Like a number of the internet giant’s services over the years, Google Pay has gone through long periods of fallow without much innovation. It is only used on about 4% of the 2.5 billion Android devices worldwide, according to Statista.

The app is undergoing a two-step overhaul. The first, this week, adds new bells and whistles to make it more appealing, as Google tries to make up for lost time. This will now be a place to keep tabs on your various bank and credit card accounts, as well as a way for Google to deliver personalized merchant offers.

The second step is the most revolutionary. Next year, users will be able to open and manage a mobile bank account right from the app, starting with Citibank and 10 other banks and credit unions in the United States.

Apple’s breakthrough credit card with Goldman Sachs became the model for arrangements like this, as well as a strong motivation for other financial institutions to step out of the sidelines and find a way to work with Big Tech. . Google would be the first Big Tech checking account, but certainly not the last.

Much has changed since Google first showed up at Financial Services Night. At the time, smartphones were in their infancy and tech companies were open about their goal of disrupting any industry they entered. The upheaval they caused in the media world characterized them as unreliable partners.

Mistrust of Big Tech is still strong. But the reach of its mobile technology and changing user expectations have made it impossible to ignore, and financial services of all kinds are being redesigned for a young generation raised on smartphones.

The outlines of the Google deal highlight the common ground that tech and financial services companies have found. The banks will keep the accounts, while Google Pay will act as a “front end” to access and manage them. This means that the user experience will be essentially owned – and branded – by Google.

The account itself will retain the bank’s branding, but the opportunities for differentiation appear minimal. New accounts – all with the name Plex, as in Citi Plex – will need to meet a set of specifications set by Google, such as no fees and no minimum balance.

There is a clear precedent for this alliance. It closely follows the deals Apple made for the iPhone more than a decade ago, when mobile carriers lined up to sell the device. These arrangements gave the tech company complete control over the user experience and transformed the phone company – or in this case the bank – into the provider of a critical back-end service, but of more and more undifferentiated.

As AT&T saw after entering into the first partnership with Apple for the iPhone, there is still a lot to be gained from tapping into a large new market. For Citibank, this could become a way to access large-scale retail deposits – and attract millions of new customers. Keeping the ability to sell other financial products to Plex account holders will be essential.

The bigger question is how far Google will want to go to meet all of its users’ financial needs.

Right now, he might own the customer experience, but he doesn’t own the customer. The transaction data stays with the bank and Google’s ability to use it is severely limited. Only in a narrow way – and then, only if a user chooses – will they be able to use the transaction data, to offer personalized offers from other merchants in the Pay app. A full understanding of the financial lives of its users would be extremely valuable to Google in its wider advertising business.

Right now, tech companies like Google see much more to working with banks than trying to challenge them. Their willingness to transform them into lasting relationships of mutual benefit will be an important test in determining how trustworthy they will appear to other industries in the future.

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