Gmail Bill Pay a Bigger Threat to Banks than Google Wallet

Google's planned integration of bill pay and presentment with its immensely popular Gmail service could quickly scoop away one of the stickiest offerings of online banking sites.

The product, reportedly called "Pony Express," would allow Gmail users to examine and pay emailed bills without navigating to another site. Banks and billers typically rely on emailed notifications to prompt customers to log into their own sites, where they can sell upgrades and provide customer service.

The initiative, reported Tuesday by the tech news site Re/code, builds on an existing P2P payment capability built into Gmail and Google Wallet.

"It threatens everyone in the space," said Richard Crone, a payments consultant, noting that bill payment is a $1.2 trillion-a-year industry, making it the second largest payment class behind in-store point of sale at $6.2 trillion. "Bill payments are habit-forming and require monthly action. Google wants active users, so if it can provide a way to organize bill payment that is more efficient than bank or biller-direct, Google wins more eyeballs."

Given there are already more than 420 million Gmail accounts, the service could capture the attention of a significant number of online banking customers, Crone said. Google is also capitalizing on a sense of complacency banks and billers have in their bill payment offerings; in a survey of 100 billers, fewer than 10 had even minimal support for mobile bill payment and presentment, he said.

Google, which did not return a request for comment by deadline, would also gain access to a trove of actionable data including payment type and history. That could inform advertising and allow Google to partner or build out other products such as financial services.

"Google is trying to replace the primary bank's central position in bill payment aggregation to eventually become the financial canter of the consumer's life," said Mary Monahan, executive vice president and research director for mobile at Javelin Strategy & Research. "The bank will become just one more spoke in the wheel with Google in the center."

Google Wallet, by contrast, was originally designed to play nice with banks by keeping the bank's brand prominent in the mobile wallet. Google eventually introduced a virtual MasterCard as a pass-through account, but this was done to make it easier to bring banks on board.

Google's new strategy with both Pony Express and Google Wallet appears to place more emphasis on access than on functionality, thus giving Google more visibility to the consumer than the banks that fund any Google Wallet or Gmail transactions.

In mobile payments, Google's recent deal with AT&T, Verizon Wireless and T-Mobile allows it to pre-load the Google Wallet app on the carriers' Android phones. This setup eliminates one of the major hurdles in getting new users into the system.

Standalone bill-pay offerings have seldom fared well. Hearst's Manilla, for example, launched in 2011 as a destination for managing bill payments and magazine subscriptions, and lasted just three years. Its fatal weakness was its inability to "achieve the scale necessary to make the economics of the business viable," Manilla said in a statement on its (now defunct) website.

By tapping into its Gmail userbase, Google can launch Pony Express with impressive scale, but many challenges remain. Just as mobile wallets need to play well with merchants, Pony Express would need to win the support of billers.

Merchant reactions to Google's earlier mobile payments initiatives have been mixed. Google has been criticized for providing a lack of incentive to merchants to participate in Google Wallet. And Google Wallet's predecessor, Google Checkout, enraged merchants by raising fees in 2009 while offering what some merchants considered an inferior experience to rivals such as PayPal.

To add a critical mass of billers for Pony Express, Google would likely have to partner with another technology company that has a bill payment engine, and as such would have a pre-existing roster of billers, Crone said, adding companies such as Fiserv, FIS and ACI would be among the candidates.

"It would be a big win for one of these companies," Crone said.

Consumer buy-in would also be a challenge, as Pony Express would, like many mobile payment schemes, have to convince consumers that it's a better way to pay than the system they've grown comfortable with over many years of use.

"Paying bills via email is a new approach, and so consumers will need to change their existing bill pay methods to adopt Google's new approach," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group, adding banks have been the traditional approach for digital payments for most demographics, and even millennials have gravitated toward online banking and products that provide budgetary controls such as SmartyPig.

"I'm not saying Google can't succeed at this, only that this standalone product is likely to be woefully insufficient," Sloane said.

Google's shortcomings in the payments industry may soon be tackled by former Morgan Stanley exec Ruth Porat, whom Google hired as CFO this week. Porat brings mobile payment and compliance expertise to Google.

"The more Google can do to keep consumers on its sites by adding services within those sites, the more consumer attention Google will have, and the less others will have," said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research.