Bankers often say their biggest fear is that big tech companies like Google and Amazon will enter banking and steal their customers.
“Google Pay is, in theory, everything the banking industry is afraid of, which is the customer is owned by Google, you can't differentiate your service because Google controls the account,” said Todd H. Baker, a senior fellow at Columbia University’s Richman Center for Business, Law & Public Policy.
The banks that announced last week they're offering accounts in Google Pay don’t see it this way.
“While some may fear the Googles and Amazons, we welcome them as ecosystem partners,” said Elyse Lesley, head of U.S. consumer partnerships and franchise development at Citigroup. “We view this as an opportunity to scale our franchise.”
Citi, which has $1.6 trillion in assets, has a light branch network for its size: 700 branches in the U.S., mostly in large cities.
“While they're great markets and we're a deposit leader in many of them, this partnership with Google gives us the opportunity to drive significant scale in our retail bank by introducing new customers into a relationship with Citi or potentially adding to an existing relationship that we already have with Citi clients,” Lesley said. “We see it as additive to our overall strategy.”
John Blizzard, CEO of Seattle Bank, another Google Pay partner, said the biggest risk to community banks is outdated technology, not big tech.
“Big tech is what enables banks to deliver a much better experience for customers,” Blizzard said. “Legacy technology is by far the big threat of the industry and will be for the next five years.”
Seattle Bank, which has $748 million of assets, decided a year ago to change its core system to Finastra’s cloud-based Phoenix system. The new core and its open application programming interfaces enabled the bank to collaborate with Google, Blizzard said.
“In the prior way we were set up, we would have never been able to do something like this,” he said.
Citi wants to reach a wider audience, particularly millennials and Gen Z consumers.
“Scaling the retail bank is an important strategy for us,” Lesley said. “While a benefit is growing deposits, more importantly, it's about scaling our customers, finding new customers that want to start a retail bank relationship with us and grow into other products and services over time,” she said.
The Google Pay partnership could also help Citi expand its relationships with its 70 million card customers, especially those that live outside of the areas where Citi has branches. And the APIs Citi is building for Google could be repurposed in other partnerships, Lesley said.
Seattle Bank partnered with Google for three reasons: To meet digital consumers where they are (on their smartphone), to reach a new market segment of digital-first consumers, and to move fast and at low cost with strong security, Blizzard said.
“We get to work with the folks that can design the best user experience, probably on the globe,” Blizzard said. “So that's pretty appealing to us. And we’ll use our own brand.”
Some of the benefits of being part of Google’s wallet will become apparent in features that are in the works, that can’t be discussed publicly yet, Lesley said.
Neither the bankers nor Google would share what the revenue-sharing arrangement is.
Google has said it’s partnering with 11 financial institutions; the number is bound to grow over time.
The danger for bank partners is that Google could become the brand with which people interact and the banks could be faceless and interchangeable. But Blizzard said he’s not at all concerned about this.
“We're talking about a next-generation user experience, and it is a massive market nationally,” he said. “There's lots and lots of room for different types of financial institutions to participate.”
Seattle Bank will be able to stand out because it has a strong, locally trusted brand and is well capitalized and in strong financial shape, he said.
Lesley, at Citi, is likewise unconcerned.
“The way we look at it, our collaboration with Google is just one of many scale levers that we have,” she said. “We have a robust ecosystem of partners in the U.S. and we're excited to add Google to it, and we understand that it's not exclusive.”
An obvious concern about sharing bank accounts with Google is, what will Google do with customer transaction data, and what are the search company’s true intentions for forging these relationships?
“What Google really wants to do is capture your information for everything, and this is the one piece they don't have,” Baker said. “Now they get to see payment, spending and savings behavior. Google gets what it wants and maybe it's OK financially for the banks, but in the long term it's disintermediating them from the experience. It feels a little bit like surrender.”
Google has said it will not sell customer data to third parties. Asked specifically if it has promised it will not connect users' transaction history with their search and browsing history, a Google spokeswoman said, “We have said we will not use transaction history in Google Pay for targeting ads across other Google products or sell it to other parties.”
Blizzard said customers will have the ultimate control of their data. “They'll be able to select how much they want to share to gain insights and so forth,” he said.
Google Pay and Citi will share data about how customers transact with their Citi Plex accounts “for the purpose of making sure that the accounts operate well and that we provide the right products and services to them,” Lesley said. “The commitment that we have, and this was important to Citi and to Google Pay, was that this data would never be sold to or shared with a third-party provider and we would be transparent with customers so they can readily understand how their data will be used."
If customers don’t want Google Pay to use transaction activity to personalize the experience or for offers and rewards, they have the ability to go in and change their preferences, Lesley said.
Google and the banks say they will share with customers insights provided by artificial intelligence that will help them save and become more financially healthy.
“The insights will come from transactional behavior coupled with Google Pay's ability to understand where you are, the nature of those merchants and the nature of your spend,” Lesley said. “This is really a big part of the enhanced Google Pay experience, so we will heavily lean on them and those capabilities.”
For all the benefits these banks hope to get from their Google partnerships, some observers say this is a negative trend for the industry.
“For any individual bank, it might be a quite good business decision,” Baker said. “But for the banking industry as a whole, it’s a strategic dead end.”
