SINGAPORE (Nov 25): If you want to open a bank account or, for now specifically, a checking account in California, you will soon be able to just Google it. Last week, the search giant announced that it was formally tiptoeing into banking — albeit piggybacking Citigroup and Stanford University’s Credit Union — to “offer smart checking accounts through Google Pay”, a digital wallet platform and online payment system, from early next year.
The partnership, codenamed Cache, between one of the oldest banks in America and a tech firm that has US$120 billion ($163.5 billion) in net cash and whose US$900 billion market capitalisation is equivalent to that of the top three US banks combined, looks like a marriage made in heaven. Citi is a distant fourth domestically among the Big Four American banks despite its huge global footprint. Until now, the big gaping hole in its US footprint has been its lack of a physical presence in California, particularly, the Silicon Valley, home of most global tech giants.
Google’s announcement that it was getting into payments came just days after social media behemoth Facebook unveiled its own payment system that will be built into its flagship Facebook as well as Messenger, Instagram and WhatsApp. Facebook Pay will not only allow users to send money to each other, but also enable a user who sees an ad on Instagram to buy the product right there by just clicking on a “Buy” button.
Facebook is as profitable as it is because the ads it shows are incredibly effective in bringing consumers to a point of sale on the internet. Yet, how many of those ad “clicks” are converted to sales depends on how easy it is for you to complete the transaction. Facebook raced to launch its digital wallet after regulators and lawmakers gave the thumbs down to Libra, a stablecoin or a type of cryptocurrency linked to real assets. Because of its association with the much-maligned Facebook, Libra is now seen as dead on arrival, though the company has vowed to keep pursuing it.
If you sign up as a customer of the new Google-Citi banking partnership, you will be able to access your new accounts through the Google Pay app if you are an Android phone user, or through Google Wallet if you are a Chrome user. Most Android and Chrome users probably already have some of their financial data stored in their Google-run digital wallet. This includes credit card details that they may or may not have linked to Google Pay.
Now, of course you will be able to access a current or checking account as well. You can get your salary directly credited to your Google account, pay monthly bills such as utilities or, if you rent a home, even set up a direct debit to your landlord. Eventually, you would be able to consolidate all of your financial services needs — savings, investments, payments and insurance — into a single app that will remind you when your bills are due. And if you are one of those who can’t seem balance your chequebook, don’t worry, the app will do everything for you and even update you on whether you might soon be running short of funds or are on target to save as much as you normally do at the end of the month.
Tech giants’ grand plan
For decades, companies have tended to stick to their core competency rather than expand willy-nilly into all sorts of areas. So, property firms do not go about splashing money on semiconductor technology. Yet the Big Four tech giants have blown away the notion that they need to stay inside their own lane. Apple does not just make hardware and Google long ceased to be merely a search engine because they have juiced all the revenues from their core businesses.
Tech giants want to be your operating system for everything in the digital realm as digitalisation — or the use of digital technologies to change a business model and provide new revenue and value-producing opportunities — takes hold. Businesses from newspapers to movies to finance are being disrupted as they are digitised and, as such, almost every other company is morphing into something akin to a tech company. And when almost every business becomes a tech business, companies with the biggest advantage are the big tech players, or the Apples, Facebooks and Amazons of the world.
There were good reasons why companies did not veer off their lane or core competency in the past. For one thing, capital was expensive and it was far easier to make money in your own area of expertise than from venturing into the unknown. Moreover, property firms or manufacturers of fast-moving consumer goods stayed in their own lane because they could not use their customers to build a semiconductor business, a social network or a search engine.
Apple and Google are not only flush with cash — more than a hundred billion dollars each in net cash — they also have a huge, loyal and growing customer base they can tap to cross-sell just about anything. Apple has more than a billion customers worldwide and an installed base of 1.4 billion devices; over 1.5 billion people regularly use Google’s search engine or watch YouTube videos; Facebook and its subsidiaries WhatsApp and Instagram have 2.5 billion users, and e-commerce giant Amazon.com has 350 million active users, of which nearly 120 million are Prime members.
A quarter of Americans are unbanked or underbanked, lacking access to credit. Let me repeat an anecdote that I cited in a piece I wrote on fintech a couple of years ago. Overseas workers from India, Mexico, the Philippines, Nigeria and other nations send US$550 billion in remittances back home, paying 7% to 10% in charges and fees. That is between US$38 billion and US$55 billion gouged from the most vulnerable people on earth. Tech firms using blockchain could potentially cut that down to 1%, or up to US$50 billion in savings every year that presumably will flow back into developing economies. Tech can be hugely disruptive but can also be a force for good.
In consumer finance, it is all about the cost of acquiring customers. Apple and Google make cool apps, have a ton of young, tech-savvy customers, many of whom do not have a bank account and are currently not interested in opening one because with ApplePay, Square’s Cash App, PayPal’s Venmo, Goldman Sachs backed Apple Card or a Robinhood account, they can already access a variety of financial services including deposits and checking accounts, debit and credit cards, commission-free securities trading and virtually fee-free wealth management services.
Consumer banking is one of the most heavily regulated industries on earth — more than even utilities. Compliance costs, in the aftermath of the global financial crisis, are high and, indeed, for banks in many jurisdictions, still rising. In America, only regulated banks and credit unions can offer savings and checking accounts that are insured by FDIC, or Federal Deposit Insurance Corporation. Moreover, the Bank Holding Company Act of 1956 is designed to keep banking and non-banking businesses separate to stop companies from using their banking arm to push customers to their other businesses. So it is not surprising that Google, Apple, Amazon. com, Facebook and Uber, all of whom have ambitions of offering an array of financial services, are teaming up with incumbents rather than seeking banking licences or entanglements with regulators. Two decades ago, Walmart tried to go it alone in financial services, only to retreat.
Aside from Google’s partnership with Citi, Apple offers Apple Card in partnership with Wall Street giant Goldman Sachs’ consumer banking unit, Marcus. Amazon, which has been negotiating with JPMorgan Chase to offer current accounts, recently broke off the talks. It has not said whether it would seek another financial services partner. Tech giants need the incumbents at a time when they are under siege for invading our privacy, surreptitiously gathering our data without permission and using it to make boatloads of money for themselves. Banks like Citi that are teaming up with tech giants bring to the table their regulatory and compliance expertise alongside their banking licences.
Valuable data
By getting into consumer finance, Google gets access to incredibly sensitive, intimate financial data about you — including your salary as well as your entire financial transaction stream — how you spend your money, where you spend it and what you spend it on as well as how you fund all your transactions. That’s a lot of data that Google can leverage on. Sure, access to your search history, reading your emails or following you through your GPS location with your mobile phone already gives it a lot of data about you, but once Google marries that data with all your intimate financial data, it will be sitting on a treasure trove of to-die-for information. Add that to all your personal health data that Google will soon start collecting (as I wrote in my last Technology column) and you begin to realise just how powerful a hold the likes of Google have on you once they have all your data.
The big concerns are not just privacy or Big Tech using your data for micro-targeted ads; there is also the worry about who ultimately owns the relationship with the customer in the case of Apple Card or Google’s Citi checking account. While banks need tech giants to help expand their own reach and access new customers cheaply, they do not want to end up like telcos, which once owned the relationship with their phone customers when they sold those clunky Nokia phones or indeed when they had a landline into your home. Customers now believe their real relationship is with Apple, not with Singtel in Singapore or Maxis in Malaysia, which are increasingly being reduced to being just owners of pipes or infrastructure through which your phone or tablet’s data is routed.
Do we really want Amazon, Facebook and Google to be our bank too? Google’s foray into checking accounts through Citigroup is just a first step for tech giants to be serious players in banking. Whether regulators will allow it to access all of your intimate financial data to boost its profits remains to be seen.
Assif Shameen is a technology writer based in North America
