Why Google Pay’s reboot signals a major land grab on financial services
With the sheer scale and ability to map vast quantities of personalised data, Google, Amazon, Facebook and Apple (GAFA) have long had the potential to disrupt and dominate financial ecosystems. Now, with the relaunch of the Google Pay app, it looks like Big Tech’s competitive threat to both legacy banks and fintechs is about to be realised.
The next-gen Google Pay app goes well beyond the tap-to-pay and peer-to-peer (P2P) payment capabilities Google has championed so far. By offering a much more ambitious suite of services, the app could emerge as the primary financial partner for young, digital savvy users who have already embraced the search giant’s other offshoots (Gmail, Android, YouTube etc). And it doesn’t stop there. Later this year, Google will partner with 11 banks to offer checking and savings accounts inside Google Pay – a service that Google has dubbed Plex.
Banking incumbents may dismiss Google as posing a genuine financial services threat. But that insular view fails to take account of Google’s expansion in areas like automotive, healthcare and drones. Here are five reasons why the banking world, including fintech challengers, needs to sit up and take notice:
1. Google’s scale and ubiquity
The first key weapon in Google’s armoury is the size of its user base. With five billion active Gmail users globally and 5.6 billion searches daily, Google doesn’t need to burn cash on customer acquisition in the way fintech start-ups have had to do in recent years. And even if that is an over-simplification, this trillion dollar tech giant has deep pockets. 2020 market valuations suggest Google parent Alphabet‘s valuation is double that of JP Morgan Chase.
2. Rich data
Through its product ecosystem, Google has access to unparalleled customer data and insights which it can now combine with a whole new data set – consumers’ financial data. This is going to be very powerful allowing Google Pay, Google Plex and Google personal financial management to develop much more compelling services than anything legacy banks and fintech companies provide. Combining consumers’ financial data with other data streams is something that super apps in Asia do very well and one of the things that the Second Payment Services Directive (PSD2) legislation is pushing banks to do.
Every company talks about putting the customer first, but Google – and the GAFA brands in general – are much better at user experience and at being customer-centric than most legacy banks. Usage stats suggest that consumers enjoy being part of the Google ecosystem, whereas banks have struggled to improve engagement levels with consumers during COVID-19. Google knows how to package technology in a consumer-friendly way, and this is an area where legacy brands need to up their game urgently.
4. Google’s AI expertise
No one does artificial intelligence (AI) software better than Google. Google search and Google Assistant are way ahead of similar products by Amazon and Apple. Google’s DeepMind’s AlphaFold2 software recently made unprecedented progress in predicting a protein’s 3D shape from its amino acid sequence, a long-standing challenge which humans have been unable to solve. Google’s entry into financial services means the company’s AI capability will have access to a huge new data set allowing it to become even more useful and powerful for users. A simple but effective example is how easy it is to be able to search for financial transactions on Google Pay even using quite broad search terms. Banks are nowhere near being able to deliver such an impactful feature. Just think where this could take Google as it embraces its new role as a window on consumer finances.
5. Owning the customer relationship
Google Plex will embrace the banking capabilities of partners such as Citibank and Seattle Bank and overlay them with the proven Google experience. What this means ultimately is that Google has its eye on owning the customer relationship. Down the line, this strategy runs the risk of banks becoming commoditised. If they are reduced to the role of financial “plumbers” – only providing the back-office function – they may collaborate their way out of customers’ lives.
Google’s play for financial service dominance isn’t a guarantee of success: it has stacked up quite a few failures of its own over the years. There is also likely to be some trepidation on the part of regulators about letting big tech squeeze such a pivotal sector of the global economy. But the new Google Pay does introduce a serious note of urgency and competition into financial services. Banks and fintechs need to recognise Google’s move for the land grab that it is.