Why Google Won't Become A Bank

Search Engine Watch published an article titled Why Would Google Become A Bank? and basically answered the question in the first paragraph by saying “Because that’s where the money is.” The article goes on to list a more specific set of reasons including:

  1. Increased value for AdWords ads.
  2. The power of the coupon just got better.
  3. Further diversification of revenue streams.
  4. Data.
  5. Android and Chrome usage increases.

My take: Don’t hold your breath waiting for Google to become (or launch) a bank. It isn’t going to happen. Here’s why:

1. It’s not where the money is. The prospects for mobile payments is certainly bright. But the question that remains to be answered is: Who’s going to make money from these payments? If you, your bank, or anyone else thinks that consumers will pay a fee or a premium for the “privilege” to make a mobile payment, you (and they) are sorely mistaken. Banks’ ability to make money from transactions — mobile or not — has seen its ups and down in the past few years (up on credit cards, then down on credit cards, up on debit cards, then down on debit cards). Retail banking is simply NOT “where the money is.”

2. Nobody in their right mind wants to be regulated to the extent that banks are. For the past few years, regulatory changes have hacked away at banks’ ability to make money. The Card Act, Regulation E, Durbin’s Folly, the list goes on. From a new entrant standpoint, it’s simply too risky and unpredictable to enter the industry. Firms like BankSimple and Movenbank are getting into the industry by either leveraging other firms’ bank charters or by avoiding the need for one altogether.

3. They don’t have the support infrastructure. Google isn’t a B2C company, it’s a B2B company. It has no competency — let alone capability — to provide transactional customer support. So I hear you say,”but they’ll outsource that.” No, they won’t. Outsourcing a critical business function doesn’t absolve you of the need to know how to manage and integrate that function into your business

4. It doesn’t fit with the firm’s business model. Even if you argue my three previous points away, the most important reason why Google won’t become a bank is that it just doesn’t fit with its strategy and business model. Google’s strategy and business model is unique and ambitious: It aims to be the center of the universe in INFLUENCE.

Why did Google acquired Zagat? To influence your choice of restaurants. Why did Google launched Google Advisor? To influence your choice of banks.

Google doesn’t want to process mobile transactions, open bank accounts, and deal with your stupid little banking questions.Google wants to influence who you do business with. And not just in banking and financial services, but everywhere.

When Google is influencing all of your day to day decisions, then every provider in the world will be kissing Google’s shiny black boots looking to participate. And THAT’S how Google will make money. Not by becoming a bank.

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11 thoughts on “Why Google Won't Become A Bank

  1. 1) “Retail banking is simply NOT “where the money is.” – Amen!

    2) Regulation? What regulation? Wait, hold on, let me check with my regualtor to make sure I can say that.

    3) I think “we” may try to become a search marketing company, because THAT is where the money really is…

  2. Paul: #3 is not a joke. This is why the prospect of merchant funded incentives looms large. There is potential for banks to develop a platform for influencing purchases.

  3. Now it’s my turn to agree with YOU. We had this exact conversation at our strategic planning session last week. Google and Apple will not become banks because, well, it sucks being a bank and all the reasons you listed.

    The Google Wallet still needs us – more accurately access to the ACH system. We move money for members every day through ACH – the rub? We don’t charge for it.

    So, my question to you sir – will banks be forced to charge Google customers for this convenience?

  4. DW: One sec, I just fell off my chair when I saw that you agreed with me………..OK, I’m back in my seat.

    The challenge with your question is that you used the word “forced.” If anything, banks will WANT to charge for this convenience. The question is “Can they successfully charge for this?”

    At the moment, the list of banks that are testing fees for debit card usage is growing. I’ve said it before, will say it again: I think this is the stupidest thing they could be doing.

    A fee for mobile wallet use may fall into the same category. If the downstream benefits of mobile wallet use is there, then discouraging adoption and use by imposing a fee isn’t a good business decision.

  5. I do believe that credit unions have an advantage right now if they adopt the Southwest Airlines approach and do nothing. When all other airlines began charging for checked luggage, they did nothing but market the fact that they are free and LOVE bags.
    New Mexico was selected as one of the “test markets” for Wells Fargo’s new fees. $7.00 a month for checking and $3.00 for the convenience of a debit card. We’re seeing a ton of new business because we did nothing – but stayed free.

    I sincerely hope WF and BofA charge for ACH pass through so again – we can do nothing and be the hero.

    See you in Fishers!

  6. Denise – first: congratulations on winning a slew of new member accounts; second: please accept my condolences. Based on the WF and other Banks’ product offering around new fees it is self evident that most consumers who decide to switch are highly unprofitable to WF (and other such banks) … and they will now be highly unprofitable for your CU. Sure, you just picked up a few hundred accounts, but don’t forget that you have just incurred an operating loss of $200+ per new member. And while I understand that CUs are much less interested in profit, my guess is that your CFO will be very interested in knowing that he now has to come up an extra $20,000 for every 100 new accounts.

    Doing nothing has never been a great strategy for success and I am betting that it is not a good strategy today for CUs. Growing accounts for the sake of growing accounts is, not only not a good strategy — if for no other reason, because it increases your operating loses with virtually no prospect of recovery.

    What CUs should be doing is focusing their efforts on consumer segments that are most likely to engage in a significant and robust relationship; a relationship that is far more likely to result in high value to the member and significant growth & profitability for the CU.

    PS: Southwest Airlines may not be doing as well as you may expect. This link – http://www.google.com//finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1316120386206&chddm=69598&chls=IntervalBasedLine&cmpto=NASDAQ:JBLU;NYSE:DAL;NYSE:LCC;NYSE:UAL;NYSE:AMR;NYSE:ALK;NASDAQ:RJET&cmptdms=0;0;0;0;0;0;0&q=NYSE:LUV&&fct=big – provides the YTD stock price change for Southwest and its key competitors. You might be shocked to learn that Southwest is performing no better than average.

  7. Serge,

    I forgot to mention that we are brilliant at on-boarding new members especially if we have a chance to steal them from WF – we are never content with one unprofitable account as you mentioned. This is the cheapest car and VISA loan promotion on the planet – thank you Wells Fargo!

    I did a blog post in June called “What If…” http://denisewymore.wordpress.com/2011/06/20/what-if/

    It basically predicted the WF fee increase and asked the question…”What if that’s the tipping point for the inertia that has plagued so many consumers and they decide that are mad as hell, and aren’t going to take it anymore, and really DO move their money to credit unions? What if we’re ready…”

    We are ready.

    Oh, and you can never make me doubt SW Airlines brand. They have been consistently profitable over the last 38 years – a feat unmatched in the commercial aviation history. As my good friend and economist Dwight Johnston is fond of saying “The stock market is not the economy. The stock market is nothing more and nothing less than the collective optimism or pessimism of traders/investors executing trades at any particular point in time.”

  8. Pingback: Why Google Won’t Become A Bank « Near Field Communication (NFC) / Smart mCommerce

  9. Google won’t become a bank. They’d be insane in this environment (US, UK, Europe, just about anywhere) – I bet there’s a few banks wishing they weren’t banks!

    Here’s a view from shoppers’ paradise – ‘Hong Kong’.

    There are 14m+ credit cards in circulation and about 3.5m adults who could qualify for one (or more), making an average of four per adult. Why? Because banks set up loyalty schemes that provide discounts with retailers and restaurants to help push card penetration (!). These can be quite generous with discounts of up to 20% on many goods, services and meals – the outlet provides the discount. We have no sales tax, so its real money (not knocking off the government’s cut). So you need a few credit cards to cover your options.

    But if you have two, or more cards you can’t manage the amount of information needed to get the right deals – its not spontaneous either, you have to print or remember stuff. (I can’t handle one.) The retailer and restaurant get more punters; banks make money from the transactions on their card versus competitors.

    To benefit, retailers and restaurants have to join a number of schemes in order to pull as many customers in as possible. We have about 15 major, global, regional and local banks and they compete like crazy! And all end up sharing the same customer (remember, four credit cards on average).

    Many stores and restaurants aren’t multinational chains and have limited marketing budgets, that’s why they use the bank to give them exposure (the banks promote on their website site or with mail shots, neither of which are useful on a smartphone in a shopping mall).

    Here’s how I see things happening with Google and banks.

    Along comes Google, and says to the retailers, lets stop all of this nonsense and let us get the punters into your shops and restaurants using their smartphone. (We love our Android phones and iPhones too.)

    Because its Hong Kong, many shops and restaurants are concentrated into multi-level shopping malls (Times Square is 14 levels) meaning that there’s a lot of competition for your business. Your Android powered phone will alert you with relevant, timely and more personalised deals as you’ve told them that you’re interested in (putting the customer in control – I get all sorts of irrelevant offers now).

    Google suddenly crosses from the ‘virtual’ world to the ‘real-time’ world and hooks up the two, making it more relevant, timely and personalised. Google can pull together great real-time advertising deals as well that put smaller retailers and restaurants into the virtual world and deliver when its the customer is in the right place, at the right time – the real world. (The two actually merge!)

    Google will put control back into the retailers hands and the banks will ask Google if they can promote, as part of offers, their credit cards or NFC wallets as payment solutions to preserve their revenue. Google will say “yes… …for a reasonable fee…”. So the banks may end up paying Google for the privilege of a slice of the payments pie (that they already had?) and maybe Google will subsidize the retailers in some way? Or Google might simply pocket it. So in one sense, the quote was right! Google will go after where the money is. Its in the banks after all.

    Ok, some may say that Hong Kong is unique, but schemes like this exist across Asia Pacific, so will this happen elsewhere? Are there parallels?

    ps Loved Champaign Bank! Thanks Ron.

  10. Hi

    very interesting to compare both views.
    It might be true for Google not to become a bank, but for Apple I am not so sure. This could be another game changing plan of this game changing company. Why not making retail banking fun and customer friendly? Apple could be a company to achieve this. And money is still in this game…
    Besides, the alternative of becoming a bank might be to buy a bank.

    Kind regards from Germany

    Hansjörg

    http://www.der-bank-blog.de

  11. I agree with the what (not going to become a bank) but not necessarily with the why. It would not make sense for Google to open a retail bank, but a limited purpose bank – such as an ILC – would make a lot of sense. An ILC would allow them to issue consumer credit for ecommerce and mobile transactions and reap the benefits (and risks; think Target), and to issue commercial credit to thier customers and partners. Unfortunatly, they can’t open an ILC, because new ILC licences have vanished since Wal-Mart freaked out the market by trying to open one for the same reason.

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