Analysis: The banks may be right to fear how Google could muscle in on their turf.
Google is one of those companies that many believe could disrupt any sector or market that it deigns to move into. Search, media, mobile, even virtual reality and cars – at times it feels like there is nothing that the monolithic Silicon Valley titan cannot turn its hand too.
What about finance though? That has always seemed to be a hurdle too far for Google, but surely the firm that has redefined how we organise and gather information could become a bank and redefine how we organise and gather our money?
The rise of fintech startups, including a variety of digital challenger banks, has certainly shown that the financial industry is ripe for disruption by technology, and Google, with all its infrastructure and data processing power, appears to be one of the firms that would be perfectly positioned to do it.
Furthermore, the firm has already dipped its toe into the waters of financial services with the Google Wallet payments service. On the back of this, in January 2015, it also began allowing users in the UK to send or request money from within its highly popular Gmail email service. Previously only US customers had been able to do this.
Amazon has, of course, already taken the lead as a tech firm jumping into offering financial products. In July 2015 it began offering loans to thousands of invited sellers in its market place, indicating that the big tech firms are starting to be not just interested, but active in the finance space.
Samsung and Apple too offer payment and wallet services, tied to their mobile devices.
Forrester analyst Oliwia Berdak is clear that she does not think that Google will become a bank, and in July 2014 she wrote a research paper called "Why Google Bank Won’t Happen". She said it was more likely the company would create "a Google powered financial services hub.
Now in 2016, Berdak still stands by her prediction. "Not much has happened in terms of progress in some of the areas I listed there, like payments, comparison of financial products" she told CBR.
"Google is still trying to build out its digital wallet. There hasn’t been much progress. More progress has been made by Apple, or Samsung, rather than Google," she said.
She also said that in the US Google now offer mortgage comparison and insurance comparison services "but when it comes to the other elements, like management or digital financial advice they’ve always thought, and still think this is sort of farfetched, and is more linked to Google’s hopes for Google Now as a virtual personal assistant that knows it all."
In a follow up article in 2014 titled "Why Asking About Google Bank Is The Wrong Question", having being pestered for an answer to the question ‘how vulnerable to disruption are some of the legacy players in the financial sector’ from banking clients, Berdak said: "It’s the assumptions that are faulty here; assumptions that reveal precisely the type of legacy mindset that makes many retail banks so vulnerable to disruption."
She went onto say that "Many retail financial firms still haven’t grasped the full potential of digital disruption.
"They think that new competitors will use their digital might to beat them at their own game, be that through more efficient processes, brilliant algorithms or better user experience. While these three things do matter, what matters most is the purpose which they serve."
Ultimately, she said, "digital disruptors like Google are disruptive because they don’t play by the rules."
Peter Simon, Head of Information at Barclays, echoes Berdak’s scepticism at the idea that Google may became a full service bank.
"Will somebody like a Google want to be a bank bank?" he says. "I think there’s lots of challenges with being a bank," which he believes will put them off making the leap.
Simon says that many aspects of being a bank would probably not suit Google. "There’s a lot of things we do as a bank, we carry cash, we process cheques, we’re financially inclusive – if you walk in off the street and if you need an account we’ll give you an account."
He does, however, accept that the financial sector remains a tempting one for firms to get into.
"Look at something like Orange getting into banking, or Amazon starting to do lending – small instalment credit to both its business base and its retail customers, the financial sector is a large sector, and people will look at it, any competitor would look at it," he said.
Ultimately, Simon follows Berdak’s line of thinking, believing that it is more likely that Google will begin offering niche financial products that it can make money from, essentially extending its current offer, as opposed to become a full service bank.
"It is more likely, like you see with Amazon, about being able to offer instalment credit, because you can make a 20-30 per cent return on that with the data you have, without necessarily having to open a branch," he said.
Others in the banking sector appear to be more concerned by the prospect of a Google challenge than Simons is, indicating there maybe be something afoot.
In March 2015 the Economist Intelligence Unit, when conducting a survey of the retail banking sector, found that "New competitors are adding to the pressure, egged on by regulators keen to break powerful cabals. Over one-third (36 per cent) of respondents expect technology and e-commerce companies to be their biggest competitors by 2020. Payment players such as Paypal or new banks may already be old hat (12 per cent and 13 per cent, respectively).
25 per cent of respondents felt that technology could most effectively help banks know their customers better, and knowing people is what Google thrives on.
Berdak did point out though that Google’s knowledge about purchases comes from the quite limited data pool of receipts received through Gmail. "The bit that it’s missing , of course is the spending," she said. "How people spend their money, what products they buy. The only visibility Google has into that is the receipts that someone gets in their inbox. "
It is noticeable though that neither Berdak, Simon, or indeed the banking sector, completely dismisses the idea of Google offering more financial products. "If I was a competitor I’d say why do I want to do the whole banking thing," is as far as Simon will go, while Berdak speaks about a "Google powered financial services hub."
The temptation for Google to get into the banking sector only increases when you take a closer look at the numbers. The University of Cambridge Judge Business School noted the ongoing growth of non-cash payments, despite the financial crisis, and the development of Near Field Communication (NFC) technology used by Google and others.
Ultimately, it comes down to a question of what is meant by a bank in 2016. Challengers like Atom are getting licenses and funding and are solely based on mobile apps. Another, Starling, only offers current accounts. The real question then, perhaps, is why would Google not become a bank?