Now that Google Inc. is making a play for the heart of payments—the checking account—some observers see the strategy’s first fruit as likely to be a move into a massive market long controlled by banks and service providers. “It’s huge,” Krista Tedder, director of payments at Javelin Strategy & Research, says of the news, which broke Wednesday. “It’s one step closer for Google to get into bill pay.”
Alphabet Inc.’s Google is planning to launch checking accounts next year in partnership with financial institutions, starting with Citigroup Inc. and Stanford Federal Credit Union. The accounts would be managed through Google Pay, the company’s 4-year-old mobile-payments app.
The trade-off in these partnerships, according to Google, is that banks can manage regulatory compliance while Google Pay provides the digital underpinnings for expanded mobile access. “In the [United States], more than 2,000 banks already offer virtual card transactions via Google Pay, and in India we’ve seen how fast and secure mobile payments can contribute to growing economic opportunity,” says a Google spokesperson by email.
For now, Google is “exploring” the full contours of what it calls “smart checking accounts,” and will have more to say on the matter later, the spokesman says. News of the move first became known through reporting by The Wall Street Journal.
But for some observers, bill pay is an obvious place to start. Though they control the demand-deposit accounts that underwrite these payments, banks have struggled to control consumers’ bill-payment activity. Their share of total bill-pay volume fell from 38% to 27% between 2010 and 2016, according to the Boston-based research firm Aite Group. By contrast, billers grew their share from 62% to 73%. The offering through Google Pay could help recover some of that share.
The move would also supply the technological capability for value-added features. For example, some consumers already use Google Pay’s person-to-person payment capability to pay bills, but with sponsored checking accounts, “the formalization of bill pay to do reminders and recurring payments” would be possible, Tedder says. “It seems like a natural fit now that they have a partnership for checking accounts.”
She also sees the accounts allowing users to “auto-provision” their debit cards into their Google wallets. In this way, she argues, the checking accounts could prove to have “longer-term viability” than the credit card accounts rival Apple Inc. began offering this year through Goldman Sachs.
Other experts see the accounts helping Google Pay in its efforts to add consumer appeal in light of recent moves by rivals including not only Apple’s Apple Pay but also Samsung Electronics Co.’s Samsung Pay, which has been active lately in adding new features like cross-border transfers, a prepaid Mastercard, and a card-consolidation capability through a company called Curve.
“It’s a value-enhancer for Google Pay,” notes Thad Peterson, who follows mobile wallets for Aite. The Google-linked accounts will also help the partner institutions. “It’s an opportunity to add market share to Citi,” he adds.
But while Google’s plans may help banks reclaim some share in markets like bill pay, Peterson says they will likely do more to cement loyalty with existing Google Pay users than add new ones. “I don’t think it’s going to be a significant share mover” for Google Pay, he says. “It’s much more about creating value for existing Android users.”