One of bank investors’ deepest fears is that one of the big tech companies is going to develop banking products of their own. However, Alphabet‘s (NASDAQ:GOOGL)(NASDAQ:GOOG) Google recently announced that it is abandoning its plans to create its own bank accounts. In this Fool Live video clip, recorded on Oct. 4, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss the news, and why it could be such a big win for traditional banks.
Jason Moser: Google is abandoning its plans to offer bank accounts to users. Now, they’ve been looking for years now to get their finger or get their foot through that door, or so to speak, in financial services, FinTech, whatnot. Their goal, they were going to partner up with banks and figure out a way to offer banking accounts to users. Now, that plan has been a abandoned. What’s the headline here for you in regard to this move?
Matt Frankel: Well, the big headline is that banks aren’t as disruptible as we might have thought. Google announced this in 2020. They announced they were going to create a checking slash savings account like all-in-one product called the Google Flex accounts. They were going to partner with Citigroup (NYSE:C) and Stanford Federal Credit Union. There were pretty concrete plans. They had a name for it already picked out. They recently just announced that they’re going to abandon those plans to focus on “digital enablement for banks”. Instead of being a competitor banks, they want to be a partner to banks. There’s some big reasons for this. Google and other big tech companies for that matter, don’t really need to be making enemies with the big banks. These are companies they rely on for revenue. A lot of these banks are cloud service customers, in Google’s case and in Amazon‘s (NASDAQ:AMZN) case.
Moser: Advertisers as well.
Frankel: Right, the advertisers as well. Remember back in 2018, I’m pretty sure we talked about this on the show, Amazon announced plans to do something similar. We never heard another word about it. There’s two real reasons here. If they don’t want to be competitors to banks, they want more of a mutually beneficial relationship. If Google partners with Citigroup and Wells Fargo (NYSE:WFC) is one of their big cloud customers, I don’t know if that’s true, but just say, that alienates one of their big customers. I mean, the same can be said in Amazon’s case. I can guarantee you Amazon Web Services has a lot of banks as customers.
Moser: Most certainly.
Frankel: That’s reason number one. Number two is the one we always talk about, with everything regarding banking is regulation. This wouldn’t exactly involve Google becoming a bank itself. It would be using Citigroup’s infrastructure to offer the product. But at the end of the day, you are still offering financial products and services to customers. That could make regulators take a little bit of a closer look. I don’t know, which reason do you think is the big one buying this?
Moser: I thought about this from a number of different angles and there are a lot of questions that came up. Because, I mean, on the one hand, it does feel there are other examples of big tech companies trying to get some entry way into a meaningful market opportunity. Payments is clearly a massive market opportunity.
This makes me think of Facebook‘s (NASDAQ:FB) efforts to try to get in the payments. There’s still fiddling around what their digital or virtual currency whatever you want to call it that. I don’t even know that that’s really a thing still. It makes you wonder, number one, is there a point where consumers say you know what, I don’t really want that. Right, it’s one thing to come up with something that a consumer doesn’t even know they want yet. That was Steve Jobs’ M.O. I mean, he was always coming up with design and form factors and things that, this is what the consumer wants, they just don’t know it yet.
To a large extent, that worked out pretty well. But when you look at a lot of these big tech companies, I think, there’s a line that people start to feel they are willing to draw, saying listen, I like Google for X, Y, and Z, but I don’t want it doing A, B, and C; I’m not interested. Maybe this is to say, guys, maybe need to stay in your lane, I don’t know.
Frankel: I have to wonder how much upside there will be even, let’s say, this product didn’t worked out. You really have financial accounts here. You have people who use traditional banks like me, I think you too, you’ve mentioned on the show.
Moser: Sure, I am.
Frankel: Then you have people who use things like Cash App, and PayPal (NASDAQ:PYPL), and Venmo primarily for their money transfer needs. Where does the Google checking saving account really? How many people would have takeaway? I feel everyone’s relatively happy with one option or the other out of those, either traditional banks or the new fintechs. Is there really that much demand for a new banking product from these big tech companies?
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