Google is taking its deepest dive yet into the financial lives of its users with plans to roll out a checking account service.
Citigroup Inc. and a California credit union are the tech giant’s initial partners for the venture, which will enable users to access their bank accounts through the Google Pay app beginning next year, according to people familiar with the matter. Other banks could join up later, the people said, asking not to be identified because the plans haven’t been announced.
“We’re exploring how we can partner with banks and credit unions in the U.S. to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools,” Google said in an emailed statement, adding that the accounts will carry federally guaranteed insurance.
The move is the latest sign of Silicon Valley’s determination to muscle in on financial firms’ territory, looking to expand their hold on customers and accumulate data on their finances. At the same time, it shows banks are more willing to pair up with technology companies in their quest to avoid getting shut out of the relationship entirely. In the Google arrangement, the financial institutions will handle most of the compliance requirements.
Google has spent years building out its payments capabilities, offering consumers the ability to send money to friends and check out both online and in stores through Google Pay. With the checking accounts, consumers will be able to receive their paychecks and make transactions solely inside the Google ecosystem.
“We’re going to see more of this, but it’s not the death of banking,” Bryce VanDiver, a partner with Capco who advises banks and payment companies, said in an interview. “Compliance is still being manged by Citi. If you look at banks’ core competencies, compliance being one of those, they’re really good at that.”
The Wall Street Journal reported Google’s plan earlier Wednesday.
For Google, the quest for the trove of data associated with checking accounts and financial products is another step in its push to collect information on all aspects of people’s lives. The Alphabet Inc. unit has a wealth of information on consumers’ behavior from its flagship site, its popular free email service and its Android operating system, as well as from partnerships it has with the largest U.S. healthcare systems to analyze consumers’ health data. Meanwhile, Google and other large tech companies are under increased scrutiny, with federal antitrust investigations around competition law.
“This is probably more about Google Pay and how they plan to position that ... to access all financial products, not just credit cards,” VanDiver said.
One of the people said Google partnered with Citigroup in part because the lender has spent the last year building out its digital banking arm, an effort that has helped the bank gather more than $4 billion in deposits this year.
“This agreement has the potential to expand the reach and breadth of our customer base while complementing our continued investments in digital,” Citigroup said in a statement.
The partnership is a bit of a shift for Citigroup, which has been relying on marketing its digital bank accounts to existing customers in its sprawling credit card business. The New York company said this month that it would offer special perks for checking accounts to customers of its co-branded credit card with American Airlines Group Inc.
“This year we’ve increased the deposits we’ve raised digitally more than fourfold,” Anand Selva, who leads Citigroup’s consumer bank in the U.S., said at an investor conference this month. “As we continue to test and learn and enhance our digital capabilities and experiences, the digital deposit momentum has accelerated through the year.”
For the finance industry, the worry is that tech giants could one day replicate the success of Alipay and WeChat Pay in China, where money flows through digital systems without the need for banks.
To fight off the threat, banks are striking deals to keep a firm hold on their customers. Apple Inc. paired with Goldman Sachs Group Inc. this year to offer a credit card that extended $10 billion in credit lines as of Sept. 30. Uber Technologies Inc. announced last month that it would offer a bank account to drivers on its platform through a partnership with Green Dot Corp.
In a note to investors, an analyst with Cowen, Jaret Seiberg, predicted the Google-Citi partnership would meet with “stiff political opposition” amid consumer privacy concerns and rancor toward financial and tech companies.
“There is a real debate about whether big tech or big banks are more politically toxic in Washington,” Seiberg wrote. “We don’t see how combining the two will make either less contentious.”
Surane writes for Bloomberg.