Analysts pin Google retail bank U-turn on fears of higher regulatory scrutiny, low profitability

Google abandoned plans on Friday to offer bank accounts to users, taking even its partners by surprise and leaving at least 400,000 users on waiting lists for the much-anticipated service.

Dubbed “the first mobile bank account integrated into Google Pay”, Google Plex aimed to ​​create a checking account that could be managed directly from Google Pay.

The retail banking app would have allowed banks to offer checking accounts through Google Pay – a project that involved Citigroup, Stanford Federal Credit Union and others, including Spanish bank BBVA.

The project was initially expected to debut in 2020 but, after a series of missed deadlines, Google has now made a sudden pivot from it.

A Google spokeswoman said the company would now focus primarily on “delivering digital enablement for banks and other financial services providers rather than […] serving as the provider of these services.”

With more than 10,000 customers signing up on the waiting list for a Plex bank account each week, generating a cumulative figure of more than 400,000 users, Citigroup said it would pitch other accounts to those potential customers.

The New York-based bank said it will look for other ways to work with Google in the future.

Multiple reasons behind an abrupt about-face

“The news doesn’t come as a big surprise,” Antoine Rizk, CEO of Paris-based Flaminem, a software vendor for compliance managers in the financial sectors, told bobsguide. “The main tenants of the project left the company a few months ago.”

Rob Murphy, managing director of financials at Edison Group, a global investment research and consultancy, cited profitability as a possible sore point.

“Running bank accounts is very expensive as banks are subject to considerable regulatory and compliance costs, such as checking for illegal activity and money laundering. In the US, a lot of that cost is recouped through monthly fees and overdraft fees.”

“The ‘Plex’ account did not charge any such fees and was aimed at younger or less affluent customers who needed better budgeting help through the mobile app. By the same token, these kinds of clients offer limited profitability,” he added.

Dan Ridsdale, Edison’s Managing Director of TMT, added that “the biggest threat facing Google and its big-tech peers is the prospect of greater government regulation and growing calls for the businesses to be broken up.”

“A successful move into banking would only exacerbate the situation, putting the company into competition with powerful, influential financial services businesses,” he argued.

The financial services arena and the gladiatorial contest

Google is not the first tech giant to have explored financial products and services as a way to strengthen relationships with its customers, only to turn away from them.

“The fintech industry has only made marginal inroads into banking businesses and, although Google has enormous resources, they have decided it is not worth it,” said Murphy.

“Therefore, it seems that Google intends to stay involved in the sector by focusing on ‘delivering digital enablement’ rather than as the provider of the services.”

Attempts by other Silicon Valley big names to climb into the financial services playground have met with little success.

Amazon had talks with large investment banks, including JPMorgan, about building a checking-account-like product the online retailer could offer its customers.

Apple teamed up with Goldman Sachs to issue a joint credit card paired with new iPhone features that would help users manage their money.

Facebook signed up more than a dozen companies including Visa, Mastercard, PayPal, and Uber to back a new cryptocurrency.

However, many of those expansion plans have stalled. Amazon never moved forward with its checking-account proposal, and Facebook tabled its crypto push after regulators around the world objected and partners fled.

Moreover, competition in the space has continued to grow exponentially in the last few years.

“Indeed, since the open-banking initiative many years back, a plethora of neo-banks and payment services have occupied the space,” said Flaminem CEO Rizk.

“Many such start-ups have already become multi-billion giants difficult to compete with.”

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