Google to Offer Checking Accounts

Summary

WSJ Your Money Briefing

Episode: Google to Offer Checking Accounts
Date: November 14, 2019
Host: J.R. Whalen
Guest: Peter Rudegeair, Wall Street Journal Reporter

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Episode Overview

This episode explores Google’s announcement that it will begin offering checking accounts in partnership with established banks and credit unions. Host J.R. Whalen interviews WSJ reporter Peter Rudegeair to break down how the product will work, what’s motivating both the tech and banking sides, the potential impact on consumers, and how privacy concerns play into these new tech-finance partnerships.

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Key Discussion Points and Insights

1. Google’s Move Into Checking Accounts

• Core Announcement:

  • Starting next year, Google users will be able to open checking accounts through Google Pay.
  • Google is entering the financial services arena, joining other tech giants exploring the space.
  • [01:49]

• Partnership Structure:

  • Google is partnering with Citigroup and the Stanford Federal Credit Union.
  • “One is Citigroup, one of the biggest banks … the other is … Stanford Federal Credit Union, a tiny lender in Google's backyard in Palo Alto.” – Peter Rudegeair [02:17]

• Why Partner with Banks?

  • Only banks and credit unions can hold insured deposits in the U.S.
  • Google’s role will be as the technology and interface provider, while banks handle the actual holding and insuring of deposits.
  • The accounts may be branded as “Citi accounts by Google” or accessed via Google Pay.
  • “Citigroup and Stanford are kind of that receptacle for the deposits that are being held at Google.” – Peter [02:33]

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2. How Will It Work For Customers?

• Access:

  • Accounts will be managed through Google Pay (Google’s digital wallet).
  • Android users and Chrome users are the main target; iPhone users will have limited or no access.
  • “You'll access it through Google Pay, which is the Google Wallet … Starting next year, you'll be able to see some prompts and invitations to open a checking account at those institutions.” – Peter [03:17]
  • Physical checkbooks and fee structures are still being ironed out.

• Comparison to Apple:

  • Apple currently offers a credit card (with Goldman Sachs), but not checking accounts.
  • This is a “value-added” feature for Google users, leveraging its user base and tech expertise.
  • [04:10]

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3. Tech-Bank Partnerships: Lessons and Tensions

• Previous Industry Experience:

  • Facebook’s Libra project suffered setbacks due to regulatory and banking partner concerns.
  • The Apple-Goldman Sachs card had public relations issues related to branding and visibility.
  • “Apple wanted to be front and center … People at Goldman weren't thrilled to see that they were kind of relegated to that role.” – Peter [05:26]

• Google’s Different Approach:

  • Google is content to let banking partners be visible, taking a “vanilla” approach to checking accounts.
  • “Google doesn't need to be front and center.” – Peter [05:52]

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4. Data, Privacy, and Customer Relationships

• Value of Data:

  • Checking accounts provide rich data (income deposits, spending patterns, merchant information).
  • “There's a lot of data there that Google will be able to see.” – Peter [06:02]

• Privacy Concerns:

  • Handling financial data is particularly sensitive and adds risk of scrutiny.
  • Google claims:
    • Google Pay data will not be used for advertising.
    • Google Pay data will not be sold or sent to other parts of Google.
    • It remains unclear how Google will use data, beyond what they say they won’t do.
  • “Some of the financial data could be much more personal than search histories or some emails.” – Peter [06:26]

• Customer Relationship Ownership:

  • Banks are concerned they may lose customer loyalty to the tech platform and become “the plumbing behind the scenes.”
  • “Is it the tech company or is it the bank?” – Peter [08:06]

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5. Who Is the Target Market?

• Young, Tech-Oriented Consumers:

  • Google targets younger users, hoping to capture their loyalty early – customers tend to stick to their checking accounts long-term.
  • “If you can … lock in that customer through Google Pay at a young age, they might prove more sticky than otherwise.” – Peter [08:38]

• U.S. Only:

  • The product will launch exclusively in the United States, despite Google Pay's international reach.
  • [07:07]

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6. Ongoing Experiments in Finance

• Google’s History in Financial Services:
  • Previous endeavors include Google Wallet (2011), Project Pony Express (a bill-pay initiative), and comparison shopping for insurance and credit cards.
  • Most of these projects were short-lived.
  • “There’s no guarantee that this checking account will be around long term.” – Peter [07:29]

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7. Fees and Consumer Details

• Unanswered Questions:
  • Fee structures are still undecided. Typically, banks charge fees if certain balances or transaction thresholds are not met.
  • “We asked Google and the institutions involved. Those are still being worked out.” – Peter [08:55]

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Notable Quotes & Memorable Moments

• “It might be a Citi account by Google. It might just be a Citi account that you access through Google Pay.” – Peter Rudegeair [02:33]
• “Checking accounts are as vanilla as it gets in the banking world. They are more than willing to let Citigroup or Stanford Federal Credit Union have the spotlight.” – Peter [05:52]
• “You can just look at your transaction stream, see what your paycheck gets deposited every week and back out where your income is.” – Peter [06:02]
• “Google told us that Google Pay data is not sent to other parts of Google. They do not sell data to third parties. They do not use Google Pay data for advertising purposes.” – Peter [06:26]
• “The ultimate question is, who owns that customer relationship? Is it the tech company or is it the bank?” – Peter [08:06]

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Timestamps for Key Segments

• 01:49 — Introduction of Google offering checking accounts
• 02:17 — Explanation of Citigroup and Stanford Federal Credit Union’s roles
• 03:17 — How customers will access checking accounts via Google Pay
• 04:10 — Comparison with Apple’s financial products
• 05:04 — Tech and bank partnerships: challenges and lessons
• 06:02 — The value of transactional data for tech companies
• 06:26 — Google’s stated privacy policies for customer data
• 07:07 — Product is U.S. only, despite Google Pay’s global reach
• 07:29 — Google’s previous (and mostly failed) financial service projects
• 08:06 — Question of who owns the customer relationship
• 08:38 — Targeting younger consumers
• 08:55 — Checking account fees still undecided

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Overall Tone and Takeaways

The discussion conveys both excitement and caution about Google’s entry into banking. There’s optimism about improved tech-driven products, but also significant uncertainties about data use, bank-tech company dynamics, and whether Google’s latest financial experiment will stick. With privacy and ownership of customer relationships at the heart, it’s clear both tech and finance sectors are feeling their way in this new territory.

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For listeners interested in the intersection of technology and banking, this episode offers a concise yet thorough glimpse into how Silicon Valley and Wall Street are increasingly intertwined—and what that could mean for personal finance going forward.

Transcript

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[B]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Next year, if you want to open up a checking account, you'll be able to Google it. Coming up, we'll talk about Google's plan to get into the banking business. First, some money and market news you should know. Lower interest rates are bringing Americans into car showrooms. The Federal Reserve of New York says auto loans taken out by Americans skyrocketed to $159 billion in the third quarter. That's the second highest level on record. Auto debt now accounts for about 10% of overall household debt, up from about 6% when the recession ended in 2009. The third quarter rise in auto loans was driven by higher car prices, but also by greater lending to borrowers with credit scores of 760 or higher. However, about one in five went to borrowers with lower credit scores. And underwater car loans, that's those that are higher than the car is worth have also increased in recent years. Nike says it'll stop selling its clothes and sneakers on Amazon. The sneaker giant agreed in 2017 to sell products to Amazon in exchange for stricter policing of counterfeits and restrictions on unsanctioned sales. But that didn't eliminate the counterfeits. And while Nike is one of the top selling brands on Amazon, it only sold a relatively small amount of goods on the site and mostly offered less expensive products. The company says it's shifting its focus to its direct business and and bulking up sales from its own stores, apps and website. Google is the latest Silicon Valley giant to venture into finance. Starting next year, it's going to be offering checking accounts, and Wall Street Journal reporter Peter Rudiger is here to explain. So, Peter, is Google partnering with a bank to create these checking accounts?

[C]

There's actually two banks and credit unions behind the scene here. One is Citigroup, one of the biggest banks in the country. The other is at the other end of the spectrum, Stanford Federal Credit Union, a tiny lender in Google's backyard in Palo Alto.

[B]

So how will that work? What area will Citigroup manage?

[C]

In this country, only banks and credit unions can offer insured deposits. So if you want to keep your money and have it insured by the fdic or if you're a credit union, the ncua. It needs to be held at one of those institutions. So Citigroup and Stanford are kind of that receptacle for the deposits that are being held at Google. But in Google's mind, they want to kind of leverage the brand strength some of these institutions have. So it's not going to be a Google account. It might be a Citi account by Google. It might just be a Citi account that you access through Google Play. But those banks kind of perform a necessary role in this partnership.

[B]

So any tech company doing this will have a bank behind it if it's

[C]

a checking account or a savings account. Right. Only banks can provide those services or credit unions.

[B]

All right, so how will customers manage their accounts?

[C]

So you'll access it through Google Pay, which is the Google Wallet. If you're an Android phone user or a Chrome user, some of you might already have your credit card details stored there. Starting next year, you'll be able to see some prompts and invitations to open a checking account at those institutions. And from there you can do just like you can do with most other checking accounts, deposit your weekly or monthly paycheck, pay bills. No word yet on whether there's actually a physical checkbook coming with them. And a lot of the other details will still be ironed out about how it will look and some of the fees. But it's. But basically it'll look and feel like a lot of other checking accounts out there, but accessed through your phone and through Google Pay specifically.

[B]

Will it be available for Apple users?

[C]

No. So Apple users can't usually get Android Pay or Google Pay on their iPhones. If you're a Chrome user, maybe you can get it through your iPhone, just through the Chrome app. This is really designed for people who are users of Google Pay.

[B]

And Apple does not have a checking component, is that right?

[C]

Not currently. What we've reported on is they have a credit card that they've launched with Goldman Sachs in the past few years, right?

[B]

Yeah.

[C]

But in terms of something that you can deposit your paycheck into every week or every month, Apple currently does not offer that.

[B]

So this is like a value added thing for Google users.

[C]

That's right. Google thinks that the things that it does well, designing consumer technology, already having a captive group of users for Google Pay, estimates range that there will be about 100 million of those around the world next year is something that banks would really find attractive. Banks, you don't think of them as being great technology engineers and designing great mobile apps and having willing customer base to try something new. But Google hopes to bring that technology expertise to that popularity. The banks, for their part, are bringing in the financial and regulatory and compliance expertise.

[B]

You mentioned Apple and Goldman Sachs. These tech and banking partnerships have not always been smooth sailing or they have hit bumps out of the gate.

[C]

If you think about Facebook's Libra cryptocurrency project that has been in the news a lot the past few months, that really caught some regulators and some financial institutions by surprise. They were a little upset about the lack of details about how this will comply with existing regulations. And. And you saw companies like Visa, MasterCard, PayPal decide to pull out of that project.

[B]

And even with Apple and Goldman Sachs, there was a bit of a PR mess at the start, right?

[C]

So even, you know, Facebook was trying to disrupt everything in payments. Apple was operating within kind of the existing payments ecosystem, using a bank to offer a credit card. But even there, Apple wanted to be front and center, right, as the advertisement said, designed by Apple, not a bank. People at Goldman weren't thrilled to see that they were kind of relegated to that role. Google is taking a different approach. Checking accounts are as vanilla as it gets in the banking world. They are more than willing to let Citigroup or Stanford Federal Credit Union have the spotlight. Google doesn't need to be front and center.

[B]

That way, a checking account can provide Google or any company really with valuable customer data.

[C]

That's true. You can just look at your transaction stream, see what your paycheck gets deposited every week and back out where your income is. You can see how much you pay to utilities, to cable companies. If you're using your debit card to purchase things, you see what merchants you shop at. There's a lot of data there that Google will be able to see.

[B]

But that's the third rail because tech companies like Google face a mountain of scrutiny over how they actually use that personal customer data.

[C]

That's right. And some of the financial data could be much more personal than search histories or some emails. Now, Google told us that Google pay data is not sent to other parts of Google. They do not sell data to third parties. They do not use Google pay data for advertising purposes. So it's unclear exactly how they're going to use the data other than to say the things that they won't do with it.

[B]

And with Google pay, Google is starting off with a pretty broad customer base.

[C]

Sure, it's people across the world. I mean, in The US they have been a big push in the past two years in India, where they are one of the largest digital wallets there. But I should say that this new product is for the US Only. So even though you can use Google Pay in all those countries, this checking account is only available to US Users of Google Pay.

[B]

And this is not Google's first foray into financial services.

[C]

They've proceeded in fits and starts for the past couple of years. You might remember something called Google Wallet that launched in 2011 that's since been folded into Google Pay. In 2015, they had something called Project Pony Express that was a bill pay initiative right through Gmail, so you can pay your bills directly from your payment.

[B]

I do remember that.

[C]

Yeah. That was scrapped not long after it debuted. There was also a comparison shopping site for auto insurance and credit cards that was scrapped in 2016. There have been a lot of experiments over the years. There's no guarantee that this checking account will be around long term. But this is yet another experiment that Google has in financial services.

[B]

Now, the tech companies reach out to the banks to help them run these operations. But the traditional big banks, they face a challenge of carefully picking and choosing how they partner with the tech companies. They need the tech companies to broaden their base, but they don't want to go too far into that world.

[C]

Right. The ultimate question is, who owns that customer relationship? Is it the tech company or is it the bank? The bank doesn't want to provide just the plumbing. A lot of the time they want you to think, I'm proud to be a customer of Chase, or I'm a user of Chase, or I'm a user of Citigroup or Bank of America. If the bank is just in the background, then the tech company might think they can sub in any other bank. So when the terms change or when consumers might feel more loyalty to Google, then banks might worry that they can just be subbed out quite easily.

[B]

And in addition to the data, I guess the prize here is a younger customer base.

[C]

Sure. I mean, most people don't change their checking accounts very often. Right. I personally still use the checking account I opened when I was a teenager. So if you can kind of lock in that customer through Google Pay at a young age, they might prove more sticky than otherwise.

[B]

Any word on what kind of fees might be charged with this checking account from Google?

[C]

Not yet. We asked Google and the institutions involved. Those are still being worked out. But usually banks charge a monthly fee on checking checking accounts if there are certain low balances or not. That very many transactions. If you keep a minimum balance or use your debit card a lot, they'll usually waive those fees. But many checking accounts do incur fees.

[B]

All right, that's Wall Street Journal reporter Peter Rudiger here in our studio. Peter, thanks for coming on the show.

[C]

Thanks for having me.

[B]

And that's your money briefing. I'm J.R. whelan in New York for the Wall Street Journal.

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise.