Google, Alphabet Inc., announced Wednesday that it will offer personal checking accounts next year through its Google Pay application, initially in partnership with Citigroup Inc. and a small credit union at Stanford University.
The project, codenamed Cash, comes as rivals Facebook Inc and Apple Inc expand their consumer finance efforts, a wide area ranging from digital payment applications to bank accounts, brokerage accounts and loans and offering Silicon Valley new sources of income and new opportunities to strengthen customer relationships.
US regulators and lawmakers have raised concerns about how these companies will be affected by the massive impact and poor data privacy records as they seek to gain a foothold in finance. The investigation has recently prompted Facebook partners to withdraw from plans to support digital currency launches.
Google said it had had initial talks with regulators, though it declined to specify which compliance issues related to the new checking accounts. Asked about Google's plans, US Senator Mark Warner, a Senate committee Democrat who oversees banking, expressed reservations.
"It needs to be very strict control," Warner told CNBC about tech giants like Facebook or Google entering new fields before the rules were set for them.
Google spokesman Craig Ever said the company's leading partners are the Federal Credit Union of City and Stanford and that more details will be known in a few months.
"We're exploring how we can work with banks and credit unions in the US to offer smart Google Checking accounts, helping their clients benefit from useful insights and budgeting tools while keeping their money in an FDIC insurance account. or NCUA, "Evert said in a statement, citing an acronym to two US deposit-taking agencies.
Stanford Federal and City have confirmed their roles.
"This deal has the potential to expand the reach and breadth of our customer base," City spokeswoman Liz Hogarthy said. "Privacy and transparency are, and will remain, key priorities."
Anoane Op, president and chief executive of Stanford Federal, described the deal as "key to staying relevant and meeting consumer expectations".
Traditional banks have long worked with companies outside the industry to reduce deposits or extend their loan books. The most recent example is Goldman Sachs Group AD, joining Apple Anc credit card this year, but other regulated banks, including JPMorgan Chase & Co, Citigroup Inc., American Express Corp and Green Dot Bank ”partnered with companies including Amazon.com Inc., Walmart Inc., Delta Air Lines Inc. and Home Depot Inc. to offer co-branded products.
The Wall Street Journal had earlier reported on Google's plan and quoted Cesar Sengupta, Google's chief executive and vice president of payments, as describing a deep partnership with banks.
"Maybe it's a little bit longer, but it's more sustainable," Sengupa said.
Relying on the banks' regulatory and financial knowledge can enable Google to continue without much involvement with bank regulators. For example, deposits are held in a regulated bank account protected by the Federal Deposit Insurance (FDIC) and National Credit Unions Administration (NCUA), and if the lender does not share consumer financial data with Google, it may not be a regulatory issue or license requirements.
Google's biggest success in financial services is in India, with over 67 million monthly Google Pay users, used for digital grocery payments, driving in Uber and other transactions. Although still behind Indian rivals, the popularity of the Google Pay app in India has overshadowed usage in the United States and other countries, where it can be used for cashless in-store payments and money transfers.
Sengupta oversaw the Indian service, formerly known as Tez, as head of Google's emerging markets product team. Chief executive Sundar Pichai last year tried to build on an Indian application, developed by a team of about 150 employees in Asia, and merged it into the broader Google payments organization.
The move has overseen Sengupa to several thousand workers worldwide, including those who maintain tools to help Google charge its advertisers and app store users.
Former Google Pay employees said the company faces a major challenge to win over users of payment tools in locations like the US that already have robust financial products. High interest rates on deposits or major loyal experience can become important incentives for Google to attract consumers, say former employees.
On Tuesday, Facebook launched a unified payment service that allows users to make payments through their platforms without leaving the app, called Facebook Pay.
The attempt is separate from Facebook's plan to launch its cryptocurrency on Libra, which has met with skepticism from US regulators, European and Australian regulators concerned about the risk of money laundering and the security of transactions and customer data.