Google to Start Offering Checking Accounts in 2020
At first glance, it might seem pretty odd that the world’s most popular search engine would get into the banking business. Google offering banking actually makes sense.
Google is a huge internet company that already has a big footprint in our lives. It all started with an idea to improve upon search engine performance on the internet, with their engine relying substantially on the number and quantity of backlinks to a web page to determine its search ranking.
Google’s search engine wasn’t just a big hit, it established a dominant position in the market, to a degree that when people search the internet these days, they often refer to it as “googling” something. Google itself is a novel term derived from googol, which is the number signified by 10 to the 100’s power, 1 followed by 100 zeros.
This was chosen to signify the amount of information that the company’s founders Larry Page and Sergey Brin had envisioned the company processing, and while this was an exaggeration, it ended up being far less of one than anyone including the founders could have imagined.
Search engines are an important structure of the internet. There is a lot of information out there on the internet on just about everything, and without a search engine, it wouldn’t be possible to find what you want. Search engines not only organize the huge amount of content out there on the internet, they make finding what you want even possible.
Google’s search engine is still the backbone of the company’s business, which now generates in the range of $100 billion worth of revenue per year, mostly from advertising. Google’s search engine algorithms are proprietary, for good reason as they don’t just want to have others copying them, but the combination of all that data that they manage and the fact that a black box is involved has caused a lot of concern with some.
This issue has even managed to invoke congressional hearings, although we would not normally think that how one company manages to deliver better search results over another, by whatever means, should be something that legislators need to worry about.
When you are this big though, you do tend to attract a lot of attention from those who wish to regulate you, and Google isn’t just one of the world’s biggest software companies, they are one of the world’s biggest companies period, with a market cap of $900 billion these days.
Size does scare a lot of people, as this may invoke memories of sci-fi movies where a dominant company essentially takes over the world and people’s lives. When your business grows so large, there are also concerns about this power being abused through monopolization, even though people tend to misunderstand what the negatives are with a monopoly, or in this case a partial monopoly, and it’s not the monopoly itself that is a threat, it is the means in which they achieve and maintain it.
Being Better at Something Is A Benefit, Not a Liability
There are two ways in which a company achieves a dominant position in the market, where they may achieve this by way of simply offering a superior product or service, where their market share is a result of their success, or they may reach this point by restricting competition. A monopoly of some sort may therefore be created in both a free market and a constricted one, and it’s the constricted one that we need to worry about, and worry about exclusively.
When you earn $100 billion a year, your footprint is pretty big indeed, which has grown larger and larger by way of further integration through things like acquisitions and product development. People mistakenly view acquisitions as restricting competition in some way, but once again, we need to look to the means of how this growth is achieved to render any meaningful judgement about the proprietary of the business.
This is not how some people view this though, and the sheer size of a Google simply scares them and they want to take action to get more comfortable. When a company like Google buys other businesses though, to the extent that these acquisitions are successful, we don’t lose efficiency, we gain it.
Google’s acquisition of YouTube serves as a good example of this. Competitors become upset because Google has the means to drive more traffic to YouTube than YouTube could manage on its own, and they see themselves as losing some of their competitive advantage. They have not lost anything though, as this is a matter of YouTube gaining a greater competitive advantage, and this is the goal of business, to improve their offerings and the offerings of the market in turn.
The upshot of this is that people can now more easily find what they want on YouTube, and while Google is of course going to give them preference in their rankings, this really all comes down to giving their users what they want, and their continuing to use their services is how this is measured.
Google does not have a monopoly on anything actually, they just offer services that are highly in demand, and we should never think of a company as doing something bad merely because they are so successful. When we seek to interfere here, we are seeking to impose our own preferences upon the free market, where it goes from being free to being restrained, and end up losing efficiency by our wanting to skew the results of free choice by placing limitations upon it.
The threats are out there though, and there are plenty of people who want to see huge companies, especially huge tech companies like Google broken up. Google has purchased many companies, like YouTube, and they have simply grown too large for the tastes of people like presidential candidate Elizabeth Warren and other left-wingers who use their anger at Google and others as a means of expressing their rage against the machine.
Google announcing that it will partner up with Citigroup and a Stanford credit union is likely to incite these people further, in spite of this not really being an issue of any real significance compared to Google’s other lines of business and especially with it having such a slight impact upon the banking business in particular.
Google is not becoming a bank, and far from it, as all they are looking to do is to leverage their market presence with their Google Pay app by partnering up with banks. It’s not clear what a small credit union is going in the deal, who are dwarfed by the other partner, the third largest bank in the U.S. and the 11th biggest in the world, but quaintness can be an asset, and this might even make sense.
When this news hit though, some people will try to make more of this than it actually there, and this is really just a piggyback arrangement where these institutions will be provided access and promotion by Google where they will be offering checking accounts through Google Pay.
Using an App to Better Give People What They Want is a Good Thing
When you partner with Google Pay, you also partner with Google, and Google is the big dog of the internet, to put it simply. Google has no plans of getting into the banking business at this point in time though, nor are they likely looking to use this opportunity to get their foot into the door to one day take over the banking world the way they have taken over the internet, but they do have something to offer by partnering with banks with their service.
Google Pay is essentially an app that people use on their mobile devices where a variety of payment methods can be added to it, and then allow users to pay for things by just scanning their phones. There are limitations to this, and because this technology isn’t as secure as using the actual card itself, it doesn’t do away with the need for them, but it does offer users an opportunity to pay with their phone for a lot of the purchases that they make.
This is said to be the future of payment systems, and the United States is actually behind some countries when it comes to usage. In China, mobile wallets are a lot more ubiquitous for instance, and they handle the majority of payments there now. Americans have been slower to adapt to this, and there really isn’t any real advantage over mobile payments versus traditional ones other than you may not need to carry your cards with you in some cases, but given that you still do, we can even say that this is more of a novelty than anything.
Novelties can be pretty popular though, and this one is definitely growing, and Google wants to monetize theirs more with this deal. While you can add virtually any domestic payment card to their app, Google does have the means to make it easier for a certain card to be used with Google Pay, and this is what they are planning on doing,
This is not even a co-branding arrangement, as the Google brand itself won’t be associated with these bank accounts, nor will Google participate in the administration of them. Google is not a bank and they are not intending to even pretend that they are one with this deal, they will merely be allowing preferred access to their partners.
Given this, there is no threat here, and while some may be afraid that Citi will use this platform to take over the banking world, having greater access to this app may end up benefiting both the banks and Google, but this is not of any magnitude that should ever concern us, not that this sort of thing should ever concern us.
Let’s say that Google just keeps growing and one day dominates everything in our lives. This can result in what we may perceive to be a monopoly on everything, with all other companies going out of business we’ll say because they can’t compete with Google’s superior offerings.
The upshot of this would be that everything has been made better, and even if Google managed to build such a competitive advantage that there are no competitors left, they would have achieved this position due to their greater efficiency, which would need to be maintained to prevent new entrants that could compete with them.
This wouldn’t just be good, it would be simply fabulous and world changing. This is way beyond the realm of possibility though as Google only does certain things better and their advantage is enough to put them in first in some of these areas but not enough to run the table or anything close to it. No matter what market share Google has in something, someone will be trying to take some of it from them, and that’s the way free markets are supposed to work.
We should use whatever discussion that emerges from Google’s getting into banking to re-examine whatever fears we have about this company, including things like their access to the amount of data that they have at their disposal.
They know a lot about how people search the internet, but that in itself is harmless and this access is actually beneficial, because while people may say that they don’t like ads, they use them a lot and a more tailored experience therefore benefits both Google and their users.
If people are concerned with the risk of their data being out there, they need to look to the NSA, who tap into all of our internet data and use it to spy on everyone. We’ve come a long way since Watergate in numbing people into a state of ignorance, and what goes on these days with government spying is many orders of magnitude worse than the comparatively petty snooping with the Watergate incident. If we are concerned about this, we need to look to the real perpetrators, and Google is not one of them, although they do serve as a good ruse to deflect our attention away from the real issues.
Each and every bank account that is offered with this service is an arrangement that users have preferred, otherwise they wouldn’t do it, and this does serve to expand the market and indeed make it more efficient. When people switch services, this means that the result is value added by the new service, and this increases rather than diminishes competition, if we understand what competition really is.
This is a good idea that makes a lot of sense for everyone, and that is enough.
Editor, MarketReview.com
Monica uses a balanced approach to investment analysis, ensuring that we looking at the right things and not confined to a single and limiting theory which can lead us astray.
Contact Monica: monica@marketreview.com
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