Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google announced a new partnership with Citigroup Inc (NYSE: C) to launch a new checking account service starting in 2020. Project Cache received mixed early reviews from regulators and the media, but Bank of America analyst Justin Post said a push into banking is the right play for Google and its investors.
Post said the goal of Cache appears to be to attract more young, tech-savvy banking customers.
“We believe payment capabilities are critical for the Apple and Amazon ecosystems, and with Google also focusing on apps (Google Play), eCommerce, Hardware and Gaming, expanding the financial and payments capabilities of its users is an important step toward monetizing its audience,” Post wrote in a note.
Potential Backlash Of Google Cache
Google is already facing criticism related to its data collection practices, and adding banking data to the mix could potentially brighten the regulatory spotlight on the tech giant. Earlier this week, the U.S. Department of Health and Human Services said it will be seeking more information about Google’s “mass collection of individuals’ medical records” as part of its Project Nightingale cloud partnership with Ascension Health.
Sen. Mark Warner, D-Va. raised concerns about the rapid expansion of mega-cap tech companies on CNBC.
“I’m concerned when we got, whether it’s libra or the Google proposal, ... these giant tech platforms entering into new fields before there are some regulatory rules of the road,” Warner said.
Google told the Wall Street Journal it has no intention of selling customers’ banking data.
Post said Google is likely looking to gain insight about customer banking behavior, offer more easy payment options on its platforms and potentially gain checking-related revenue share over time.
On Citi’s end, Post said the Google partnership could serve as an acquisition and advertising portal.
“Many banks view retail branches/financial centers similarly, and this strategy could allow Citi to grow core checking accounts without having to lay out significant on-the-ground Infrastructure,” he wrote.
Google partnering with a traditional bank like Citi could help it avoid some of the regulatory scrutiny that it might have faced if it had launched its checking service on its own. Google investors shouldn’t expect Cache to have a significant impact on the company’s bottom line any time soon, but should rather continue to monitor Google’s long-term strategy of expanding more into financial services.
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