Why Google’s Announcement Impacts Your CU’s Plans

Google confirmed yesterday that sometime next year, it would be offering checking accounts to consumers using mobile platforms. This in and of itself would be big enough news, but as the New York Times reports, one of the “banks” it is teaming up with is Stanford Federal Credit Union. By the way, is it asking major news outlets too much to delineate between credit unions and banks?

Stanford FCU is based in the Bay Area in California. It has $2.8 billion in assets and close to 71,000 members. It is a multiple common-bond credit union primarily serving the educational community. In the press release announcing the partnership with Google, the credit union’s CEO suggested “credit unions across the country can benefit from this type of innovative partnership.” In other words, Stanford has not figured out a way around field of membership restrictions. It is, however, getting a high-profile advertisement for the new product by joining up with Google so soon.

The accounts to be offered will reportedly have special features such as budgeting capabilities, but Google was suspiciously vague as to what features will ultimately be included with the accounts. Additionally, Google announced that it would not share the financial information it receives with third parties, but that’s a lot like Saudi Arabia announcing that it won’t share its oil. The value to Google is in the data that it will use to offer even better analytics on banking and who knows what else.

The reaction to this news has been surprisingly muted, and even indifferent. For example, in a snarky analysis by the New York Times, it argues “there are good reasons some of these ideas have sputtered. While customers have plenty of frustrations with their banks — high fees, paltry interest rates and poor service — those aren’t complaints that technology companies are usually positioned to solve. And tech-focused features that bank users want, like fast peer-to-peer payments, card-free transactions and in-app budgeting assistance, are now offered by nearly all large banks.”

In fact, those of you who ignore this news are whistling past the graveyard. First, companies like Google and Apple have as much credibility with consumers as do banks and credit unions. People will be drawn to services offered by these behemoths because they like them more and use them more frequently than they do traditional banks or credit unions. Second, regardless of whether Google succeeds, as people grow more used to banking on their apps, they will see less and less need to stop at the bank. I hear credit union people tell me all the time that members still want a branch, and in fairness to them, the survey results reflect this position. I’m sure that surveys said the same thing about chain bookstores just 10 years ago, but when is the last time you went to Barnes and Noble?

Finally, there is the Walmart effect. The key to its success was that Walmart became large and dominant enough such that it could dictate prices offered by wholesalers. The same thing will happen with banking. Increasingly, the Googles and Apples of the world that will dictate the terms of the account agreements you will offer to your members. If the Walmart analogy holds, larger institutions will survive and even prosper due to increased volume. The smaller ones will suffer the same fate as the local hardware store or independent book seller.

On that happy note, enjoy your day.