Google’s Neobank Project (Plex) Shuts Down
A recent announcement sent shockwaves throughout the FinTech industry this week — Google is no longer launching its branded neobank, Google Plex. This comes almost 2 years after the original announcement (November 2019) that the tech giant was launching a checking account with the help of bank partners (BankMobile and GreenDot). Consumers would have the choice at account opening of which bank to choose from — a critical difference from existing neobanks that typically only partner with one bank as a default.
Instead of becoming a bank,
Google stated it’s choosing to focus on digital enablement for both banks and financial service providers. There’s definitely more to unpack in this move to nix its banking plans.Here’s a breakdown of top factors that may have played a role on this decision:
Competition against clients: If the tech leader did become a bank, it could lose some of its existing client base in the financial services sector who also offer banking services. These clients work with Google in purchasing cloud and AI services for their platform. The potential success of Plex could take market share and primary banking relationships away from large bank clients, and move them to banking partners in the program.
Big banks being threatened: Big banks are already feeling pressure from neobank and challenger banks working with mid-size, regional banks, and credit unions. Google partnering with this group of competitors would expedite the trend of consumers flocking away from large financial institutions, such as Bank of America, JPMorgan Chase, and Wells Fargo;
Project leaders leaving the company: Key leaders from Google Payments, including execs assigned to Plex, left the company earlier in the year. Based on the timing from the original announcement and lack of progress, these leaders may have decided to walk away instead of wait out project delays. With no internal champions, Google decided to sunset its direct banking plans;
Compliance & regulatory load: Much tougher to determine, the industry requirements needed to build and maintain a bank offering often fall on the platform (instead of the bank partners). Many mid-size and regional banks lack the modern technical infrastructure to support high-volume digital banking. Google would need to provide these components itself through third party vendors and program managers, or building this competency itself. The company may have decided neither would be a strong option
Fraud and End-user support obligations: Similar to compliance requirements, fraud management and end-user support also falls on the platform (instead of the partner bank). Based on the amount & type of support tickets and fraudulent activity levels, the operational costs can quickly burn into monthly revenue. Improper handling of both fraud and end-user support inquiries can also result in customer complaints to regulatory agencies (leading to fines and other penalties). Based on the potential market size and lack of support system, the risk and costs may have reduced profit margins considerably.
an opportunity lost as …
Mid-size financial institutions missed out on help roll out the next big thing in banking. By many measures, Google Plex was expected to be a banking super app to be used by the masses and incorporating all the latest features from Google. From payments to its marketplace, multiple services from the tech giant would stand to gain from move into direct banking. Most interesting would be Google’s take on business banking — the large volume of companies it serves with digital marketing can benefit from discounted rates on ads, transfers, and be eligible for revenue-based financing (such as lines of credit and installment loans).
For other tech titans, this can be an opportunity gained to try their own hand at banking. Amazon is further along in terms of infrastructure, support, and compliance expertise based on its existing financial services and partnerships with financial institutions. Payments, credit, merchant marketplaces, and other services can be quickly consolidated on an Amazon banking platform. The level of trust and frequency of usage from existing customers would support the initial launch of such a product, especially with early bonuses and cross-promotional perks to Amazon’s other lines of businesses. Anticipate other tech giants to make a direct attempt into banking in the next year now that Google stepped out.
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