Google as Mobile Banking: 3 Things They’ll Have to Get Right First

Google as Mobile Banking: 3 Things They’ll Have to Get Right First

The worst kept secret in the financial services sector is how much  Google wants to get into banking. Of course, it’s a bit of an old secret too. Google is technically already in banking. They own half of Lending Club, a P2P consumer lender. The reason bankers are scared of Google getting into banking outright is that Google is so much better at data analysis than any bank. Their ability to collect everyday pieces of data and turn them into revenue is still amazing – even by today’s standards. But, as I point out in my book, Seven Billion Banks, in order to compete in the future, Google will have to go mobile with their banking services. Right now, Google’s Android devices (can) use a combination of GPS, IP addresses from wireless networks nearby, and the nearby mobile network to help them pinpoint your location. So they have the basics of a location-based platform for banking. But what’s missing? I think 3 things they will have to nail perfectly in order to be a formidable banking foe. 1. Get the Location Right Google does a pretty good job of knowing where you are. But they’re not perfect. If the IP address of a wifi network is incorrectly linked to a geographic location, Google will “find” you in the wrong place. Sometimes, several states away. If you’re on or near a plane or cruise ship, forget it. They will place you somewhere across the globe. The theory should be that there is enough information for Google to get this right, but as of today, they don’t. If you’re on a...
Non-Bank Business Lines of Credit Change the Risk Formulas

Non-Bank Business Lines of Credit Change the Risk Formulas

Google just recently announced the launch of a small business credit card that only allows for purchases of AdWords campaigns. Along the same lines, Amazon just recently announced it will be offering credit for its online sellers to invest in inventory sold via Amazon. In Google’s case, they’ve opted to use an issuer, Barclaycard, to process through the MasterCardnetwork. In Amazon’s case, they’re going it alone. In both cases, the question is: will this be a threat to traditional card issuers or other commercial lenders. So far, the conventional wisdom is “no.” I disagree. I think the fact that these lines of credit are issued by companies that directly benefit due to the growth will in fact change the landscape. When you look at traditional risk metrics for a line of credit, you are mostly interested in the net interest margin: what you charge minus what you lose minus what it costs you to find the account. (Yes, I’m oversimplifying.) But in the case of Amazon and Google, there’s another component of the profit equation: what you earn from the additional business. This additional profitability component could make all the difference in the world for small business owners. It could tip the scale from “too much risk” to “let’s take the risk.” I know there’s a similarity between retail cards used at, say, Sears or JCPenney’s, and that those retailers finally opted to go with issuers instead of self-funding in most cases. These credit lines drive growth in businesses where retail cards simply fund expenses. That’s why an “HP line of credit”, though it exists, isn’t game changing. HP doesn’t earn...