How Google's credit union partnership could shake up the industry
A new partnership between Google and Stanford Federal Credit Union could spur the industry to do some soul searching on how it handles fields of membership.
Google is working with the Palo Alto, Calif.-based credit union along with Citigroup to offer a consumer checking account next year through Google Pay. The deal is seen as a boon for Stanford and could help the institution boost its membership.
But unlike banks, credit unions face limits on who they can serve given restrictions related to field of membership. That could force credit unions that enter into these partnerships to rethink their charters or how they define their fields of membership.
“[T]his is a seminal, market defining announcement for the entire credit union movement,” said Richard Crone, CEO of the advisory firm Crone Consulting. “The key here is applying a new interpretation of a credit union’s reach through SEGs within their FOM.”
At first glance, it may seem odd for a tech behemoth like Google to bother working with a comparatively smaller credit union. Most of these deals are struck with large banks, such as Goldman Sachs working with Apple on the Apple Card.
But the $2.9 billion-asset Stanford was able to land the deal with Google because it already serves the tech giant’s employees. It also has long been known as an innovator. For instance, it was the first financial institution to complete an electronic transfer online in the 1980s.
Google “wanted to show scalability when they introduced this initiative and we're the smaller [part] of that initiative,” said Joan Opp, president and CEO of Stanford Federal Credit Union.
Some details of the partnership still need to be finalized, and it's likely industry observers will closely watch how it plays out. The success of it could spur other credit unions to pursue similar partnerships.
“We acknowledge that banking in the traditional sense, whether it be with another credit union or another financial institution – is changing, and we’re certainly seeing a lot of fintechs and different players in the market place,” said Monique Little, chief people officer at First Tech Federal Credit Union, which also serves Google employees. “We acknowledge that rather than compete with them, we need to think of how do we collaborate, cooperate – we call it coopetition – and how do we learn from that and make First Tech better. This is something we’re going to watch very closely, and to the extent that we have an opportunity to collaborate at some point or learn, we’re going to do that and look at how we leverage those learnings for First Tech’s benefit.”
Stanford is a federally chartered institution with a multiple common bond field of membership. It can serve employees, faculty and students at Stanford University and its related entities in addition to a list of tech firms, such as Tesla, Facebook and Amazon.
Any consumer that wants to open the Google checking account through Stanford will need to qualify for the institution’s field of membership. That could make it difficult for some consumers to choose Stanford as the financial institution for the account over Citigroup, which doesn’t face any restrictions on who can become a customer.
There are charters that have less restrictive fields of membership with the association charter being of the highest interest, said Steven Reider, president of the consulting firm Bancography. These essentially allow a credit union to “give themselves a blanket, national license” since the underlying common bond can be established by making a small donation to a nonprofit, he added.
Overall the industry has already been moving away from charters that allow for smaller fields of membership — such as serving a single select employee group — and toward charters that give them a larger reach. Partnerships with fintech companies could further accelerate that trend.
"[T]hat is going to be interesting for the CU to see how they will choose the appropriate eligibility common bond, whether or not they’ll form some type of association charter, whether they can leverage the university affiliation and if it can give them a platform beyond Santa Clara County,” Reider said.
There’s also the chance that an institution in Stanford’s position could reconsider the definition of their SEGs to give it more leeway in signing up members, Crone said. The institution could decide that it can also serve the “pre-validated end users of all the Google online and mobile platforms,” he said.
“Reinterpreting the definition of their SEGs vastly increases the addressable market for the entire credit union movement by leveraging tech titan’s billions of global, pre-validated online and mobile users for ‘embedded’ financial services,” Crone added. “Not just for Google, but Facebook, eBay, Verizon, Samsung, Libra and Lyft.”
Stanford has no plans to change its charter or expand its membership to include customers of Google, Opp said. She maintained that its focus is on serving technology companies and Stanford University.
“[W]e believe this product aligns well with our membership base,” Opp said. “There are a lot of consumers in our membership base that will be excited about this product.”
It’s likely that the deal could bring a number of benefits to Stanford. For instance, those that join the institution through the Google account will be able to access its other products, though how that will work is still being finalized, Opp said. That means there could be opportunities for the institution to sell its other services to these members.
“[A]ny person who has this account [...] will have our online banking access and will have the ability to use any product that we have,” Opp said.
Stanford’s board has also directed Opp to be a leader in the digital space since it doesn’t have a highly visible branch network, she said. The Google partnership aligns with that and could help deepen relationships Stanford has with existing members, who are generally tech savvy given the membership it serves.
Google’s partnership is a reminder of the mobile-first paradigm that is “eating away at the value of traditional banks and credit unions,” said Steve Williams, founder of Cornerstone Advisors.
“What that means is that we have to take a serious look at our resource allocations between the balance of resources tied to traditional banking and resources tied to how we will acquire and nurture relationships with members in a mobile-first world,” Williams said.
Aaron Passman contributed to this report.