Challenger banks bet public trusts them more than Google

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Though consumer trust issues have long been a stumbling block for challenger banks, many say Google will face an even tougher time persuading customers to share their financial information as part of its planned checking account.

“For what other reason could these companies want to offer financial services than to acquire data on its users?” asked Colin Walsh, CEO and co-founder of Varo Money. “So, the choice is: Which of these big tech companies would you trust with your data?”

The search engine company’s plan to offer checking accounts through partnerships with Citigroup and Stanford Federal Credit Union was largely viewed as a play to ultimately layer an individual’s financial data on top of the information it already captures through internet searches, apps and mobile devices.

Pundits immediately raised data privacy concerns, as did some lawmakers. Google pledged not to sell checking account users’ financial data, and stressed customers have control of their own information, but was tight-lipped about what it will actually do with it.

Walsh said the average customer would find such assurances hard to understand. “These relationships can be complex because you have two major brands vying to own the customer relationship,” he said, adding data ownership disputes could complicate matters.

At this point, not much is known about what the Google checking account will entail other than access through the digital wallet, Google Pay.

But Google is already facing new federal scrutiny for its health data collection project, which the company code-named Project Nightingale.

Some observers agreed Google would face an uphill battle considering reputation concerns related to both the tech giant and its major financial partner.

“Do I trust a partnership between Google and Citi given what we saw during the financial crisis, and the continual headlines of data mismanagement and unlawful access?” said Jackson Mueller, the Milken Institute’s fintech lead. “Those questions, I would imagine, would favor challenger banks, unless what’s being offered is just simply far too good in comparison to what challenger banks are offering.”

To be sure, challenger banks face their own trust issues. A recent study of European and U.S. consumers by Kantar, a consulting firm in London, found that only 19% of consumers completely trust the challengers they use, while 47% completely trust traditional banks.

Another survey, by the USC Annenberg School for Communication and Journalism, found a third of customers would consider a big tech such as Amazon or Google for banking.

Challengers argue customer-friendly service, including no-fee offerings that collect savings features, personal finance management tools and early direct deposit access, will help them overcome that hurdle.

“Over the next few years, we’ll continue to see a renaissance in the area of consumer-friendly financial services led by technology companies like Chime and others that profit with consumers rather than from them,” Chime CEO Chris Britt told American Banker in a statement.

Alyson Clarke, principal analyst of digital business strategy at Forrester Research, agreed that neobanks can distinguish themselves with financial wellness tools that are attractive to younger consumers.

“It's not just about the product,” she said. “It's actually about the financial wellness, and helping you spend and save and do better with your finances and create better behaviors.”

“We haven’t seen much about the Google product other than checking and rewards,” Clarke said. “I haven't seen anything about those tools that help younger consumers become confident with their money. When you build that confidence, that's what builds trust.”

Newcomer HMBradley has built its offering along the same lines.

The Santa Monica, Calif., neobank, which officially launches in the first quarter, will offer customers up to 3% in annual percentage yields on a combined checking and savings account provided they save a set portion of their direct deposits every month. The money would be held in federally insured accounts provided by Hatch Bank in San Marcos, Calif.

HMBradley also plans to eventually offer credit and loan products. Zach Bruhnke, co-founder and CEO of the company, says ultimately consumers will need to consider the long-term viability of financial services offered by all players.

Like others, he was quick to point to Google’s failed products in other areas, including wearables like Google Glass and the now-defunct social media network Google+.

“The benefit for companies like us is that there will be consumers who know what happened with these other products, and that they completely faltered because they had the rug pulled out from under them,” Bruhnke said. “People are still mad about things like Google Reader not being available. That sticks in their memory and I think that’s a benefit to us in some ways.”

Bruhnke acknowledged that name recognition would favor Google versus HMBradley when it comes to financial services. He said the key differentiator will be how the neobank markets itself against incumbents and as well as other challengers.

“Google will have a splashier launch than someone like us,” Bruhnke said. “We’re going to have to grow by word-of-mouth and doing the right things for our customers. Ultimately the onus is on companies us to build better products and innovate there, and the onus on them, quite frankly, is to put anything out there and see what happens.”

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Digital banking Digital payments Online banking Customer service Customer experience Customer data Google Varo Money CHIME