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Google’s disruption of financial services is just getting started: Forrester

August 1, 2014

Google Wallet

Google Wallet

While Google could significantly disrupt the financial services sector by becoming a hub for consumers’ financial needs, the company is not likely to introduce a traditional bank, as some have suggested, according to a new report from Forrester.

The “Why Google Bank Won’t Happen” report suggests that Google is likely to disrupt financial services in four areas – payments, money management, product comparisons and financial advice. By combining these four areas into a hub for consumers’ financial services needs, Google could squeeze margins, reduce incumbents’ visibility to customers and weaken firms’ brands.

“Disruptors such as Google aren’t out to get you,” said Oliwia Berdak, an analyst at Forrester and the report’s author. “Disruption is often a side effect of their efforts to find a better way of doing something.

“Developing a better global payment network, popularizing mobile payments, or providing affordable financial advice that millions of customers desperately need are all challenges that are yet to be met,” she said.
“With its army of talented software engineers, experience building global search and advertising networks, and a strong commitment to innovation, Google could just be the firm to tackle them.”

Digital innovation
Google has ben adding and testing financial capabilities since 2006, including launching Google Wallet in 2011, launching a car insurance and mortgage comparison service in Britain and investing in peer-to-peer lending site Lending Club last year.

Google’s aspirations likely extend beyond payments and more along the lines of integrating its search engine, Google Maps, Gmail, Google Play and Google Now to create new customer value.
While Google is not likely to introduce a bank, it still has significant potential to disrupt financial services, such as it has done in the book industry by digitizing millions of books to make they searchable by keywords. The company is likely to use digital technologies to deliver better or entirely new ways of meeting consumer financial services’ needs, bypassing regulation and redefining the industry in the process.

The costs and regulations involved in opening a bank are part of the reason why Google is not likely to take such as move. Also, a significant portion of its advertising revenue currently comes from financial services companies.

google big opt

Learning to walk
Like many others, Google’s first attempts in mobile payments with Google Wallet have struggled. Now, the company is focused less on in-store payments and more on building a comprehensive digital wallet that adds value throughout the purchasing journey, such as with the new Orders functionality that extracts information from purchase receipts sent to Gmail for display in Google Wallet.

Google could also improve the conversion rate of financial services ad campaigns by displaying financial products that are tailored to a user’s specific financial situation.

Google is already disrupting comparison engines and established financial services firms in Britain with its own offering that takes comparisons to a new level.

Wealth management threat
A potential threat to established wealth management firms and newcomers could come from Google if it were to leverage its comprehensive information about available financial products, the financial situation of consumers as well as their financial behavior.

By adding contextual notifications via Google Now to the mix, Google could provide more actionable, personalized  and cheaper advice than the competition.

Forrester believes that Google could disrupt financial services as it follows the course to expand its business. This includes a desire for transactional data to bolster its paid search business, as such data provides evidence that an ad has worked.

The company also sees an opportunity to bring in new customers in a market that has become commoditized, with little differentiation between offerings. The fact that financial services are a low-margin business would not matter to Google as it has plenty of cash to play with .

At the same time, the company is looking for ways to diversify its business so it is not so reliant on advertising revenue.

The challenges
Google’s potential disruption of financial services is not a guarantee. The company could be sidetracked by one of the many other projects it is pursuing. Additionally, getting regulators, banks, retailers, payment processors and customers on board may prove to be a more complex undertaking than it can handle.

Google also faces a challenge in getting consumers to recognize and trust it as a source for financial services.

Forrester has recommendations for financial services organizations interested in taking proactive steps to protect their business from Google’s encroachment.

First, financial services organizations should take an inventory of their digital assets, such as transaction data, and ask themselves “What would Google do if it had your data?” This can help spur ideas for new ways to deliver value to customers .

Also, make sure there is a process to encourage, nurture and manage innovation in place. Take a lesson from Google and recognize that failure is part of the innovation process and should be stigmatized.

“Digital executives at financial firms despair at the thought of Google entering their industry, fearing they can’t compete with its software talent and extensive cash pile,” Ms. Berdak said.

“How should you react? By cautiously observing Google’s next moves, learning from its best practices, and carefully considering any possibilities for partnerships,” she said.

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York

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