Google Bank: A Good Idea?

July 30th, 2010 Brock Hailes Leave a comment Go to comments

Recently, we took a look at the controversy surrounding Wal-Mart becoming a bank. Because the company has such major economic muscle, many feel that it would unfairly take over a banking industry that is struggling to get back on its feet.

But with hundreds of banks having gone bankrupt and others tightening up their lending practices while maintaining lower interest rates on bank accounts, other entities have room to step up to the plate. This includes Wal-Mart and another major economic force: Google.

The possibility of Google becoming a bank has been in the news for a few years; however, it has yet to do so. But with the company venturing into so many other industries, does it make sense for it to get into the banking business also? We take a look at how plausible it would be for Google to become a bank and could potentially affect the banking industry for good.

What Google Has in Common with Banks

For years, experts have argued that all of the services that Google already has that relate to compiling and storing information (e-mail, news, medical records, financial data, scholarly documents and more) show that the company has evolved into an entity that falls in line with the banking industry.

Think about it; a bank is more of a guardian of private information related to finances than a storage unit for cold, hard cash. Your money is deposited into your checking account via Direct Deposit. You make your purchases via your debit card. You may pull cash out of the ATM, but youre just as likely to write a check.

In other words, your bank accounts have become words and numbers on a computer not unlike Googles services. Because banks have evolved into data storage systems themselves, it isnt far-fetched to see Google become a bank. But are we willing to accept it as such?

Can We Trust Google as We Trust Banks?

There are a lot of elements that contribute to our trust of the banking industry. Here are just a few to consider:

Banks have history: Banks have been around for hundreds of years. The first bank in the United States was chartered in 1791 and, of course, thousands of others have cropped up since then, giving us reason to trust them with our money.
Our accounts are FDIC insured: Most banks are insured by the Federal Deposit Insurance Corporation (FDIC). Currently, there are over 8,000 FDIC-insured commercial banks in the United States and, thanks to the newly-signed Wall Street reform law, all accounts are insured for up to $250,000.
Banks are in our neighborhoods: A third reason that we have trusted banks for years is that theyve always sat right in our neighborhoods. We know the bank tellers, we know the lending officer who gives us personal loans and we are able to place our hard-earned cash into a persons hands.

Of course, as the technological age consumes us and we become more comfortable with handling our personal affairs via the Internet, the brick-and-mortar aspect of the bank that we once loved so much is becoming an afterthought.

But what about our history with brick-and-mortar banks and our need for FDIC insurance?

We Already Believe in Online Banking

There are tons of online banks out there that have already gained the trust of the masses because they offer the benefits of their brick-and-mortar counterparts, including FDIC insurance, along with extras like:

Deals for opening accounts online: Its very common to find an online bank that will deposit free cash into an account simply for opening the account and managing monthly transactions online.
Low or no fees: Online banks also often reduce or eliminate maintenance fees for opening an online checking or savings account.
Better interest rates: To lure in customers, many online banks offer higher interest rates than brick-and-mortar banks.

And now people have begun to show trust in companies that havent been around very long. Look at PayPal. Not only is the company only 12-years old, but it is not FDIC-insured, yet it manages the money of millions of consumers around the world.

Not only are people purchasing items online via this monster e-commerce business, but they are also receiving payments and storing their money. As a result, PayPal has seen huge profits, bringing in revenue of $2.2 billion in first quarter 2010 after processing over $21.3 billion for customers.

A Google bank could be just as successful that is, if it could truly handle our banking needs.

Could Google Handle Your Banking Needs?

Theres no doubt that Google becomes a monster in virtually every industry it touches, but does this mean that it can handle being a bank? Well, first its good to know that Google already has a banking license. In late 2007, the company acquired its digital banking license from the Central Bank of the Netherlands.

Not to mention that Google has already teamed up with Morgan Stanley to develop a marketplace for its employee stock options. In other words, the company has already taken baby steps into the financial sector. Whos to say that it cant make huge leaps and bounds?

According to Brett Kings January 2010 article in The Huffington Post, not only is it not far-fetched to think that Google could become a bank, its possible that it could do a better job than banks already in existence.

He argued that Google has some benefits already working in its favor:

Its great at knowing what its customers need and delivering it fast.
Its accustomed to looking at customer frustrations and finding quick solutions.
It knows how to develop a secure environment that allows consumers to feel safe when using its services.

A Google bank could draw in millions of customers who already trust the company and are looking for the convenience and simplicity its known for. Its already known for its cutting edge ideas, so its possible that it could build on what online banks and PayPal have already done and make it better.

Do you think Google could create a successful bank?

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