Google Alphabet Inc. said Wednesday it will offer a personal checking account next year through its Google Pay application, initially partnering with Citigroup Inc. and a small credit union at Stanford University.
The project, codenamed Cache, emerged when rivals Facebook Inc. and Apple Inc. expanded their own efforts in consumer finance, a wide area ranging from digital payment applications to bank accounts, brokerage and loan accounts, and which offered a new source of income in Silicon Valley and new opportunities to strengthen bonds with users.
US regulators and lawmakers have expressed concern about how the company's big influence and bad record about data privacy will be played out as they try to get a foundation in finance. The latest surveillance prompted Facebook partners to withdraw from plans to support the launch of digital currencies.
Google said it had held preliminary talks with regulators, although it refused to specify which, about compliance issues related to new checking accounts. Asked about Google's plans, US Senator Mark Warner, a Democrat on the Senate panel who oversees banking, expressed reservations.
"There should be very strict supervision," Warner told CNBC about tech giants like Facebook or Google that entered new fields before the rules governing them existed.
Google spokesman Craig Ewer said the company's main partners were Citi and Stanford Federal Credit Union and that more details would be known in a few months.
"We are exploring how we can partner with banks and credit unions in the US to offer smart checking accounts through Google Pay, helping their customers benefit from useful insights and budgeting tools, while saving their money in an FDIC or NCUA insured account," Ewer said in a statement, referring to the acronym to two US agents who insured deposits.
Stanford Federal and Citi confirm their role.
"This agreement has the potential to expand the reach and breadth of our customer base," said Citi spokeswoman Liz Fogarty. "Privacy and transparency are, and will continue to be, important priorities."
Joan Opp, president and chief executive officer of Stanford Federal, described the agreement as "important to remain relevant and meet consumer expectations."
Traditional banks have long partnered with companies outside the industry to lure deposits or expand their loan books. The most prominent example today is Goldman Sachs Group Inc. is working with Apple Inc. on credit cards this year, but other regulated banks, including JPMorgan Chase & Co., Citigroup Inc., American Express Corp and Green Dot Bank, have worked with companies, including Amazon.com Inc., Walmart Inc., Delta Air Lines Inc. and Home Depot Inc. to offer joint brand products.
The Wall Street Journal reported earlier about Google's plans and quoted Caesar Sengupta, general manager and vice president of payments at Google, who described the approach of in-depth partnership with banks.
"This may be a slightly longer road, but it is more sustainable," Sengupta said.
Relying on the bank's regulatory and financial knowledge can enable Google to proceed without much involvement with bank regulators. For example, deposits are held in accounts managed by banks that are regulated and protected by the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA), and if lenders do not share consumer financial data with Google, there may not be a regulatory problem or license terms.
Google's biggest success in financial services is in India, where it has more than 67 million monthly users for Google Pay, which is used to digitally pay for groceries, Uber rides, and other transactions. Although still behind its Indian rivals, the popularity of the Google Pay application in India has overshadowed its use in the United States and other countries, where it can be used for cash payments at stores and money transfers.
Sengupta oversees Indian services, formerly known as Tez, as the head of Google's emerging market product team. Sundar Pichai's Chief Executive last year sought to build an Indian application, which was developed by a team of about 150 employees in Asia, and integrated it into the broader Google payment organization.
This step led Sengupta to oversee several thousand workers around the world, including those who maintain tools to help Google charge fees to advertisers and app store users.
Former Google Pay employee said the company faces a big challenge in getting users to payment tools in locations like the United States that already have strong financial products. High interest rates on deposits or key loyalty allowances could be an important incentive for Google to attract consumers, the former employee said.
On Tuesday, Facebook launched an integrated payment service where users across platforms could make payments without leaving the application, called Facebook Pay.
This effort is separate from Facebook's plan to launch its Libra cryptocurrency, which has met with skepticism from the U.S., European and Australian regulators who care about the risks of money laundering and the security of transactions and user data.