Episode 145 – Google Pay with Steve Klebe

George Peabody:
Welcome to Payments on Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and trends in its evolution. I’m George Peabody, partner at Glenbrook and host of Payments on Fire. And today my pleasure to introduce my co-host, Yvette Bohanan. Yvette, welcome. Glad to have you here.
Yvette Bohanan:
It’s delightful to be here, George. Thanks for letting me help out today. I’m so super excited with our guest.
George Peabody:
And I’m looking forward to this being the first of many times that you and I are doing this together. If you’re not familiar with Yvette, she’s a huge part of Glenbrook’s education program. She’s got deeper expertise in payments and risk, and dare I say about anybody in the company. So it’s super to have you here. Well, let’s get started, Yvette. I just introduced you as a huge part of our education program. What’s on the docket?
Yvette Bohanan:
Well, we are still doing everything virtual, so we love Zoom. We love all of the WebEx, BlueJeans and everything else out there. We’ve embraced technology and we’re able to give boot camps now, the standard boot camps, public boot camps, every other month. But what’s really exciting to me is we have insight workshops coming up. In April, we have digital payments, another area that we’re going to be talking a little bit about that here in the next hour with Steve, and what’s going on there. And then over the course of the year, we’re going to be doing a global payments. So much is happening in that space and as well, our innovation workshop will be coming up at the end of the year. So we have four big insight workshops that we’re very excited about. And I’m starting to do some work on crypto and central bank digital currencies for some of our private workshops. Maybe we’ll turn that into something we can offer to the public as well.
George Peabody:
Based on the level of interest and what’s happening in CDBC’s, I can see that’ll be a big piece of what you’re doing going forward. So Yvette, let’s get to the reason that we’re here today. And actually Yvette, you’re the reason that we’re here today because you introduced me to Steve Klebe, who is Google’s head of wealth processor and partnership business. And Steve is here today, joining us once again and great to have you here, Steve, to talk about G Pay. So Steve, welcome back to Payments on Fire.
Steve Klebe:
Thank you. It’s a pleasure to do another run at it.
George Peabody:
This has kind of well-trodden ground for you in many ways, because I know you and Yvette have worked together in the past at Google and CyberSource, is that right?
Yvette Bohanan:
CyberSource. Years and years ago, we go back although Steve’s forgotten more about payments.
Steve Klebe:
Flattery will get you everywhere, Yvette.
George Peabody:
Steve, well, great to have you here.
Steve Klebe:
That just means I’m old.
Yvette Bohanan:
We’re not going… Steve, when you started at Google, when was that?
Steve Klebe:
Nine years ago.
Yvette Bohanan:
Nine years ago. G Pay was not what it is today, right? It’s been quite an evolution and quite a ride to be.
Steve Klebe:
Yeah, we’ve lived through four major product pivots in those nine years.
Yvette Bohanan:
So it’s quite a bit and the last year has been incredible and in some sad ways and in some amazing ways in payments. So when you think about it, how are you describing the current predict today? And what’s your elevator pitch when you’re talking with people and merchants and users and banks or PSPs, apparently who you talk to.
Steve Klebe:
Yeah, the last 12 months have for sure been incredible. We, like everybody else, saw the world drop off in March. The interesting thing that happened was that almost immediately after March and as from April forward, not only did we recover, but the slopes all accelerated. And particularly in my slice of the ecosystem, we were typically adding two to five new PSPs a quarter, would come to Google and want to add support for Google Pay for online transactions. Offline is automatic, it’s just there, but for online and in-app, there’s actual work that these partners have to do. And literally in Q two and Q three, we added close to 30 partners and that was all organic. I didn’t make a single outbound phone call. That was all coming in organically. And luckily we’ve implemented a scaled onboarding program so that other than signing a contract, the actual technical work is fairly straightforward and pretty much self-service for the partners. So we’re up to now globally, roughly 200 PSPs that are supporting Google Pay.
Yvette Bohanan:
That’s impressive. And how do you think about that in terms of scale and reach to merchants? Do you have any ratios in your one TSP equals reach of X to virtuosity consumers?
Steve Klebe:
As you guys know, the market is extraordinarily fragmented. There are the obvious five or 10 big players that everybody talks about. But as you also know, some of the ones that are most meaningful to us of the stripes in the audience of the world, don’t actually show up on a lot of industry top 10 lists because they’re especially important to us because the sweet spot use case for Google Pay is native Android apps and fully optimized mobile websites. And the merchants who are really focused on those areas and on very mobile centric use cases have gravitated to those new upstart players in the industry. So while we do support everybody, and our philosophy is to be Switzerland and our goal is not to have the merchant have to think about changing who their PSP is in order to implement Google Pay.
Steve Klebe:
We want them to just show up at the door, look at the list of PSPs that are supported, see that the PSP they’re already working with is on the list. And then just a few clicks later, launch Google Pay in their app or on their site, and go forth and prosper. So from a coverage back to your question Yvette, you’re never at 100%, I would say that we’re at 60 to 70%, but the market is so fragmented. You’ve got all these little niches, like this’ll be a good one for you. So the other day I got one of these interest forms from a small PTSP based in Colorado, former Google engineers. And they focus on brewpubs. They do payment processing for brewpubs.
Yvette Bohanan:
Now far as just brewpubs.
Steve Klebe:
Well, they’re now expanding, but their initial-
George Peabody:
Distilleries.
Steve Klebe:
Their initial focus in it were literally payments processing for brewpubs. I just was like, oh my God, that’s just fantastic. But we’ve got processors that focus on people who do invoicing. We’ve got processors that focus on merchants that are in the healthcare space, and then you’ve got the big broad processors that will literally sign anybody. Again, our goal is ubiquity and we’re getting pretty close. It has slowed down a little bit, but I would expect that we’ll add another 30 to 50 of these PSPs on an annual basis for the next several years, because they just keep coming out of the woodwork.
George Peabody:
So COVID’s clearly been a forcing function for this, but they’re getting pressure from merchants to support it, right?
Steve Klebe:
Yeah. As a matter of fact, what I hear a lot, because I ask people what drove you? I didn’t call you. You called us, right? So what drove you to fill out that form, and more and more, I hear that it’s become a table stake feature that they absolutely have to have.
George Peabody:
And I suspect that they want that feature because not only are there these merchants customers, but I suspect aren’t those PSPs also surfing the ISV who serve the merchants themselves, who want to be able to present G Pay, I assume they’re supporting Apple Pay as well. They want to rout out their offerings to the ISV channel.
Steve Klebe:
As folks who are familiar with the ecosystem know you’ve got all the permutations that exists where you have an individual merchant signs with individual PSP, but then what’s happening a lot is the whole PayFAC construct, etc. And I was talking to one of our PSP partners the other day and without naming names, they have a company that’s in the parking space and they’re just the application provider. And they have contracts with street parking firms and municipalities. And we don’t care, like we want Google Pay button everywhere. And so they happen to be using one of our PSPs and I explained to them how easy it is that they can board… They have 50 different independent parking entities and municipalities that use their app and we’ve made it super easy and scalable. We’ve reduced all the friction and barriers. As long as they’re using one of these PSPs who handles that sensitive encrypted blob of data for them, they can literally just provision the button and go to town.
Yvette Bohanan:
So a lot of times in classes Russell Fe, in our workshops, the motto of the PSP is payments are hard and we make it easy. And it sounds like you’re enabling them to make it easy, right? You’re making it easier for the PSP so they in turn can make it easy for all of the rest of the chain up to the consumer.
Steve Klebe:
Right, and ISVs and PayFacs who work either have become their own PSPs or work in partnership with PSPs. They would argue that they even take it one step further and they’re making the entire payment processing complexity, simply embedded in whatever software application they’re pitching out to their merchant or partner segments. I have a lot of young colleagues who come to Google and come to the Google Pay team and they know nothing about payments, and I start explaining to them what the ecosystem looks like, and how fragmented it is. My favorite terms are shades of gray, there’s no black and white, it’s just shades of gray. And my other favorite term is common sense doesn’t apply.
George Peabody:
Our favorite line is, it depends.
Yvette Bohanan:
Yeah, it depends.
Steve Klebe:
Same thing.
Yvette Bohanan:
So what’s holding the PSPs back from working with you, what’s holding back people if anything at all at this point, or are they just racing into the door to get signed up? Is there any friction left? Is there any reluctance? Because this was not like this a matter of let’s just say three years ago, right? It was a very hard sell in a lot of respect.
Steve Klebe:
Yeah, one of my other favorite sayings is I’ve never worked so hard to give something away for free, because Google Pay is free, right? So we of course, early on did very proactively reach out to sort of the obvious folks that we knew would matter and make sure that we could cover what we thought were initially the sweet spot of merchants who were going to benefit most from a feature like Google Pay. And we were very successful getting the ones that we wanted. There were still some holdouts, and even till today there are some holdouts, but a lot of merchants, like if they’re particular, and again, I’m going to avoid naming names, but if they happen to process with processor XYZ and XYZ has not stepped up, they’ll just go use an independent gateway who has stepped up and bridge it over.
Steve Klebe:
People are pretty creative about figuring out how to get this done. There’s a challenge to just get at the plumbing in place. And we’re pretty much past get the plumbing in place stage. There’s still a challenge of getting merchants to do the work, to actually add the button into their flow and we rely on the PSPs for the most part to get that message out. And there are lots of challenges inherent in that. We definitely have to work proactively with the PSPs to once they put the plumbing in place to actually promote and get the merchants to actually do the work and merchants who have a native Android app, it’s heresy to not implement Google Pay. The user experience is so smooth and so profound. And even if you have an optimized mobile website, and one of the unique differences between us and the other major wallet is that we’re platform agnostic.
Steve Klebe:
So we work across Mac OS, Safari, Windows, Edge, Chrome, etc. We’re not limited to just one operating system and one browser. So that’s a unique attribute. But anyway, I am constantly doing training sessions, webinars with various sales teams to educate them so that they know how to address the objections that come up, but we’ve really been focused on, again, I keep coming back to, we don’t really press very hard to get merchants to add Google Pay to their desktop website, because we know that we’re not going to add huge value there. But any merchant who is in the food ordering space, for example, which is our number one category, and you’d be hard pressed to name a QSR that hasn’t implemented Google Pay and the ride sharing services, because we all know that they’ve had a tough time the last 12 months.
Steve Klebe:
But any sharing economy app, any app where their target audience are millennials, and it’s a mobile centric use case, those are the places where it resonates. And then of course, many of you may know that in the fall of last year or the late fall, we introduced a completely re architected Google Pay app. And that has kind of changed everything, although we’re still early in the evolution. So it’s bringing a lot more benefits, both to merchants and to the consumers. And I can’t mention though, for those of you listening who have an iPhone, there is equal version of Google Pay that’s now available for an iPhone as well. The only thing you can’t do is tap and pay at trader Joe’s or Safeway or whatever, but all the other functions you can do.
George Peabody:
Certainly over the last 12 months has been a whole lot less tapping than there has been remote commerce transactions based on transactions out of the wallet. So Steve, you said something earlier that really caught my attention, which was, you’ve never worked so hard to give away something, right? So I got to ask you then what’s in it for Google? Is this about the adding value to the Android ecosystem? You got to answer that question.
Steve Klebe:
I can easily answer that question, although what’s in it for Google is evolving and it’s somewhat tied to the release of this new app.
George Peabody:
Well, that’s a great segue into that part of the conversation.
Steve Klebe:
Right. So historically the reason why Google was doing this was pretty simple. We’re sort of obsessed with giving end users a smooth and clean an experience as they can possibly have. And that transcends all the different surfaces and platforms that we have. So anything we can do to make it easier for end user to conduct commerce because of the role that Google plays in the world of commerce, anything we can do to just pour fuel on the world of commerce ends up coming back and being good for Google. The other thing is merchants who benefit from incremental transactions that happen because we improve conversions, those same merchants are also Google advertisers typically. So if we can help a merchant/ Google paid advertiser, generate more revenue, guess what, they have more money now to spend on ads. It’s pretty straightforward.
Steve Klebe:
And then the PSPs that I focus on, if we’re truly generating incremental transactions, then they’re motivated because they make money on every transaction. Now because of the latest version of Google Pay, one of the features that we’ve added is offers. So this is going to be the first time where Google is actually monetizing an aspect of the Google Pay paradigm. So we have launched offers within the Google Pay app and I’ve personally done these offers. And as you can see here, I’ve collected $75 in rewards from having used the offers that are inside Google Pay. And right now, the first phase they’re typical wallet linked offers and the merchant pays whatever the consumer bonus is or for rebate is, but they also pay a fee to Google for surfacing those offers. And those offers will not just be surfaced within the Google Pay app, but they’ll also be surfaced on other Google properties.
Steve Klebe:
So this is really the first time we’ve truly merged the assets that Google has beyond Google Pay in isolation over to the other, what we call surfaces, which would be maps, search, YouTube, etc. And so the offers that a merchant publishes to Google Pay will surface across different ones of these Google properties.
Yvette Bohanan:
And is that global right now? Is this a US piece of the product? How do we think about this in terms of footprint?
Steve Klebe:
Yeah. So Google Pay is pretty much deployed globally for online. It’s live in 40 countries for in-store and but for this new generation of app, it’s only live so far in three markets. It’s live in India, in Singapore and in the US, and stay tuned the plan is definitely to expand the geographic footprint of this new generation of Google Pay.
Yvette Bohanan:
And offers is part of that new generation?
Steve Klebe:
Offers will definitely be part of it. Yes, it’s the Holy Grail for us because the time had come after being in this business for… Well, it even goes back before my time at Google. The old, old, old product called Google Checkout where we did make money because we acted as the master merchant, but then we moved out of that phase and we became simply a facilitator and there was absolutely no direct revenue recognition. So we’ve now crossed back, not only because in order for this to make sense for Google for the long-term, it does make sense that we monetize, but by monetizing, it allows us to invest a lot more in the service. So it becomes a virtuous circle, and of course the whole idea with these offers is to bring something better to the consumers and also drive net new customers to merchants.
Yvette Bohanan:
Tell me for the merchant it’s, you’re trying to solve the chicken and egg problem.
Steve Klebe:
Right. And we feel we know what it means to be in the advertising business. It’s not my particular domain expertise, but we as Google know what it means to be in the advertising business. And we have these multi-billion user properties where we can surface these ads. So it really can create a much richer ecosystem for all participants.
Yvette Bohanan:
You’ve given a wonderful answer to the first question we always get when we’re in a workshop, public, private, whatever, when we’re going into the digital remote commerce discussion. And of course, the second question we always get is, well, what about the data? And really it’s because it’s a bit of a comparing contrast because Apple makes a lot of assertion to try to only people’s concerns about data. And I know Google works really hard on data and data privacy and GDPR, and on and on and on. But why don’t you think about data when you are driving this sort of incrementality and it has a lot of smarts behind it for offers? Give us the other side of the coin here for a second, maybe at the 50,000 foot view, because it’s a big complex topic.
Steve Klebe:
Yeah, but the bottom line is that, first of all, we don’t actually have visibility to that much data interestingly enough. We knew that you tapped and paid at Walgreens yesterday, and you spent $75, but we have no idea what you bought. And of course the data is all firewalled off between the different parts of Google. Now, as we add in this offers component, consumers are first of all, opting in to the offers program. And they’re opting in to allow us to surface relevant offers to them based on other things we know about them, but this falls completely within the sphere of all of our privacy policies. And then it goes to the next level, which is obviously we have contracts in place with the card networks and with many of the issuers directly. And if not directly indirectly through the card networks about what can and cannot be shared or utilized.
Steve Klebe:
As everyone knows, we’re under endless scrutiny about how we handle data and we’re extremely committed to it. And then of course, another leg on the Google Pay stool, which is coming soon, is this co-branded bank account that’s now called Plex. As you can imagine, we’re going through a whole nother array of regulations and contracts to make sure that data is handled in appropriate ways.
Yvette Bohanan:
Absolutely, and it’s good to hear. I think it’s just one of those things that people get really nervous about because everybody’s done Google browsing and then something happens and it feels… The saying is there’s a fine line between cool and creepy, right? So not only do you have the legal regulatory aspect of it, you also have sort of the consumer psychographic aspect of, is this cool that you can do this for me and these offers are really meaningful and I can make 75 bucks and offers, or is it creepy? How did you figure that out or am I being kind of… Think a little bit as a consumer.
George Peabody:
I just got a push message from inside my G Pay app that said, do you want to continue to have this app personalized? So it’s very much a proactive outreach and I opted in. So yeah, I want to get relative. If I’m going to get offers, I want them relevant to me.
Yvette Bohanan:
Yeah. And I think the transparency is really important, right? That kind of transparency and product design, especially as you go back and think about your earlier remarks, Steve, about the payment experience becoming more and more embedded in the customer journey. And so now you take that all the way to the internet of value or the internet of value exchange and all this stuff, the blockchain people talk about. But it’s really kind of one and the same, right? We’re going to be talking to whoever and Google or Siri or Alexa or whatever, and suddenly you’re paying your shopping and your-
Steve Klebe:
And your banking.
Yvette Bohanan:
And your bank.
Steve Klebe:
And your banking, right. But again in order for any of this offer stuff to be of any meaning to any one individual, they have to opt in. They have to decide if they want location turned on or not and if they want location used as a point of data to help get them the relevant offers. I’m a person who keeps location turned off all the time just to save battery. I actually, when we were going through our pre-launch phase, I noticed that the app kept asking me do I want location turned on? And I provided some input, and we made it so that that just happens once. And it basically now remembers that you’re somebody who doesn’t want location turned on. So we’re extremely sensitive to these things and it’s always a balance, but I think the individual users are in control of what does and doesn’t get shared and how it does and doesn’t get you.
Yvette Bohanan:
Mm-hmm (affirmative).
George Peabody:
It’s going to be very interesting to watch how successful this Plex program is. And that you’ve standing up with bank partners, of course, like Citi and Stanford FCU and others, real true bank accounts that are accessible through this Google Pay interface. Because you have a partnership with Plaid, you use Plaid for access to other banks credentials. It’s a very seamless process to go and… So now I’m not sharing all of my accounts with Google, but I’m sharing one of my transaction accounts. And it’s pretty interesting to see that account balance information as well as, oh, here’s all of the merchants I’ve used G Pay at recently and how much I spent there. So I expect going forward that I’m going to have more financial management capabilities built into this.
Steve Klebe:
Yeah. So people will be able to choose to actually open up one of these Plex accounts, which is a co-branded account. And we’re simply providing the front end layer. The bank is providing all the bank and we’re working with core banking providers to make it all technically possible to get many banks enrolled. But if individual consumers are happy with their current bank, they can just use the Plaid interface if they want to link to an existing bank account, or some are going to end up with a mishmash of both situations. I have, I don’t know, three or four bank accounts for various reasons. And people will have all of those options, will exist or they don’t have to use that leg on the stool at all.
Steve Klebe:
One big overarching comment I would make is that pre this latest release of Google Pay, really the app was simply a utility. It was simply a place to store your loyalty cards, store your boarding passes, and store your payment cards. And we have transitioned now from purely being a utility to actually being a destination and a launch pad for your entire financial life. And for people who see that as a benefit, the capability is there. If they want to take advantage of all three legs on the stool they can, if they don’t, they don’t have to.
Yvette Bohanan:
Yeah, that’s really interesting because there’s a lot of places that in a lot of companies out there that have been super successful with that strategy of moving from a wallet to Alipay because it be lifestyle super app, right? And this notion of a one-stop shop for your life essentially is the natural progression from just a wallet and a holding bin to while your financial, to your investments, and then to everything else just kind of encapsulated in one place. Is that a way to think about the evolution?
Steve Klebe:
Yeah, obviously Google believes that a person’s financial life is a critical part. And just like we’re committed to getting COVID-19 information out there, we’re committed now to getting really relevant financial options and information out to people and providing insights using all of our machine learning capabilities and the like to provide insights to people and eventually surface interesting products to them. So for example, like in India, which was the first launch of this new generation of the Google Pay app, something’s popular in India, which I was aware of people like to buy gold, right? It’s just something that people in India want to possess actual gold. So right within the Google Pay app in India, you can purchase gold. And I don’t know whether it gets delivered to you or it gets a reference and stored for you somewhere. I’m not sure, but it’s a button right inside the Google Pay app and purchase the gold and Google does earn a commission for facilitating it. So it’s an example of a monetization opportunity as would be expected.
George Peabody:
So Steve, it strikes me that given all of Google’s strengths, not only in machine learning and AI, but also in user experience design, you now have an opportunity or an act by the role as being a service provider to financial institutions who themselves don’t have those kinds of resources, don’t have the talent. Just comparing my experience with the G Pay app as a financial destination now, compared to my big national banks’ app that I have on my phone and really the design and the flow and all of that is so much more comprehensive on the G Pay side. Is becoming a big time tech partner to financial institutions on the roadmap?
Steve Klebe:
Well, I wouldn’t say it’s on the roadmap. I would say it’s here and really it’s consistent. Our cloud team has signed many, many banks. So we are a technology provider to financial institutions, and of course that’s a separate product area, but we actually collaborate with the cloud team a lot as well. And yes, this is part of the overall vision is that we are in that unique position to provide a level of UI expertise and connect the dots for the consumer to the merchants that they love shopping at. And one of the other features within the Google Pay app is we have these little things that are called Spots.
Steve Klebe:
So every time you shop from within the Google Pay app, you can see there that I’ve shopped at Safeway, I’ve shopped at CVS, I’ve shopped at PetSmart. And every time I do that organically, one of those little Spots shows up on the screen and the merchant doesn’t have to do anything, it just happens. But eventually merchants are going to be able to take over those Spots and actually embellish what can be found when the consumer presses subsequently on that Spot, not just a list of all the transactions that you did, but maybe you’ll sign up for the merchants’ loyalty program through that Spot. So it’s really connecting all of those dots. And this becomes the platform to do that.
George Peabody:
I get that for the merchants in particular, how attractive that could be, because they don’t have the concern about disintermediation. I imagine some of the financial institutions have a little more concerns about, am using G Pay to manage all of my interactions, quite a decision for at least the online banking or the mobile banking leadership at a bank. Very interesting.
Yvette Bohanan:
Maybe your financial institution is a form of a Spot, and they’re giving you some feedback in real time.
Steve Klebe:
Clearly, if you decide to open up one of these Plex accounts, you’ll do everything that you do related to that bank account right from within the Google Pay app.
Yvette Bohanan:
I think there’s sort of this vipercated situation. You’ve got so many banks in the United States and in Europe, and the big banks may or may not like this, but smaller banks and credit unions may look at this as like a very slick way to stay connected and even grow their base of customers or members, right?
Steve Klebe:
It is designed to be an open platform. It’s open to any bank that would like to work with us on these Plex accounts. It doesn’t have to replace something that they already have. It can compliment and be a parallel offering to something that they’re already doing. Most banks already have some kind of digital offer for their consumers, but it is designed to be a platform not just limited to a small group of institutions.
Yvette Bohanan:
Well, again, you go back to your role of integrity.
Steve Klebe:
Right, it’s all about being Switzerland. And having been at Google, we think first and foremost about what’s right for the end user and then everything sort of travels from that vantage point. And then we stepped back to the various layers and factor in all the different participants and their needs and wants, but it’s all about making sure that the end users have a great experience and their lives get improved and all that good stuff.
George Peabody:
Steve, thanks so much. You’re going to have to leave it there. We can make it continue this conversation for a long time. So thank you so much. Thank you both Yvette, and Steve, for being on Payments on Fire today.
Steve Klebe:
Thank you, George. Thank you, Yvette. You guys have a great weekend. Stay safe.
George Peabody:
You too.
Yvette Bohanan:
You too.