Don’t count Google out of the mortgage market

Google Compare, formerly known as Google Advisor in the US, was developed as a specialised, standalone service that enabled consumers to get quotes from providers for financial products such as car and travel insurance, credit cards and mortgages.

The shutdown of Google Compare – in the US and Britain, the only two markets where it was active – began in February and concluded one month later, on 23 March.

Just months ago, in November 2015, the company announced a major partnership with Zillow and Lending Tree for its mortgage rates comparison product in the US. In March the same year, it started offering auto insurance to customers. 

Car insurance, mortgage rates, credit cards and travel insurance had been offered by Compare in the UK since 2012.

At the time, Google’s decision to launch a mortgage comparison tool led to significant industry talk, even in Australia, about what it meant for the future of mortgage distribution.

It seemed to me that Google had decided to position itself closest to the consumer – at the very start of the value chain. With the massive audience that Google has, there were industry fears it would be able to capture the bulk of the new online inquiries for a vast range of financial services, and thus act as a type of online aggregator.

As an online aggregator, there are three primary business models that are obvious paths to monetisation. The first is as a full-service online broker, offering full services and advice, and earning full commission. The second is as a traffic generator, where a potential new inquiry would be sent to another site and the owners of that site would pay for the views.

The third model is the one Google adopted, and arguably offered the best reward for effort – that is, generate the lead, collect consumer data, process a quote request and send a highly qualified lead to a third party (or parties) for fulfillment.

So he announcement to close the service came as somewhat of a shock to the market. Many have presumed that it is because the market is just too complex for Google to compete in. According to a Google spokesperson, while “queries remained high, the product didn’t get the traction it hoped for and revenue was minimal”.

Something about Google’s decision to discontinue Compare doesn’t make sense to me. I think it would be a mistake to presume Google has left the market.

Compare was built on an existing UK platform beatthatquote.com which Google purchased in 2011 for £38 million. In 2013, the project lost £12.64 million, and a further £19.4 million in 2014.

Google’s turnover in 2014 was US$66 billion and its profit was US$3,720 million. At current exchange rates, that loss represents 0.74 per cent of the company profits or 0.04 per cent of revenue.

For a public company that has pressures of continued growth, it will naturally be focusing on the biggest markets. To close an enterprise that is responsible for less than 1 per cent of the company’s loss, yet could have competed effectively with some of the largest brokerages and financial services firms, given time and effort, seems counter to Google’s history.

For those who are breathing a sigh of relief that Google has exited on the premise that it was just too hard for them, perhaps they should reconsider. Google understands fintech and boasts several US-leading fintech companies in its Google Ventures accelerator including Oscar, Ondeck, CircleUp, Gusto and LendUp, not to mention their investment in Google Wallet.

While most fintech start-ups can launch and operate for some time without attention from corporate regulators, companies like Google are on the same regulators' radar from day one. And if Google is going to be regulated so closely, then perhaps it is thinking that it needs to go for the bigger prize and offer full customer services.

Very few fintech start-ups in Australia represent real competition to the banks, but the Google model is different. If a fintech start-up begins to appear disruptive to the banks, they can be bought.

It is the bigger firms like Google that the banks should be most threatened by. Their model is in stark contrast to the branch model that Australian banks continue to be committed to, and the power could very definitely shift from product manufacturers to product distributors, and consumers given a successful push into the Australian market.

Make no mistake – Google haven’t withdrawn. They will make an even bigger play soon ... and it will be a game changer.