Alphabet Bets on Crypto and Digital Banking for Google Pay Growth

Company looks to bridge gap in digital payments

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Aug 13, 2020
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Alphabet Inc.'s (GOOG, Financial) (GOOGL) Google Pay has witnessed significant growth over the last few years. This growth has primarily come from emerging markets, with some developed markets like the UK experiencing a decline in monthly active users.

Google Pay had more than 75 million monthly active users in India at the end of May, which is a significant increase from about 67 million active users in September of last year. On the contrary, the UK has seen Google Pay MAUs decrease from about 1.4 million to about 214,000 over the last three years.

Google Pay's high rate of adoption in India has been driven by the accelerated growth of digital payments. In addition to Google Pay's 75 million transacting users in the country in May, Walmart Inc.'s (WMT, Financial) PhonePe had 60 million transacting users while Softbank Group Corp's (TSE:9984) Paytm recorded 30 million. Meanwhile, Fabook Inc.'s (FB, Financial) WhatsApp Pay rollout continues to face regulatory challenges.

Alphabet is looking to boost the usage of its digital payment services in North America by partnering with banking institutions. Earlier this month, the company announced that it was partnering with six banks to provide digital checking and savings accounts to Google Pay app users in the US.

The new banks, which include BankMobile, Banco Bilbao Vizcaya Argentaria SA (BBVA, Financial) USA, Bank of Montreal's (BMO, Financial) BMO Harris, Coastal Community Bank, First Independence Bank and SEFCU bank, will join current partners Citigroup Inc. (C, Financial) and Stanford Federal Credit Union.

Alphabet's new approach, dubbed as "Project Cache," will help the company to provide consumer-facing front-end digital banking services to the users of the Google Play app. This could also create an avenue for the digital payments application to grow its user base, thereby strengthening its position in the company's revenue mix.

This is not the only segment of the market that the search engine giant is looking to derive growth from. The company has also embraced cryptocurrencies by allowing crypto payments via the Google Pay app.


Google is following in the footsteps of other financial payments giants PayPal Inc. (PYPL, Financial) and Mastercard Inc. (MA, Financial), which have softened their stance on cryptocurrencies. Cryptocurrency investors can now make payments on Coinbase, Paxful and NewsCrypto, among others. Coinbase is one of the leading cryptocurrency exchanges, while Paxful is a peer-to-peer platform where investors can buy and sell digital assets using multiple payment methods. On the other hand, NewsCrypto leverages modern trading technologies to provide an intuitive crypto trading platform to users. These platforms combined have tens of millions of users, which Alphabet could potentially sign up to its Google Pay app, thereby widening its addressable market.

The increasing adoption of cryptocurrencies in the mainstream financial markets is making traditional critics of the industry rethink their positions. Goldman Sachs Group Inc. (GS, Financial) is another former critic that is now making inroads to launch its own cryptocurrency. By doing this, it will join JPMorgan Chase & Co. (JPM, Financial) in the list of multinational banking institutions to venture into the industry.

As more reputable organizations join the market, the Google Pay app and other digital payment applications will likely continue to witness a rise in demand. PayPal's and Google's entrances into the cryptocurrency market are already seen as a threat to Square Inc. (SQ, Financial), which has benefited from being one of the first to offer crypto payments services.

In summary, Alphabet is a well-diversified stock in the technology sector. While Google search continues to be the main revenue contributor, the company is looking to grow other segments of its business. It looks like the digital payments business is quickly emerging as an important item in its strategy for future growth.


The company is currently valued at a market cap of just over $1 trillion and trades at a price-earnings ratio of 34.11. Its forward price-earnings-to-growth (PEG) ratio, based on Wall Street analysts' predictions of earnings for the next five years, stands at 2.22. Thus, I think Alphabet appears to have a lot of room to run in the coming years, and the Google Pay app could play a crucial part in the growth story.

Disclosure: No positions in the stocks mentioned.

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