written by
Renjit Philip

Apple's banking foray: Can its High Yield Savings account shake the banks?

2 min read , April 20, 2023

BIG Tech Invasion: Apple's high-yield account rocks the banking world, leaving traditional banks trembling! Discover how depositors ditch low-interest accounts and why other tech giants may soon join the fray. Can legacy banks survive the Big Tech onslaught? That could have been the title of this week's FT article on Apple.

Photographer: blocks | Source: Unsplash

Instead, the FT had a headline this week "Depositors pull nearly $60bn from three US banks as Apple raises heat". Apple has announced a high-yield savings "account" backed by Goldman Sachs. The yield is a juicy 4.15%.

The regional banks in the US have recently faced a crisis of confidence, with depositors pulling billions away into money market funds or bigger banks. 800 Billion dollars have left the banking system since March last year. Why?

Greed: Depositors are yield hunting and have moved to money market funds and even treasuries for yield. Avg. Bank account yields are 0.37%, compared to the US Treasury paying 4.75 to 5%. If you believe in the relative safety of the US Gov-backed debt, yield hunting makes sense to US customers, especially when inflation reduces their purchasing power.

Fear: partly because FDIC only insures up to $250k; technically, any amount over that is uninsured. Regional Banks are going through a crisis of confidence with SVB and Signature Bank failing and pressure on multiple banks to shore up their liquidity. This aspect has been written to death after the failure of SVB, but the gist is that as interest rates rise, the market value of low-interest treasuries that were purchased drops. So there is an asset-liability timing mismatch.

Alright, now let us talk about how you can get a High Yield account with Apple:

  • Only available in the US
  • Need to have Apple Card
  • You need to have an iPhone

Apple ensures that high-yield accounts are opened for customers who buy their phones and use their cards. Thus ensuring customers are tied into their walled garden ecosystem. Interesting that Apple chose Goldman as its bank (for regulatory compliance, only a bank can accept deposits. Goldman Sachs was recently in the news for paring down its experiment with Marcus. Marcus customers get a 3.9% yield, so is Goldman incentivizing Marcus customers to leave? What could be the motivation? Perhaps Goldman is leaving the burden of customer acquisition (and the costs) to Apple and sees this as a move to gather customer deposits in this period of flux.

Think of the deposit rates banks give us in the UAE (pretty low). Now we also know there is no FDIC-type insurance on the bank accounts. So, if a trusted tech giant like Apple launches their high-yield account, it would find many takers. The market is too small, tightly held by legacy banks, and hobbled by regulation to allow for such a feature to be offered by a tech company. The incumbent banks in the UAE can heave a sigh of relief!

However, in an era where customer loyalty is driven by convenience, digital innovation, and attractive returns, banks must undergo a transformation to remain competitive and relevant in the face of Big Tech's incursion into their territory. Failure to do so could result in a significant loss of market share for traditional banking as we know it.