Apple Makes More Fintech Moves With High-Yield Savings Account From Goldman Sachs

By Melody Brue, Patrick Moorhead - May 11, 2023
APPLE

Apple is one of the most successful companies in history, and it has a long track record of disrupting one industry after another. From the desktop computer to digital music, the smartphone and more, Apple has put a differentiating stamp on its products, winning the company a $2 trillion market cap and a cult following over time. This week Apple announced the latest of its many disruptive fintech offerings—a high-yield savings account for Apple Card holders, offered through Goldman Sachs.

Apple's new savings account pays 4.15% APY (annual percentage yield), ten times the national average, with no fees or minimums. Apple says the bank account is meant to "help users lead healthier financial lives" by allowing customers to save more and earn more interest.

The announcement, along with other launches in previous months, has people questioning whether Apple has its sights set on disrupting banking, too, and whether its legions of avid fans will show their loyalty with their wallets. Let's look at Apple's recent fintech developments, their significance in the fintech ecosystem and what they mean for consumers.

A set-it-and-forget-it way to save money

Apple Card users can link the new Goldman Sachs savings account to their cards; once they do, they can immediately put balances from Daily Cash into an interest-generating account instead of letting it accumulate in Apple Cash. Previously, Apple Card users earned 1–3% cash back on every purchase in Daily Cash, which was automatically added to an Apple Cash balance, where they could use it to pay for purchases or transfer it to another account.

The new savings account has no minimum and zero fees but carries a $250,000 maximum deposit, limiting the interest earned at the high yield rate. In addition to Daily Cash, users can deposit funds through checks or ACH transfers from outside accounts. The Goldman Sachs account is in direct competition with banks and smaller fintechs that have offered higher-yield saving accounts in the wake of higher interest rates. For example, digital bank SoFi has a higher-than-average 4.0% APY, and Goldman offers its own Marcus savings product at 3.9%.

The higher-rate trend from challenger banks may put pressure on bigger banks to raise interest rates, but the problem is that banks don't want deposits that they can't lend out. Given current uncertain economic conditions, lending has slowed and deposits are down—particularly in comparison with the stimulus-check days of the Covid-19 pandemic. Attracting excess deposits in this climate is costly for banks and poses a risk to the bank's net interest margin.

However, a 2022 study shows that people keep a savings account for nearly 16 years on average, so if Apple can get customers, it will likely keep them. Many savers are passive in managing their accounts and will stay with the same bank because of the hassle involved in making a change. Others will change only if they have a bad experience or are presented with an offer that is too good to pass up. With a fully digital experience and industry-leading rates, Apple may create enough appeal to entice consumers away from their current banks.

For anyone considering an Apple Card, an interest rate ten times the national average (although the APY is subject to change) should inspire a second look. I imagine plenty of current Apple Card users would be willing to park some cash in a savings account to earn that high of a return, even if it lasts only for a while. However, Apple's deposit account agreement states that the bank requires seven days' notice of withdrawal, so that should be considered for anyone wanting immediate liquidity.

Apple's charge into fintech

Apple entered the digital wallet world with Passbook (now Wallet) in 2012. Passbook was introduced as a way to store coupons, boarding passes, identification, loyalty, gift and store cards and more. What is now called Wallet was also Apple’s first foray into financial technology, although it did not support credit or debit cards at launch.

Apple Pay, which does support credit and debit card transactions, was introduced in 2014 by CEO Tim Cook, who touted the electronic Wallet as an alternative to the "vulnerable magnetic interface" of traditional credit cards. Apple Pay allows users to make payments using an iPhone, iPad, Apple Watch or Mac. It uses near-field communication (NFC) technology to transmit payment information securely between the device and the merchant's point-of-sale terminal.

Apple Pay uses "tokens" to safely transmit encrypted data and does not store or share users' payment information. Users can also keep their credit, debit and loyalty cards in the Apple Wallet app for easy access and management. All transactions are authenticated with biometric data or a passcode.

Apple now has roughly 48% share of mobile wallets with two billion active devices in circulation. This equates to a large user base that is accustomed to the iOS interface and likely more responsive to offers on the operating system.

Apple Card gives credit where iOS users want it

Apple has capitalized on its wallet market leadership position by offering faster, cheaper, more secure and more accessible alternatives to traditional bank-offered financial services. When Apple launched its Apple Card in 2019, it focused heavily on its sleek design (per usual for Apple) and range of security features, such as a one-time-use card number for online purchases and biometric authentication for in-store transactions. It was the first of Apple’s credit products—and it’s also issued through Goldman Sachs.

Apple Card features are marketed to a customer base beyond financial services’ typical traditional targets. Apple Card Family allows cardholders to share their account with up to five others in their Family Sharing group. The "family" is not limited to spouses and children, acknowledging that the definition of family is broad. Apple Card Family also offers features such as Family Spending, which allows the primary cardholder to see the combined spending activity of all users on the account.

Everything about the Apple Card, including applying for it—is done through the Wallet app on an iOS device. The familiar user interface makes everything intuitive and straightforward for Apple product users, from the application process to managing payments, transactions and spending.

A high-end “buy now, pay later” product.

In March, Apple entered the BNPL (buy now, pay later) space with Apple Pay Later, which allows users to pay for purchases in four equal installments over six weeks with no interest or fees. The rising cost of living has put pressure on consumers and boosted BNPL usage in unexpected spending areas like grocery and small purchases. These are precisely the purchases where consumers are most likely to use Apple Pay.

I think there could be consumers who have not used BNPL in the past who might be more likely to use an Apple product for their first installment-payment experience. Apple’s offerings have a perception of being high-end, and this perception could even affect the use of installment payments.

Higher interest rates will likely weed out some BNPL players who can no longer afford to underwrite the zero-interest loans, but Apple is well-positioned to offer this payment option thanks to its gargantuan cash reserves. While Apple Pay Later may not be a significant revenue source for the company, the utility of the payment option certainly secures some Apple Pay users in Wallet.

Apple scales Tap to Pay to capture in-store purchases

The total penetration of brick-and-mortar Wallet purchases among iPhone users has been relatively slight. Only about 6% of iPhone users made in-store Wallet transactions in 2022. That number, however, represents a heady 29% growth in penetration of in-store commerce over the previous year. Apple aims to increase this with Apple Tap to Pay, a contactless merchant payment solution for the iPhone that requires no hardware installation.

The first rollout of Tap to Pay was with Stripe. "With Tap to Pay on iPhone, millions of businesses using Stripe can enhance their in-person commerce experience by offering their customers a fast and secure checkout," said Billy Alvarado, Stripe's chief business officer, at the time of launch.

Adyen, an Amsterdam-based global payments software provider, has also launched Tap to Pay on iPhones at scale. Adyen offers Tap to Pay through partners and directly through retailers such as Nike and Lightspeed Commerce Inc. In addition, just this week, GoDaddy announced support for Tap to Pay on iPhones with the release of its new GoDaddy mobile app. The app allows U.S.-based businesses to accept contactless payments powered by GoDaddy Payments. GoDaddy says the integration will save small businesses 20% on card processing compared to other providers.

Apple is signaling a focused intention of capturing more in-store payments with these integrations as consumers have been somewhat slow on the uptake of in-store mobile wallet use. Apple looks to significantly reduce in-store checkout friction by having Wallet and Tap to Pay options on hand.

Final points of interest

The global economy relies heavily on the banking industry for payment processing, loans, currency exchange, the safekeeping of funds and more. Apple is poised to disrupt this industry with alternative financial services for current and new users. For starters, the company has a massive captive audience of iPhone users, but it also must pull out all the stops to keep that audience happily captive.

Recent studies show that consumers are readily wooed with ease and offerings when deciding how to pay for products and services. 56% of consumers who earn more than $100,000 a year changed their payment method in the last year, and 48% of consumers cite ease of use as an important decision factor in using a new payment method.

The bottom line is that Apple is a possible threat to traditional and neo-banks. By continually adding financial services products to its arsenal, the company is poised to build a suite of services that will challenge the industry. Like how Apple is capturing revenue through subscription services such as Apple Music, Apple News+ and Apple Arcade, incremental recurring revenue from transaction fees will likely keep Apple at the top of the food chain in both technology devices and fintech services. With the vast number of potential transactions that could run through its two billion (and growing) devices, even pennies on the dollar earned from debts and transactions equals massive revenue.

The question remains whether there will eventually be a "Bank of Apple." Still, I look forward to watching how the company disrupts other financial services as it offers faster, cheaper and more accessible banking alternatives to users around the world.

Melody Brue

Mel Brue is vice president and principal analyst covering modern work and financial services. Mel has more than 25 years of real tech industry experience in marketing, business development, and communications across various disciplines, both in-house and at agencies, with companies ranging from start-ups to global brands. She has built a unique specialty working in technology and highly regulated spaces, such as mobile payments and finance, gaming, automotive, wine and spirits, and mobile content, ensuring initiatives address the needs of customers, employees, lobbyists and legislators, as well as shareholders. 

Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.