Apple’s Foray into fintech
Financial technology, often known as fintech, has evolved significantly over the years. Traditional financial institutions have already incorporated technology into their services, while digital firms such as Wise and Coinbase have developed inventive alternatives to our conventional ways. Individuals are also beginning to diversify the way they handle their finances and they are looking for a more tech-savvy alternative in contrast to our conventional banking methods. In fact, the neobanking segment is projected to grow by approximately 18.15% from 2023 to 2027 (Statista, 2021).
Over the years, we’ve seen that Apple is no stranger to disrupting a myriad of industries with their unconventional alternatives, from changing the way we listen to music with their pocket-friendly iPods to revolutionising the desktop industry with the famous Macintosh. Recently, they’ve brought in a fresh new addition to the highly competitive Fintech industry with the launch of the Apple Savings account for Apple Card holders in collaboration with Goldman Sachs, a leading global investment bank. While this isn’t Apple’s first venture into fintech with the introduction of Passbook (now known as Wallet) and Apple Pay in 2014 (Brue, 2023), the high-yield Apple Savings account is definitely the biggest venture yet.
How things kicked off
This unique partnership between two giants in their respective industries kick-started in August 2019 when they introduced the ‘Apple Card’ which combines Apple’s knack for simplicity and seamless ecosystem integration along with Goldman Sachs’ prowess in banking and financial expertise. In fact, the CEO of Goldman Sachs, David Solomon, stated that simplicity, transparency and privacy were the core of developing this disruptive credit card that comes with daily cash back and exclusion of fees (Goldman Sachs, n.d.)
While their partnership has faced some roadblocks over the years, with Goldman Sachs reportedly experiencing a pretax loss of $1.2 billion under its credit cards division (where most were tied to the Apple Card) (Natarajan, 2023), there have been some notable positives recorded by this partnership. They have topped charts in terms of user satisfaction among midsize credit card issuers in 2022 (Apple, 2022), and Apple’s growing influence in the fintech industry is not to be underestimated. Their financial service arm, Apple Pay, is projected to bring in 4 billion USD in revenue, which marks an increase of 988 million USD from 2019.
This move to launch the Apple Savings Account shows that they’ve probably sensed an opportunity to leverage on, with uncertainty growing in the conventional banking industry and relatively low average Annual Percentage Yield (APY) in the United States. With this savings account offering an APY of 4.15%, it’s a rather attractive option for US consumers who want to explore ways to grow their savings further.
Revolutionising Savings
Customers can save their Daily Cash earnings from their Apple Card in this account and earn interest on their savings, where they can easily manage their accounts using the Wallet app on their Apple devices. This comes with no minimum deposit or balance requirements as well as being fee-free. Hence, it is a suitable starter account for Gen-Zs who are just entering the fray of working life.
As stated before, the Apple Savings Account has a high-yield interest rate of 4.15%, which is more than ten times greater than the national savings account average in the United States (Federal Deposit Insurance Corporation, n.d.) while also being significantly higher than those offered by big financial firms such as Bank of America (0.01%). On top of high interest rates, each depositor is protected and insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 thus making this savings account a relatively secure place to store savings. With these high-yield rates, it can be treated as a long-term investment alternative with low risk, as interest (read more on practical saving advice here) is reportedly being compounded daily and deposited on a monthly basis.
With a huge user base of approximately 48.7% of the smartphone market in the United States, Apple already has a huge potential target audience to penetrate – and Apple can leverage its brand love, loyalty and technological expertise to provide innovative solutions. The Apple Savings Account seamlessly integrates into the Apple Wallet, allowing users to easily set up automatic savings options and goal-setting tools. There is also a dashboard feature that provides quick insights into account balance and interest earned over time.
What could this bring to the economy?
While it’s worth noting that the Apple Savings account is only available in the United States at the moment, there will likely be plans to bring this worldwide if success follows.
As stated earlier, this account does not require minimum deposit or balance requirements and is fee-free, which indirectly leads to greater and improved levels of financial inclusion in the economy, especially for groups that may not have access to services offered by traditional financial institutions. With greater financial inclusion, more individuals have access to financial services, leading to an increase in consumption and overall economic activity.
This is further fueled by the ease and convenience of payments supported by Apple Pay. When consumption increases, there are definitely positive impacts on the general economic growth, as higher spending leads to greater demand for goods and services, and businesses will be able to generate more revenue. This would be a long-term narrative as the introduction of Apple Savings accounts will not cause these chain reactions in short periods.
Additionally, if the Apple Savings Account acquires a large number of deposits and continues to offer competitive interest rates, it has the potential to drive inflation. This is because more deposits can lead to higher lending and borrowing, which can lead to higher expenditure and, as a result, higher inflation. In the long term, this can drive the prices of goods up. This is supported by a World Economic Forum study, where high inflation rates in 2022 drove Consumer Price Index up by 7.1%, with items like eggs, margarine and motor fuels experiencing a YoY cost increase (Nov’21 to Nov’22) of more than 40% (Koop, 2023).
Furthermore, the relatively high APY offered in the current state of the US economy will drive up competition in the savings account market. As a result of Apple’s brand reputation and loyal customer base (CIRP studies have shown Apple maintains a 90% loyalty in the past three years), other industry players will have to improve their offerings to retain their customers. This will result in a more competitive market, giving customers more options and encouraging industry innovation and development.
Competition within the industry could benefit the economy with increased service quality (in this case – Annual Percentage Yields) and push the involved businesses to improve their efficiency. However, in the long term, this situation could bring adverse effects, especially to smaller firms. Intense competition could lead to consolidation where larger firms would seek to merge and acquire smaller firms in an effort to increase market share. This could lead to indirect monopolisation by a few large firms.
Can an Apple Savings Account blossom in Malaysia?
It’s critical to consider Malaysia’s banking environment. Malaysia has a rather well-developed banking sector, where a significant portion of the market share is dominated by local banks, as shown in Figure 1 below. Penetrating into a market with dominant and experienced industry players is no easy task, with established local banks already having a strong consumer base and a high level of technology adoption in their services. For instance, the availability of MAE and CIMB Clicks, which offer unique features such as the ability to purchase movie tickets and pay bills, will definitely impact the adoption rate of Apple Savings Account. Hence, there is a need for Apple to explore how they can appeal to consumers in Malaysia.
Figure 1. Malaysia’s Top 6 Banks by Market Cap
Source: https://www.theedgemarkets.com/article/six-largest-malaysian-banks-collective-market-cap-balloons-over-rm118b-two-years| The Edge
Additionally, Malaysia’s banking industry is governed by the Central Bank of Malaysia (BNM), which imposes a high standard of corporate governance on licensed banks and has established numerous policies to ensure stability and soundness in the industry. For instance, new firms interested in entering this market must comply with the Basel III framework, which requires banks to maintain a minimum level of capital to support their risk-weighted assets. They also need to acquire the necessary banking licences and incorporate the 5 new security measures that banks have to adhere to by June 2023 (see Figure 2)
Figure 2
Source : https://ringgitplus.com/en/blog/personal-finance-news/bnm-announces-five-additional-safeguards-against-financial-scams-including-migrating-from-sms-otp.html | RinggitPlus
While a potential launch of Apple Savings Account in Malaysia will definitely face potential challenges, there are also prospects for success. For instance, Apple could build on a strong level of trust and brand recognition in Malaysia, and as a follow up with their recent launch of Apple Pay in Malaysia back in August 2022.
All in all, the Apple Savings Account is poised to disrupt the traditional banking industry and pose a significant challenge to incumbent fintech firms. This account’s competitive interest rates, low barriers to entry, and minimum restrictions make it an appealing alternative for consumers, particularly the tech-savvy younger generation who prefer digital financial solutions.
While in the short run, it should not have a substantial influence on the banking industry as a whole, it will definitely place some pressure on other banks to remain competitive, especially with the growing uncertainty in conventional banks. The evolution of this dynamic space will be a fascinating development to observe in the years ahead, as Apple navigates its path in the financial landscape.
Researcher(s): Edwin
Reviewer(s): Muhammad Bahari
Editor(s): Angellina Choo
Designer(s): Qurratul Ainin
References
Koop, A. (2023, January 31). US inflation: Prices increased 7% in 2022 – here’s what cost the most. World Economic Forum. Retrieved April 23, 2023, from https://www.weforum.org/agenda/2023/01/us-inflation-prices-increased-economy/#:~:text=Overall%2C%20the%20items%20in%20the,Food%3A%20%2B10.6%25.
Federal Deposit Insurance Corporation. (n.d.). National Rates and Rate Caps – Weekly Update. Retrieved April 23, 2023, from https://www.fdic.gov/resources/bankers/national-rates/index.html
Apple. (2022, August 4). For the second year, Apple Card and Goldman Sachs rank No. 1 in customer study. Retrieved April 23, 2023, from https://www.apple.com/newsroom/2022/08/for-the-second-year-apple-card-and-goldman-sacGoldman Sachs. (n.d.). The Apple Card. Retrieved April 23, 2023, from https://www.goldmansachs.com/our-firm/history/moments/2019-apple-card.html
Natarajan, S. (2023, January 13). Goldman Lost $1.2 Billion in Just Nine Months in Newest Division. Bloomberg. Retrieved April 23, 2023, from https://www.bloomberg.com/news/articles/2023-01-13/goldman-lost-1-2-billion-in-just-nine-months-in-newest-division?leadSource=uverify%20wall
Brue, M. (2023, April 20). Apple Makes More Fintech Moves With High-Yield Savings Account From Goldman Sachs. Forbes. Retrieved April 23, 2023, from https://www.forbes.com/sites/moorinsights/2023/04/20/apple-makes-more-fintech-moves-with-high-yield-savings-account-from-goldman-sachs/?sh=2f41c932bbe0
Statista. (2021). Worldwide neobanking market revenue from 2017 to 2025 (in billion U.S. dollars). Retrieved April 23, 2023, from https://www.statista.com/outlook/dmo/fintech/neobanking/worldwide
