Apple and Goldman Sachs challenge traditional banks with booming fintech

Online 'disruptor banks’ are rapidly eating up more market share.

April 27, 2023
Apple and Goldman Sachs challenge traditional banks with booming fintech
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Matt Crabtree

Written By

Matt Crabtree

 

An article titled “Tech Giants Like Apple Pose Existential Threat to Traditional Banks Like JPMorgan Chase” was published in February. Its claims are a warning. 

It was suggested in the essay that the world's top banks “fail to share the wealth with their depositors”, leaving them vulnerable to competition from the technology sector. 

As a result of online disruptors' user-friendly offerings, increased FDIC coverage, and substantially more appealing economics, traditional banks, which long dominated the market, are fast losing momentum.

The hour of truth has come, and conventional banks will pay. This week, Apple and Goldman Sachs unveiled their joint high-yield savings account.

How does Apple Savings work?

Western banks have already encountered big losses after leaving Russian markets. Together with Apple, Goldman Sachs has introduced a new savings account that offers interest rates more than 10 times higher than the national average in the United States.

The annual interest rate on the savings account is 4.15 percent, which is much higher than the average rate of 0.37 percent.

Users of Apple's credit card, which is also managed in conjunction with Goldman, are eligible for the new feature, which was introduced in October.

There are no service charges or minimum deposit requirements for savers.

The maximum monetary commitment which may be made to the savings account is £250,000.

Goldman will hold the customers' funds, while the FDIC will insure the funds.

The interest accrued in a savings account is added to the account monthly and compounded daily.

According to Apple VP Jennifer Bailey, “Savings gives theri users further ROI from their top Apple Card advantage — Daily Cash” by giving them a simple method to put money down on a daily basis.

According to Apple, “by integrating Savings in Apple Card's Wallet, users will have a single location from which to access, manage, and transact with their Daily Cash for spending, sending, and saving”.

Apple isn’t a bank

Apple is not a financial institution, just to be clear. It forms alliances with similar Fintech companies to Arc. To fulfill the demands of its tech-savvy customers facing the currency music, Apple released its first credit card in 2019 in collaboration with the industry giant Goldman Sachs.

By combining Apple Card, Buy Now Pay Later, Apple Pay, and now “Savings”, the tech giant has developed a service flywheel, an assortment of financial goods. Scores of millions of iPhone users creating an enclosed ecosystem have helped Apple stay ahead of rivals and make the company more appealing to knowledgeable shoppers.

As with Apple, the “BAM Fintechs” (Arc, Brex, and Mercury) are challenging the “Too Big To Fail” banks, giving them a run for their money. The SVB bankruptcy benefited them, as they were the first to provide broader FDIC coverage after the demise of rival SVB. Yes, I say this as the head of one of the BAM Fintechs that sheltered startups during the recent storm.

Apple is also attacking traditional financial systems, much like BAM. And it is fantastic news for shoppers.

4.15% APY on savings accounts

Apple is giving a whopping 4.15% APY on savings accounts, which is over 400 times higher than the 0.01%-0.03% APY given by JPMorgan Chase. However, Apple is not the only company causing a stir in the retail banking sector.

Nearly 60 times more than what Chase provides its top clients, Sofi pays 4.00% APY, Ally pays 3.75% APY, and Chime, although on the lower end, nevertheless passes along 2.00% APY.

Chase does not seem to care. Despite J.P. Morgan's record revenue in the first quarter of 2023, the bank's earnings fell 52%. Jamie Dimon ate up deposits at a time when his smaller competitors were losing them.

Chase may be riding high right now, what with all those deposits and all that interest money, but its time will come as well. So many banks are based on the outdated old model, which includes brick-and-mortar locations, never-ending fees, unstated government guarantees, and lopsided economics that have seen investors rushing back to gold.

Startup CEOs and CFOs are as knowledgeable with technology as Apple's customer base, with users wanting digital banking experiences that are on par with their favourite applications like Mint, Acorns, and Wealthfront.

They want a fair cut of the profits and security for their savings, but above all, they want to know that their business is appreciated and that they are more than simply a number.

Apple and the BAM Fintechs are really coming through for us. They are able to provide more secure, more affordable, and individualised offerings by teaming up with banks and piggybacking on existing infrastructure.

They are providing a cutting-edge technological experience with no joining or monthly costs. They are returning the bulk of their economic gains and are committed to serving customers of all financial means.

Apple's entry into the banking sector might pose a serious threat to J.P. Morgan's monopoly. The iBanking revolution has started.

What steps do I need to take to create an account?

  1. You must own or be a co-owner of an existing Apple Card account linked to your iPhone in order to open an Apple Savings account.
  2. You will also need a valid Social Security number or Individual Taxpayer Identification Number and proof that you have been living in the United States continuously since you turned 18.
  3. Having two-factor authentication and the most recent version of iOS are prerequisites for using Apple's services.
  4. To access your Daily Cash balance, launch the Wallet app, choose Apple card, then press More and the option labelled “Daily Cash”.
  5. Create a savings account and link it to Apple Cash so you can easily move money between the two.
  6. Simply choose the Close option if you decide against transferring your Apple Cash amount.

If your Apple Card is locked or has restrictions, you may not be able to establish a new account.

Takeaway

How can I make a bank deposit?

Customers who have a savings account agree to have Daily Cash deposited into it automatically.

Apple Cash and external bank accounts may both be used to fund your Apple Savings.

  • Launch Wallet, then choose Apple Card to make a payment.
  • To add funds to your savings account, go there and choose “Add Money”.
  • To confirm using Face ID, Touch ID, or a password, choose the payment method and then double-click.

Withdrawing funds through Apple Cash is instantaneous, whereas funds deposited from other sources may take a few days to clear.

Where can I get competitive rates on my savings?

Daily Cash Rewards, a partnership with Goldman Sachs, is Apple Savings' highest interest savings program.

  • With this account, your money will increase each year at a rate of 4.15% APY.
  • Automatic daily deposits of cash start accruing interest immediately.
  • Apple Cash allows users to contribute funds without incurring fees or earning caps.
  • Deposits in these accounts are protected up to $250,000 by the Federal Deposit Insurance Corporation.

The Bankrate database ranks Apple‘s rate as ninth-best overall, while other accounts offer rates more than five percent.

Shopping around to see if you may get a better deal by switching banks is recommended by personal financial experts.

When deciding on an account, federal insurance should take precedence over other factors like account minimums or earnings caps.

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