Apple (AAPL -0.17%) has made no secret of its ambitions when it comes to personal financial services. The company began its disruption of the traditional banking paradigm with the debut of Apple Pay in late 2014 and never looked back. Since then, the company has been gradually growing beyond mobile payments, offering a credit card, interest-free installment payments on Apple products, and the company's buy now, pay later offering, Apple Pay Later, which debuted just last month.
The latest volley came this week, when Apple announced the debut of a new high-yield savings account, further enhancing its ecosystem of financial services.
As Apple opens another beachhead in the war on cash, should big banks begin to worry about the tech giant's additional incursions into personal financial services, or is this much ado about nothing? Let's take a look.
Image source: Apple.
An Apple a day
On Monday, Apple announced in a press release that users could "grow their Daily Cash rewards" -- the cashback rewards they earn for Apple Card purchases -- with the addition of a high-yield savings account with a current annual percentage yield of 4.15%, offered in partnership with Goldman Sachs Group. Users will also be able to transfer additional deposits into this account from any linked bank account.
Apple is quick to point out that the rate is 10 times the national average, and comes with no fees, no minimum deposits, and no minimum balance requirements. The company goes on to say that users can easily set up and manage their savings account from the Apple Card within the Apple Wallet app.
The savings accounts will be linked to the company's daily cash feature, which provides customers up to 3% cash back on purchases of Apple products. Once a user has set up the savings account, any funds earned via daily cash will be deposited automatically into the associated account, though users will then be allowed to transfer funds to any linked bank account.
A significant departure
While the company has partnered with Goldman Sachs for several of its financial offerings, reports suggest Apple is slowly weaning itself away from its dependance on big banks and potentially reducing its reliance on their services.
When the company introduced Apple Pay Later last month, the feature allowed Apple Pay users to split purchases into four payments with no interest or fees. While the product itself wasn't a game changer, reports revealed that Apple would offer the loans itself, rather than acting as a go-between.
A company subsidiary -- Apple Financing LLC -- will bankroll the financing, having obtained the licenses necessary to act as the lender. This marks the first time the company has taken on the primary role in the transactions, including conducting credit checks, granting credit, and issuing the loans, according to a report by Bloomberg. Apple isn't completely alone in this venture, having partnered with Mastercard to act as the intermediary with vendors. Furthermore, since Apple doesn't hold a banking charter, Goldman Sachs still acts as the "technical" issuer of the loans.
This is in stark contrast to Apple's previous forays into personal financial services, which always passed off the majority of banking-related tasks to Goldman Sachs. That said, Apple simply isn't interested in getting into the banking business, though it might appear so at first glance. Rather, Apple has a much more important strategy in mind.
Should big banks be concerned?
It's important to note that even if a great many of its customers open one of these savings accounts, any financial benefit to Apple likely won't be material. Furthermore, it's highly unlikely the tech giant has any plans to become a traditional bank. Rather, Apple is more interested in expanding its growing ecosystem, including offering additional fintech services, in furtherance of its most important business.
If order for users to open an account, they must first be an Apple Card holder and an iPhone user. In its earnings release for the fiscal 2023 first quarter (which ended Dec. 31, 2022) the company revealed it had surpassed 2 billion active devices -- the vast majority of which are iPhones. In fact, iPhones generated nearly $66 billion in revenue during the quarter, or roughly 56% of Apple's total sales.
It's in Apple's best interest to keep increasing the usefulness of its flagship product, by increasing the number of everyday tasks that can be accomplished on the iPhone. Furthermore, more iPhones means more services. This includes App Store Sales, iCloud users, Apple Music and Apple TV+ subscribers, among many others. Services generated nearly $21 billion in revenue in Q1, or roughly 18% of Apple's sales.
Apple doesn't want to be a bank. It simply wants to sell more iPhones, which form the foundation of its massive enterprise.
