The Wallet Wars



Volume 2

The Wallet Wars

In the past year, retail banking has faced a seismic shake-up, marked by bank runs and collapse. From its position in your pocket, the company finding an opportunity in this crisis isn’t a bank at all — it’s Apple.

Words by Mary Wisniewski

Photos courtesy Getty Images, Apple Inc.

The allure wasn’t limited to rate. When Apple revealed a high-yield savings account on April 17, the product touted no-fee pricing and easy account opening within the iPhone’s Wallet app — all wrapped in the shiny package of a globally respected brand.

Since launching in April, Apple Card’s high-yield Savings account has reached over $10 billion in deposits from users. That’s the banking version of a smash hit, despite the catch: To open an account, you must first have a Goldman Sachs issued credit card — the Apple Card.

At a time when financial institutions across the country have been hankering for deposits all year, Apple made the wooing look as easy as flipping a switch. In a May earnings call, Tim Cook, Apple’s CEO, called the initial response “incredible.”

The Wallet app is now a bank branch that helps identify Apple’s retail customers. This model, known as embedded finance or banking-as-a-service (BaaS), presents a bold new direction for consumer banking.

In addition to physical branches and ATMs, banking is now also occurring behind the scenes of another brand’s interface. The big idea is to become habitual in users’ daily lives by offering a payments app already on their smartphones.

“This is the future of banking,” says Richard Crone, CEO and founder of Crone Consulting LLC, a San Carlos, California–based mobile commerce and payments consultancy.

The World’s Big Apple 

Apple is simply too big to ignore. In June, it became the world’s most valuable company, with a $3 trillion market capitalization. Approximately 53% of people in the U.S. have iPhones, according to Statista. And the vast majority of Gen Z users prefer the device, according to a new report from Bloomberg Intelligence. 

The financial sector must now either contend with or partner with Apple — an operating system for the world’s wealthiest people. 

“More and more aspects of my life, not just what I consume, but how I consume, how often, who I transact with, all of that is now on my phone,” says Theodora Lau, founder of Unconventional Ventures, a boutique fintech consultancy, and coauthor of The Metaverse Economy. “No one knows more about my life than Apple does.”

For Goldman Sachs, catching customers through Apple Wallet helps diversify its source of deposits: “We view this as one incremental and diversifying source of deposits, [enabling] us to deepen our relationship with Apple and tap into their ecosystem and the clients that we serve together,” said David Solomon, chairman and CEO of Goldman Sachs, on its first-quarter earnings call. “And we’ll take those deposits along with all the other deposits in our portfolio and deploy it into the client franchise.”

Time will reveal what will become of the pair. Reports in late June claimed that Goldman Sachs may want out of its Apple partnership, handing it over to American Express instead. 

But the power couple’s debut struck at the right moment. In 2023, rates on savings accounts became enticing again for a portion of the population, and Apple’s APY of 4.15% at launch was eye-catching.

Impeccable Timing

Even more striking was Apple’s entrance into savings during one of the most chaotic banking periods of the past decade. This spring, First Republic, Signature Bank and Silicon Valley Bank collapsed when depositors bounced at signs of trouble. These failures made all kinds of people inquisitive about the stability of banks. For the industry, the drama demonstrated just how quickly a bank can lose trust.

That’s not to say Apple’s ambition is that of a bank; it does not, for example, permit people to deposit more than $250,000. But in expanding its financial services lineup, Apple has offered yet one more reason for people to stick with the brand. Before the savings account, Apple offered Apple Pay, Apple Cash (offering a prepaid digital debit card and peer-to-peer payments), Apple Card and Apple Pay Later, its version of buy now, pay later.

Its ever-expanding digital wallet provides a glimpse of what’s coming to the Western world of banking — one app that blends identity, banking and commerce.

“This is the intersection between embedded finance and, most importantly, mobile wallet and marketing,” Crone says. “It’s not just about Apple Wallet. It’s certainly not about the Apple Card or Apple Cash or Apple Savings. It’s about accessing the identity service that comes with a registered, contactable, known user inside Apple Pay.”

It’s also a clear nod to the so-called super app, where hailing a ride, talking to friends and managing money on an app like WeChat in China is part of everyday life.

In the U.S., signs of the concept are increasing. For example, PayPal offers a high-yield savings account with Synchrony Bank. Walmart-backed One, a fintech company that works with Coastal Community Bank, offers accounts that pay a competitive rate and cash back at the mega-retailer. Paze, a digital wallet developed by bank-owned Early Warning Services, which also runs Zelle, is yet another initiative striving to break into the category. That’s on top of the likes of Starbucks, Amazon and Apple competing for mobile payments users.

For financial institutions, the stakes are very high. “The growing competition to banks from each other, as well as shadow banks, fintechs and large technology companies, is intense and clearly contributing to the diminishing role of banks and public companies in the United States and the global financial system,” wrote Jamie Dimon, CEO of JPMorgan Chase, in his annual letter to shareholders. “The pace of change and the size of the competition are extraordinary, and activity is accelerating.”

According to Cornerstone Advisors’ annual “What’s Going On in Banking” study this year, which surveyed roughly 300 financial institutions in the $250 million to $50 billion asset range, more than one-third of banks and credit unions said they view big tech like Amazon, Apple and Google as a “significant threat” in the coming decade — and that was ahead of Apple’s expansion into savings. 

Separate data from Cornerstone shows that digital banks and fintech companies have claimed nearly half of new checking accounts in 2023 so far.

A Matter of Trust

More than ever, soul-searching questions around what keeps customers with their institution matter: Is it trust? Or simply inertia, paired with a belief that a bank is a bank is a bank?

Jason Henrichs, chief executive officer of Alloy Labs Alliance, a community and midsize bank consortium, urges the industry to think hard about the answer. “I think we say ‘trust’ and we say ‘relationship’ and we all nod our heads and say, ‘Oh, yeah, yeah, I know what that means,’” Henrichs says. “Then, asterisk, they do not in fact know what that means.”

Yet research shows trust matters more than anything else in determining whether someone is satisfied with a primary bank.

“It’s an incredibly tenuous time for both bank customers and financial institutions, and the need for trust between these two parties has never been more pronounced,” said Jennifer White, senior director of global banking and payments intelligence at J.D. Power, in the firm’s annual U.S. Retail Banking Satisfaction Study. In the study, now in its 18th year, trust ranks highest across seven factors measuring customer satisfaction. 

Breaking up is hard to do. Attrition numbers for most institutions, according to White, remain in the single digits. More common? Consumers move money into new accounts, expanding their banking relationships to get what their main bank lacks, like higher interest rates, cash-back offers and money management tools. 

As an example, White cites Bunq, a mobile banking app with a “value proposition that is very attractive.” The Dutch-based challenger bank offers an account that analyzes savings and spending trends and lets customers bank in multiple currencies. It’s a prominent account in Europe with ambitions to land in the States: In April, Bunq applied for a U.S. banking license. It aims to compete with the likes of Chime, Varo, Current and Apple.

Can a Bank Change Your Habits?

In the U.S., there are thousands of financial institutions to choose from, but Apple already stands out for its name, scale and reputation for essential, daily utility. It’s already positioning itself as your personal financial ally. “We’re focused on helping people live a healthier day on our financial products,” said Cook during a Q2 earnings call.

Take Apple Card’s savings: Apple Card users earn daily cash for making purchases. Now, those rewards automatically move into the savings account. For consumers who don’t rack up credit card debt, such a feature might help improve their balance. 

In time, it’s easy to picture something bolder from a brand that has inspired users to track their steps to likewise track their savings. “Imagine if they eventually create these wheels that show not just how much money you spend, but also how much money you’ve been able to save, and how much interest you generate, to set custom goals,” says Lau of Unconventional Ventures. 

Meanwhile, managing personal finance is getting harder for many, especially after inflation soared for well over a year. In August 2020, 43% of the U.S. population was financially healthy, according to J.D. Power data. In May 2023, that number dropped to 31%.

Whether or not Apple can help consumers improve their financial picture remains to be seen. All kinds of startups and banks have tried over the years, many of them failing. Even Google dropped out of offering Plex, a checking and savings product on its Google Pay app, before launching it. 

Yet Apple is already proving it can shorten the time it takes to open a bank account. In under a minute, iPhone users can open an account in an app already on their screens. Some see this aspect as the biggest draw. “They just made it so easy,” Alloy Labs’ Henrichs says. “Why wouldn’t I go do that if they’re paying a higher rate, right?”

To verify a customer’s identity, Apple uses data it has on hand, including vetting the address tied to their Apple IDs and evaluating aggregated information from their payment cards connected to Apple Pay. That’s on top of someone opening an account on a smartphone, which can track their location. 

Banks and credit unions are also privy to all kinds of information on customers. But it’s still not uncommon for them to require a customer to provide the same details to access a new product. 

That’s not to say the experience with Apple Savings is flawless. In June, damning reports surfaced around savers struggling to withdraw their money as quickly as they wished. While fraud prevention and ease of use has long been a challenge in banking, now, the tug of war is invading Apple’s crisp image.

User errors inevitably add extra hoops, too. If someone accidentally enters the wrong routing number to fund an account, this can trigger a call between the applicant, Goldman Sachs and the existing bank. It’s an awkward three-way of vetting identity set to hold music from Goldman Sachs. In my experience, the song “I Like Me Better” by Lauv played first.

Cue the Regulators 

Bank charter or not, offering financial services invites regulatory attention. Apple, Google and Amazon may have a new regulator as early as next year: the Consumer Financial Protection Bureau.

When a bank like Goldman Sachs introduces new consumer products using a platform as powerful as Apple’s, it’s bound to attract scrutiny. And that’s a good thing. Because digital banking calls for fail-safe guardrails — especially when you think about what comes next.

Imagine signing an auto loan while shopping for cars on Carvana. Or taking out a mortgage while looking for a home on Zillow. Or opening a savings account tied to a private-label credit card at, say, Nordstrom. These are all ideas in Crone’s mind as he watches modern mobile wallets collide with the guardrails of consumer protection.

No matter how the rules of engagement are set — the new wallet wars are being waged digitally, and smartphones are the battleground.

“Retail banking needs to acknowledge that the problem it was solving — namely, parking your money in a branch you could go into — is no longer in place.” Henrichs says. “The retail relationship needs to be shifted from one of convenience to one of value.”

Mary Wisniewski is editor-at-large at Cornerstone Advisors where she covers digital banking trends. Her work has also appeared in such outlets as American Banker, Bankrate and The Associated Press.

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