Apple is About To Disrupt Financial Services: the Future of Banking

Banking systems are built on a bedrock of trust. Apple's foray into finance couldn't have better timing, since trust in traditional banks has been eroding in recent years.

Apple has been building their financial empire block by block since the launch of Apple Pay in 2014. They have come a long way since, and it was in October 2022 Apple announced it was partnering with Goldman Sachs to launch Apple Savings for Apple Card-holders. Six months later, they launched in the US with a 4.15% interest rate, annual returns to savers with no minimums, no lockups, and FDIC-insurance. Additionally, it further streamlined Apple's range of financial products.

The 4.15% interest rate stands in stark contrast to the average 0.50% that traditional banks offer in the United States.

This new high-yield saving account is only available in the United States for now. Apple users with the Apple Card can create a savings account in minutes. Their rewards from Apple Card purchases are automatically funnelled into the savings account. This product further streamlines the Apple banking ecosystem, where users can track their balance and interest earned through a dashboard in their Apple Wallet. These products can only be accessed through an iOS device using Apple ID for authentication.

Similarly to Apple Pay, we can expect a gradual rollout of Apple Savings in the coming years. One year after Apple Pay was launched, it became available in the UK, then gradually across other European countries. In 2019, Apple Pay was available in all EU member states.

Why is this a step in the right direction for Apple?

Apple is the largest company ranked by market capitalisation, with over 1 billion active users across smartphones, tablets, laptops, and computers. The Apple brand is synonymous with high quality and enjoys high levels of trust. Out of all the products and services in the world, Apple has the highest level of consumer confidence. They are proven innovators capable of changing how we live our lives.

If we compare the above with the main bulk of the competition in finance, it is easy to see why Apple is growing in the world of finance.

Besides resources, a massive advantage for a company like Apple is that they are willing to rely on technology and innovate to transform customer services and differentiate themselves. This is a mindset traditional banks have struggled with. As a result, Apple moves incredibly fast, while many banks are hardly moving at all.

The timing and circumstances for Apple to capture a part of the multi-trillion banking industry.

Apple's aggressive expansion within finance also comes at a time of hardship in the previously booming fintech sector. Many fintech startups from the last few years are running out of funds. With equity underwater, employees abandon ship for more stable organisations. It is a death spiral that eventually will lead to consolidation through mergers and acquisitions. Top-tier fintech and companies like Apple that are embedding finance into their products and services will be the ones that benefit.

There will be an excellent opportunity for traditional banks to catch up by acquiring failed startups. Compared to fintech and Apple, traditional banks need more expertise to build digital banking services on the level required today. By taking advantage of failed startups, they can acquire the necessary technology and talent to provide competitive digital banking services.

The key takeaway from Apple's foray into finance and the future of banking:

The competition in banking will continue to stiffen. Apple has set a new precedent that the likes of Elon Musk are looking to replicate through Twitter. He recently stated that Twitter intends to offer fintech services like peer-to-peer transactions, savings accounts and debit cards. In addition, Amazon launched their Prime Discount credit card in 2017 and is another technology company with near-infinite resources and expertise to follow in the footsteps of Apple aggressively.

All the while Apple is making headlines, Goldman Sachs is quietly operating in the background. This further signals the digital shift from marble columns to digital screens far from the queue in a local bank branch. What Apple is doing right now is accelerating the process of making banking invisible, with traditional banks like Goldman Sachs becoming infrastructure providers.

Traditional banks need to adapt. With each passing day, it looks like fintech companies and technology juggernauts like Apple will provide the front door to banking for individuals and businesses.