When Apple launched its high-yield savings account with Goldman Sachs in the US earlier this year — its latest in a series of forays into the financial services arena — many market watchers pondered if Apple is about to do to banking what the iPhone did to the mobile phone industry.

The Goldman savings account sits on top of the credit card offering it launched with the bank in 2019, adding to its existing Apple Pay mobile payments service and the recently announced buy-now-pay-later service in the US (Apple Pay Later) that is linked to its mobile Apple Wallet. For a tech company, Apple is already doing a pretty good impersonation of a bank — fueling speculation about whether or not it could one day become a licensed bank itself.

Max Faldin, founder and CEO of business payments provider Silverbird, reckons Apple has all the ingredients it needs in place to do so if it wanted.

For a tech company, Apple is already doing a pretty good impersonation of a bank — fueling speculation about whether or not it could one day become a licensed bank itself.

“People trust them,” he says. “It would be one of the largest B2C (business to consumer) banks in the world. It would be really hard to compete with something like Apple. The customers are there, the distribution is there, the connection is there — everything is there.”

Apple’s heft means it has the potential to cause significant disruption to global banking markets, says Sushil Kuner, principal associate and head of fintech at law firm Gowling WLG.

“Aside from its dominant brand, number of iPhone users, customer loyalty and global reach, Apple is primarily known for its innovation and top talent,” says Kuner. “With the ability to innovate at pace and react to changing consumer behaviors, which it can ascertain through the volume of data it can access, it’s difficult to see how the traditional financial institutions can keep up.”

Jitters in the market

The jitters in the US banking market sparked by the collapse of Silicon Valley Bank have not been helped by Apple’s new deal with Goldman Sachs. With many small and mid-tier banks struggling to hang on to customer deposits, Apple’s attempt to reel in depositors with its 4.15% savings rate — at the time more than 10 times higher than the US average — is exacerbating an already fragile retail banking backdrop. Apple’s savings account took in nearly $1bn of deposits in its first four days.

Yet some market watchers believe the savings account is a means to an end rather than a goal in and of itself, instead wanting to ensure as many people as possible are tied into Apple’s ecosystem and using their iPhones for all their financial transactions.

“This is not really a move for deposits, it’s much more a move for payments,” says David Pelleg, a finance professor at Kent State University. “They’re just trying to create a dominant position in payments, which is so much more valuable than deposits to a non-bank company like Apple.”

“If you make money every time a transaction happens — and there are millions of transactions per hour — that’s really good business.”

David Pelleg, finance professor, Kent State University

The more volume you can capture in payments, the bigger the potential rewards, he says. “If you make money every time a transaction happens — and there are millions of transactions per hour — if you get a small taste of each of those transactions, that’s really good business,” Pelleg says.

Despite the concerns about deposit flight at smaller banks in the US, larger global banks are not yet flinching about Apple’s potential to take a significant bite out of their businesses.

“I don’t think they’re hugely worried at the moment, but maybe that’s because it hasn’t impinged on them much,” says Frances Coppola, financial economist and banking expert. “We’re not seeing the panicky reaction there was to Facebook’s attempt to break into the stablecoin market, which is surprising given Apple’s reach.”

Incumbent mindset

That is likely down to a mindset inside incumbent banks, says Muj Malik, CEO at iFast Global Bank.

“Most banks don’t really see payments as a very lucrative business — they’re more interested in a 4% or 5% margin on mortgages or commercial loans or even bigger margins on investment products,” says Malik.

Other market watchers are skeptical that Apple has any intentions to become a fully-fledged bank, partly because of the regulatory and compliance issues that would be raised.

“Apple’s problem is who is going to give it a banking license?” says Coppola. “So it either goes down the Facebook route of saying, we’re not going to have a banking license, we’re simply going to create our own alternative currency system — and we saw how governments around the world responded to that. Or it just continues relying on banking-as-a-service and partnering with a regulated bank. Their corporate structure makes any other option a challenge.”

“A decade ago we didn’t think Apple would be offering payment solutions using their mobile phones.”

Muj Malik, CEO, iFast Global Bank

Malik also doesn’t believe Apple will pursue a banking license of its own, but he does believe they will push further into financial services by offering more banking products, such as loans or even mortgages.

“It’s not a stretch to think that — a decade ago we didn’t think Apple would be offering payment solutions using their mobile phones,” he says.

For Apple’s customers, they are unlikely to care whether Apple is technically a bank or not if it can give them seamless access to the financial products they need direct from their phone.

“The way modern banking is set up now with banking-as-a-service, anybody can provide financial services,” says Faldin.

Neobanks

“All neobanks interface with their customers, but the actual payments settling might happen with a traditional bank. For the customer it doesn’t matter — it’s like broadband for the internet. It doesn’t matter who is providing the banking services in the background.”

That banking-as-a-service model means Apple can achieve its goals of increasing the ‘stickability’ of its current customer base and monetizing its relationship with all its iPhone users by continuing to partner with regulated third parties, says Kuner. It could also become licensed for some less risky regulated activities, which also carry less stringent regulatory requirements, she says.

Yet even by sharing the compliance burden through third-party partnerships, Apple is still potentially exposed to reputation risk by wading into a market that already has a strained legacy with consumers, particularly in the wake of the financial crisis.

“It’s always a risk and reward balance, and the customer base that Apple has globally means it’ll be worth taking that risk,” says Malik.

“While BigTech companies are great at innovating … they do not have experience of having to comply with the high regulatory standards that are applied to deposit takers.”

Sushil Kuner, principal associate and head of fintech, Gowling WLG

Apple’s push into financial services may spur other tech companies to follow a similar path, creating an opportunity for incumbent banks to follow Goldman’s lead and provide banking-as-a-service to businesses that want to offer their customers financial products.

“There is likely to still be an important role for traditional banks, but with BigTech not wanting the regulatory burden of owning a banking license, it wouldn’t be too difficult to envisage an environment where the incumbents carry out their role ‘behind the scenes’, with customers carrying out their daily banking needs through BigTech and on their mobile phones,” says Kuner.

That scenario allows both sides to play to their strengths, enabling banks to tap into tech companies’ vast customer bases while enabling tech companies to tap into banks’ financial services expertise.

“While BigTech companies are great at innovating, it should be remembered that they do not have experience of having to comply with the high regulatory standards that are applied to deposit takers and therefore this should be a happy partnership going forward,” says Kuner.