Apple takes on the banking industry

Having raked in almost $1bn of new deposits in the week following its launch, it appears the Apple Card is already proving very popular. This step into the financial services industry is part of a wider Apple initiative to diversify its revenues. The smartphone industry has expanded greatly in recent years, and competition has fiercely increased. Yet, over 47% of Apple’s revenues are still derived directly from sales of the iPhone (as of Q4 2022). 

This has forced Apple to rapidly expand making it increasingly difficult for consumers to transition to its competitors. The namesake credit card is in keeping with this trend, currently only available to US customers with an Apple device that can support its usage.​

So where do the risks lie for depositors?

Despite the Apple branding, Goldman Sachs assumes a significant proportion of the responsibilities, including customer service and underwriting, as well as assimilating all deposits with its wider client base for investing.

A major concern for depositors, that has recently gained widespread attention, is the risks involved with holding uninsured deposits, following the collapse of Credit Suisse and a series of US regional banks. However, the maximum balance that can be held in the Apple savings account is $250,000 (excluding any accumulated interest), meaning the majority of funds held on the platform will be fully insured by the FDIC. So, savers should be more concerned about potential challenges involved with transferring away from the Apple platform and less worried about the direct impact of a wider banking crisis on their savings.​

Whilst the initial success of Apple’s savings account is threatening to send shockwaves through the industry, the business model of a unified wallet and banking system still faces considerable headwinds. The growth in the number of Apple Card holders has been lacklustre, with total registered cardholders increasing by just 300,000 over the course of 2021.

There are also concerns that neobanks (firms working in partnership with traditional banks to deliver banking services; a definition that the Apple Card falls squarely into) will face increased regulatory scrutiny as popularity grows.​

Nevertheless, Apple’s branding power and customer loyalty should not be underestimated. Just as the chequebook found its way to the back of the drawer and faded into obscurity, traditional banks will have to adapt to the challenges posed by Apple and other innovative finance providers, less they share the same fate.​

Adam Fisher, Investment Analyst