Apple has teamed up with Goldman Sachs Bank to launch a savings account with an annual interest rate of 4.15%, which is a lot compared to other savings accounts in the US. However, it is only available to some. Only holders of the Apple Card, Apple's credit card, can take advantage of the offer. All this sounds rather unusual regarding the services this company provides. However, their current scope goes far beyond the standard associations. And just like Amazon, which has long been more than just an online store with its distribution network and warehouses, Apple is more than 'just' a provider of software and advanced electronic devices.
The beginnings of a new service
As Bloomberg reports, it took just a few days to raise 1 billion USD for these deposits. By the end of last week, around 240,000 accounts had been opened. The service is currently only available in the United States, similar to the Apple Card launched a few years ago. The account is free, with no fees or commissions, and funds can be withdrawn anytime. There is also no minimum threshold to activate the account. Instead, the upper limit is 250,000 USD, suggesting the company targets a mass customer. This is also the limit of insured deposits in the US, so it seems that they want to make sure that the FDIC insures all funds. On the other hand, the investment bank Goldman Sachs does not want the deposits it holds to be high-interest, generate no cash flow towards the bank, and, in addition, be due on demand.
What is it for?
Although the service is aimed at a mass audience and is not intended to raise a lot of capital, it is exclusive in its own way. Firstly, it is only available in the territory of the United States of America, and secondly, it is only available to regular Apple customers, but at a higher level than just owning an iPhone.
Given that the account is clearly more attractive than standard banking offers,this might be Apple's way of getting people who still don't use its electronics to opt for it. Owning an iPhone is a prerequisite, but not sufficient, to take advantage of an attractive savings account. So the company can hope that this would increase interest in its products. If the Apple Card has brought the company new customers, it is not out of the question that it will repeat the manoeuvre by introducing an offer for savers. The cards appeared in Apple's offering in 2019, and sales have been growing steadily since then, but the biggest increase was seen between 2020 and 2021.
The puzzle, however, is what Goldman Sachs can gain from this partnership. Having more cash is generally a plus for the bank. However, it appears that it could be acquired at a lower cost and on terms more favourable to the bank. This brings to mind a threat that has already forced several banks into bankruptcy this year. It is the dependence on demand deposits. The banks invested these funds in long-term investments whose market value had fallen, and when a sudden massive withdrawal of deposits was required, they had to be sold quickly at a deep discount, which proved disastrous for the banks. Was Goldman Sachs exposing itself to unnecessary risk here?
It is worth noting that Goldman Sachs was one of the banks whose shares Warren Buffett completely divested himself of, arguing exactly the same point. But Apple generously rewards the investment bank for this kind of cooperation, allowing it to make money without taking long-term risks and keeping the capital deposited in safe and highly liquid assets.
What will happen next?
The real motives and potential benefits of Apple and Goldman Sachs may run much deeper than a desire to increase sales and customer base. Apple may be driven here by an ambition to expand into various industries and offer services or products that its founders have never even dreamed of. Amazon started with a garage sale of books and struck out as an online store with its warehouses and suppliers. And while that's what it's best known for, it's now involved in its movie production, among other things, competing with Netflix, HBO and Disney on its platform. So what's stopping Apple from following a similar path and offering a full range of banking services in a few years? It is currently the world's largest company, with a market capitalisation of 2.6 trillion USD. The corporation can aspire to serve different areas of its customers' lives, offering them banking services, entertainment, internet, retail, etc. Practice shows that once a company has reached the top in one industry, it not only strives to stay there but also to expand into other sectors. Many market giants constantly remind us that they do not rest on their laurels, not wanting to become dull, predictable companies, falling behind new competition over time.
Paweł Szarmach, MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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