Apple dives into banking: How can banks respond?

It goes without saying, but banking has changed radically in the past two decades. Once, customers would have to visit a branch for just about every banking related task, from checking balances to making a deposit. Now, customers perform many of these tasks either at an ATM, online or in an app. The actors involved in banking have also changed dramatically.

For one, neobanks and digital only banks have emerged, delivering new products that have lured customers away from traditional financial institutions with services such as micro loans, AI tools, personalized services and more. However, even non-bank entities are getting involved in banking services: such as Apple.

Already well known for Apple Pay, the tech giant has begun to deliver other banking services. In late March, Apple began offering Apple Pay Later, which allows users to split purchases into four payments over six weeks with no interest or fees. Customers can apply for these small loans, between $50 to $1,000, for online and in-pay merchants.

Most recently, Apple began targeting consumers more directly with its high yield savings account through a partnership with Goldman Sachs. This account offers a 4.15% interest rate — more than 10 times higher than the national average and 415 times higher than the 0.01% offering by Chase and Bank of America.

The account has zero fees, minimum deposits or minimum balance requirements, and customers can set it up on their wallet app. The account is insured by the Federal Deposit Insurance Corp.

Although banks have their own reasons for keeping interest rates low, this move by Apple could both lure customers away from traditional financial institutions and encourage other non-bank entities to get involved in banking.

How can banks respond to this challenge? Should they innovate their branches, deliver better digital banking tools, or do something else entirely? ATM Marketplace spoke with EJ Kritz, EVP of apc, a consulting company, to learn how banks can best handle this development.

Q. Do you think Apple is attempting to compete with banks or is this more to improve customer loyalty?

A. Both. Apple is among many companies who see a huge opportunity to steal business away from a tired industry that lacks in Customer loyalty. Why not go for it? Additionally, since the introduction of iPhone, Apple has sought to place everything you need in your pocket. It's your phone, computer, camera, wallet, concert ticket, EKG, little black book, and more. Adding a place to save and earn money to the long list of iPhone functions is a simple way to drive a greater attachment, love, and dependency to the device. Why not carry a 4+% rate in the palm of your hand in the place where the rest of your life lives?

Q. How do you think banks should respond to this?

A. Banks are inherently reactionary and I believe it's a turn-off to consumers. Reacting now would be a bit like closing the barn door after the horse has already run out. The best thing for banks to do today is learn, move on, and find a way to be faster. Customers want their banks to innovate. This is a classic case example that if you don't give your customers what they want, somebody else will eat your lunch.

Q. What are some ways banks can keep customers when faced with increased competition from neobanks/non-banks?

A. Consumers still value relationships and trust is key. It's the one thing a neobank or non-traditional bank will often struggle with, the truly personal relationship. Banks like Locality have thrived as a new and non-traditional bank because they still have the human touch. One could argue they're the perfect combination and a model to be emulated. Traditional banks need to double-down on driving real and meaningful relationships based on trust while also delivering an innovative approach to banking. This is where fintechs come in and help close a massive capability gap for traditional banks.

Q. What are some ways banks can improve customer loyalty?

A. Blocking and tackling is key. Put another way, banks need to flawlessly execute on the basics before they can pretend to be prepared to offer anything above and beyond day-to-day banking. Banks need to relentlessly obsess over problem prevention and the reasons for customer attrition. All the while, they need to engage in smart behavioral hiring and outstanding employee development/training. Finally, they need to focus on what they're good at (banking) and set aside their weakness (innovation). Leave that to the fintechs and make them part of the fabric of your existence.

Q. Anything else to add?

A. The impact of high-yield savings offers from non-traditional sources (it's not just Apple) will vary from institution to institution. Some banks are powered by business banking. Others by residential lending. A one-size-fits-all approach to combating a high-yield rate environment would be irresponsible for an industry that, while commoditized, has varying business strategies.