Apple and fintechs like Robinhood chase yield-hungry depositors as Fed rate hikes continue


Renaud Laplanche, CEO of Upgrade, speaks at a conference in Brooklyn, New York in 2018.

Alex Flynn | Bloomberg via Getty Images

The technology industry is known for innovation and creating the next big thing. But at a time of economic uncertainty and rising interest rates, a growing slice of the tech sector is going after one of the most non-innovative products on the planet: yield.

with the US Treasury yield climbing at the end of last year At their highest levels in more than a decade, consumers and investors can finally make a profit just by keeping their money in savings accounts.

Banks are offering high-yielding offers. American ExpressFor example, offers consumers a 3.75% annual percentage yield (APY), and first citizenCIT Bank has 4.75% APY for customers with deposits of at least $5,000. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.

However, some of the highest rates available to savers are coming not from traditional financial firms or credit unions, but from companies in and around Silicon Valley.

Apple Most notable is the new entrant. Last month, the iPhone maker launched Its Apple Card savings account with a generous 4.15% APY in partnership with the Wall Street giant Goldman Sachs,

Then there’s the whole fintech market, which includes companies providing consumer financial services with a focus on digital products and a friendly mobile experience rather than physical branches with expensive bank tellers and loan officers.

stock trading app Robin Hood There is a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash transferred to partner banks from the customer’s brokerage account. This is part of a $5-a-month membership that also includes margin investing for stock trading and low borrowing costs for research.

The company raised its yield to 4.4% on Wednesday after the Federal Reserve allowed Its 10th rate hike in a little over a year raised its benchmark lending rate by 0.25 percentage points to a target range of 5%-5.25%.

Fed Chair Jerome Powell speaks during a conference call at the Federal Reserve Bank of Chicago on June 4, 2019.

Scott Olson | Getty Images

“At Robinhood, we are always looking for ways to help our customers make their money work for them,” the company said in a statement. Press release Announced hike.

lending club, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth in the first quarter of 2023 was 13% higher than the previous quarter as “depositors look to move their money out of traditional banks and earn increased savings.” Year-on-year, savings deposits have grown by 81%.

and Upgrade, led by Renaud Laplanche, founder of LendingClub, offer 4.56% For customers with a minimum balance of $1,000.

“It’s really a trade-off between yield and the appearance of safety or security for consumers,” LaPlanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players hold customer deposits with institutions backed by the Federal Deposit Insurance Corporation, so consumer funds are protected up to a limit of $250,000.

Sophie A rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with 4.2% APY.

The story is not just about rising interest rates.

Across the emerging fintech spectrum, companies like Upgrade are taking advantage of a moment of upheaval in traditional finance, whether intentionally or not. On Monday First Republic became the third US bank to do so fail since the march, after the fall of Silicon Valley Bank and Signature Bank. All three depositors raced for the exits as worries about a lack of liquidity created a circle of doom.

shares of PacWest And other regional banks declined this week, even after a sale orchestrated by First Republic JPMorgan Chase was meant to indicate stability in the system.

After the collapse of SVB, Laplanche said that Upgrade’s banking partners came to the company and asked it to increase the flow of funds, an apparent attempt to stem withdrawals at smaller banks. Upgrade funds attracting a network of 200 small and medium-sized banks and credit unions that pay the company for deposits.

used to be dead money

For more than a decade, before the recent rate jump, savings accounts were dead money. Borrowing rates were so low that banks could not offer returns on deposits. At the same time, such was the fall in stocks that investors were doing just fine in equity and index funds. A subset of those with an appetite for risk grew up in crypto.

as the price of Bitcoin increased, many crypto exchanges and lenders began to mimic the savings model offered by banks high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt after the crypto industry meltdown last year, and many thousands of customers have lost their funds.

There is some potential volatility for fintech, even outside the crypto space. Many of them, including Upgrade & Affirm, partner with Cross River Bank, which acts as a regulated bank for companies that do not have charters, allowing them to offer lending and credit products.

Last week, to Cross River Consent Order from the FDIC for what the agency called “unsafe or unsound banking practices”.

Cross River said in a statement that the order focused on fair lending issues due in 2021, and that it “places no limits on our extensive existing fintech partnerships or the credit products currently offered in partnership with them.”

While fintechs are largely under far less regulatory pressure than crypto companies, The FDIC’s action shows that regulators are starting to take a closer look at the types of products that are designed to complement high-yield accounts.

Still, the emerging group of high-yield savings products is far more mainstream than the crypto platforms promoting. This is mainly because the deposits come with government-backed insurance protection, which has a long history of protection.

They also aren’t designed to be huge profit centers. Instead, by offering higher yields to consumers who have kept their money in stable accounts for long periods of time, tech and fintech companies are opening the door to potential new customers.

Apple has a full suite of financial products, including credit cards and payments apps that pair smoothly with a savings account, which is available only for 6 million-Plus Apple Card holder. Those customers reportedly deposited nearly $1 billion in the first four days the service was on the market.

Apple did not respond to a request for comment. CEO Tim Cook “We’re very pleased with the initial response to this. It’s been incredible,” he said on the company’s earnings call on Thursday.

apple savings account


Meanwhile, Robinhood wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.

LaPlanche said high-yield savings accounts, while compelling to the consumer, are not critical to most fintech businesses, but serve as an onboarding tool for more attractive products such as consumer loans or traditional credit cards.

“We started with credits,” Laplanche said. “We think it’s a better strategy.”

Sophie launched its high-yield savings account in February last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interaction with our members.”

Voice, better known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield currently stands at 3.75%.

“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the savings account is “one of many solutions in our suite of products that empower consumers in a smarter way to manage their finances.”

Against the backdrop of a regional banking crisis, a savings product from anywhere but a national bank may seem inappropriate. But chasing yield comes with at least a little bit of risk.

,City Or Chase thinks it’s safe,” for the consumer, Laplanche said. “Apple and Goldman are not inherently risk-averse, but that’s not the same thing as Chase.”

— CNBC’s Darla Mercado contributed to this report.

Watch: Consumers are spending more on the same items than a year ago

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