12/08/2022 CUToday
By Ray Birch
SAN CARLOS, Calif.—Apple’s new savings account for Apple Card should be a “wake-up call” for credit unions, says one analyst, who is urging CUs to respond in the right way or risk losing deposits and member relationships.
Richard Crone, principal of Crone Consulting LLC, told CUToday.info that more credit unions need to support Apple Wallet—as well as all the other so-called “pay,” while additionally removing their and savings account withdrawal limits.
“Credit unions by definition are supposed to have better savings rates because they’re member-owned and not-for-profit and are chartered to pass along the higher yields to their membership,” said Crone. “But in order to compete with Apple Savings, with Goldman Sachs, they’ll have to do more than match or surpass Goldman’s high-yield rates, they’ll have to support Apple Wallet and offer a savings account without any transaction limits or fees, which most credit unions do not do.”
Apple recently announced a new savings account for Apple Card that will allow users to save via an Apple Cash account while also building rewards via a high-yield savings account from Goldman Sachs.
Daily Cash is the 3% cash back all Apple Cardholders receive on purchases.
According to Apple.com, in the coming months, Apple Card users will be able to open the new high-yield Savings account and have their Daily Cash automatically deposited into it — with no fees, no minimum deposits, and no minimum balance requirements. Soon, users will also be able to spend, send, and save Daily Cash directly from Wallet, Apple.com reported.
‘Favorite Benefits’
“Savings enables Apple Card users to grow their daily cash rewards over time, while also saving for the future,” Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet, told Apple.com. “Savings delivers even more value to users’ favorite Apple Card benefit — daily cash — while offering another easy-to-use tool designed to help users lead healthier financial lives.”
Once users set up their savings account, all future Daily Cash received will be automatically deposited into it, or they can choose to continue to have it added to an Apple Cash card in Wallet. Users can change their daily cash destination at any time, Apple.com noted.
“When you talk to credit unions, you find that nearly all still impose transaction limits on savings accounts, even though the Federal Reserve Bank eliminated the six transactions per month limit on savings accounts in April 2020 in their pandemic updates to Regulation D, driven by making money more accessible during the lockdowns,” Crone explained. “There are big strategic implications here for credit unions.”
‘Greater Utility’
Richard Crone
Crone said the success of the new Apple Card venture is the ability to actually provide full utility, not only for credit but for prepaid debit, general-purpose reloadable cards.
“The challenger banks and neo banks all use general purpose, reloadable cards as checking,” said Crone. “This extends greater utility to the consumer, but more importantly, it's a platform for adding new services. And this is the first one that Apple is adding—meaning if you earn a cash reward you can open a savings account and that savings account will pay high-yield interest on your balances that you earn from making purchases with the Apple Card.
“So, you can see that it's the full spectrum,” he continued. “They not only allow you to make purchases giving you immediate access to your cash rewards, on top of that you hold the money in a savings account whereas you earn those rewards you can earn interest. In fact, they allow you to make additional deposits to that savings account and use it as a cash management account.”
‘Wake-Up Call’
But according to Crone, what is an even larger concern than losing deposits to a new Apple savings account that functions like checking is the convenience with which the account can be opened.
“That account is opened instantly, and they now have a relationship with that customer,” said Crone. “The enrollment today isn't occurring at branches. The enrollment isn't occurring among select employer groups. And the enrollment certainly isn't happening at substance over the phone. The enrollment is happening online. This should be a wake-up call for credit unions on where to increase enrollment. It’s not at a branch. It’s not on the phone. It’s not through a SEG.”
To be effective at enrolling consumers via online platforms, Crone believes credit unions must “redefine” their fields of membership.
“The field of membership should not be based on where that consumer is, the common bond of a meta user is the group,” explained Crone. “So, that could mean Uber drivers, or TikTok users or… Credit unions are stuck in the old definition of the field of membership and that has to change.”
The ’New Transaction Accounts'
What also has to change are the rules around credit union's savings accounts, emphasized Crone.
“Savings accounts are becoming the new transaction accounts, competing with checking,” Crone explained. “But, as I said, the Federal Reserve in April of 2020 lifted the withdrawal restrictions on savings accounts. What Apple is doing here is pushing the edge of that the redefinition of what a savings account is. They can provide immediate access and utility to the savings account through Apple Pay and you can now pay anywhere, and you can now deposit as much as you want anytime, or withdrawal funds then. It essentially has all the utility of a checking account.”
Credit unions need to follow suit with savings design, and also make debit and credit products available through the “pays,” said Crone.
“They need to do this, and address field of membership, if they want to compete for the next wave of young members. They need to do this to have a fighting chance,” he said.
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