As The Fed Raises Rates, Apple And Fintechs Like Robinhood Chase Yield-Hungry Depositors

The technology industry is currently experiencing a shift, with companies moving away from innovation to focus on an unremarkable product - yield. Traditional financial institutions are now offering higher-yielding savings accounts in response to rising US Treasury yields. However, non-traditional financial firms in Silicon Valley are providing some of the highest yield rates available to savers. 

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For example, Apple recently partnered with Goldman Sachs to launch its Apple Card savings account, which offers a 4.15% APY. LendingClub, Upgrade, and SoFi are other Silicon Valley companies offering high-yield savings products. The fintech market, consisting of companies that offer consumer financial services with a focus on digital products and a mobile-friendly experience, are also following suit. 

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Companies such as Robinhood, which has Robinhood Gold, offering 4.65% APY, and provides a $5-a-month subscription service that includes lower borrowing costs for margin investing and research for stock investing.

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The growing emergence of the fintech market is taking advantage of a moment of upheaval in traditional finance. The failures of banks such as Silicon Valley Bank and Signature Bank have resulted in depositors fleeing and seeking higher yields from non-traditional financial firms. 

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Furthermore, some companies, such as Upgrade, are intentionally or unintentionally taking advantage of this moment of upheaval. These companies keep customer deposits with institutions backed by the Federal Deposit Insurance Corporation, which ensures that consumer funds are safe up to the $250,000 threshold.

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Savings accounts were unattractive before the recent jump in interest rates, with banks unable to profitably offer yield on deposits. 

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Borrowing rates were too low, and investors were doing well in equities and index funds, and a subset of those with a high appetite for risk invested in crypto. 

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However, as the price of Bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks' savings model, offering very high yields for investors to store their crypto. 

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As a result, when the crypto industry crashed, many of these exchanges became bankrupt, and thousands of clients lost their funds.

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While high-yield savings accounts are a positive for consumers, there is some potential instability for fintechs. Many companies, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for firms that don’t have charters, allowing them to offer lending and credit products. 

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Cross River was recently hit with a consent order from the FDIC for "unsafe or unsound banking practices," drawing attention from regulators. Although regulators focus less on fintech than they do on crypto companies, the FDIC's action suggests that they are beginning to take note of the products that high-yield accounts offer.

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