Apple’s new banking features feel too easy to use, too hard to resist

Borrowing money is just a few taps away. What could go wrong?

Do you want the company that makes your phone to be your bank, too? That’s the question some people are surely asking themselves now that Apple has rolled out its new Apple Card savings account, which comes with a 4.15 percent interest rate — well above what most traditional banks are offering.

It’s also not traditional because, unlike any other savings accounts out there, this one is baked into the operating system of your phone, as is the Apple Card, the credit card you must have in order to get the savings account. Thanks to digital banking and financial technology, or fintech, financial services have become so easy and frictionless that you can make important decisions about a lot of your money with just a few taps. Those could be applying for a credit card, sending money to friends, or using buy now, pay later services.

That’s a winning feature for some people. For others, it’s another way to lose. If you’re in a precarious financial situation and really shouldn’t be spending money, these tools can be hard to resist and make things worse. While Apple always frames its products as promoting financial health and adds tools that are supposed to help users make responsible decisions, it’s also giving them very prominent placement on the devices people use all the time.

For Apple, this is a way to lock customers in and make more money from them while also entrenching and expanding its dominance. It’s also a way to get money out of the companies it takes fees from in exchange for providing the services their customers want. These include some services that Apple also gets to be the exclusive provider of.

“Apple sees the value of owning the payment relationship. ... If your financial life is on the iPhone, you’re not going to switch to a Samsung phone,” said Matt Stoller, research director of antitrust advocacy group American Economic Liberties Project. “If you’re a vendor and taking the iPhone for payment is easier, Apple is now your boss. It’ll be Apple’s America, we just live here.”

For some Apple users, of course, it’s also a good deal.

Me, for instance. Full disclosure, I signed up for an Apple savings account the day it became available because it was simple to do but mostly because it offered me nearly 10 times more interest than I got from the “high yield” savings account my real bank offered. And I was lucky to get that because big banks like Chase and Bank of America offer just 0.01 percent interest, while also often requiring mandatory minimums and sometimes charging monthly fees. After a week with my Apple savings account, it all seems to be working as advertised.

At a time when many people are reconsidering who they bank with, thanks to a few recent bank failures, Apple is offering something better than most traditional savings accounts. But it’s also new ground for Big Tech, and that may cause some new problems.

The rise of Apple’s presence in your wallet

A few years ago, I never would have expected to give part of my financial life to the company that makes my computer and my phone. But Apple has steadily upped its presence in an ever-growing market of fintech services over the years. The internet makes online banking and transactions easy, mobile devices make them even easier, and tech companies are in a great position to provide it all. Apple, which is increasingly a services company, can do technology pretty well. More than half of American smartphone owners use an iPhone, giving Apple a large and loyal customer base to pull from. The world’s most valuable company also has an entire ecosystem built around it that no other American company can match.

So Apple has been more than happy to jump into the fintech game. It launched its mobile payments service Apple Pay in 2014, Apple Cash in 2017, and the Apple Card in 2019. In the last month, Apple has launched its take on the buy now, pay later craze — Apple Pay Later — and, now, the savings account. Both the credit card and savings account work through a partnership with Goldman Sachs, while Apple Cash is backed by Green Dot, a payments platform with its own bank. Apple does provide those Pay Later loans through its Apple Financing, LLC subsidiary. But Apple itself is not a bank.

“This is Apple becoming more of a fintech-type company, and shows their seriousness about being that entire suite or package when it comes to the fintech space,” Angelo Zino, a senior equity analyst at CFRA Research, said.

As with almost everything else it does, Apple takes advantage of the control it has over its devices to push these products on its users. You’ll find ads for them in your Wallet app, which integrates these features in a way that’s not available to Apple’s competitors. The Apple credit card has a little control panel in Apple Wallet, for instance, while other cards in Wallet will only show you your past transactions. Apple also makes sure to link all of these services to each other. And again, in order to get an Apple savings account, you have to have an Apple Card. To get an Apple Credit Card, you have to have an iPhone. All these seamless integrations make the products easy to use, which makes them that much more appealing.

Case in point: After an unfortunate period called “my mid-20s,” when I had multiple credit cards and multiple outstanding balances on them, I decided it was best to be a one-credit-card woman. Then my iPhone died. When I went to buy a new one, there was Apple waving interest-free payments and 3 percent cash back if I just signed up for an Apple Card and used it to buy my iPhone 14 Pro. I was approved quickly and could start using my card immediately after I added it to Wallet, an app I previously only used to hold airplane tickets.

Now I have two credit cards, but only one of them lets me see my balance, get cash rewards, and make payments right from the Wallet app on my iPhone. Since the Apple Card gives me extra cash if I use it with Apple Pay, I’ve also been using Apple Pay. The Apple savings account was also advertised to me in the Apple Card app, which it now exists within. My Apple Card cash rewards are automatically deposited into the savings account a day after I earn them, so I’ll probably be using the Apple Card even more, and my other credit card less.

So even though I thought I was getting an Apple Card just to buy a single Apple product, Apple has since become a significant part of my financial life. The company is offering me something better than what everyone else had and something that no one else could. I’m still not sure if this is a good thing for everyone in the long run.

“It’s really just this broader strategy to increase activation and engagement in terms of their actual physical hardware products and their software products,” Kevin Kennedy, an analyst at Third Bridge, said. “It’s all in the realm of driving more engagement in their core business.”

It’s not necessarily illegal for a company to make products that its customers want and that work well with other offerings. But Apple is a massive company with an incredible amount of control over its users as well as the companies many of its services compete with.

You can see why its expansion into finance would make antitrust advocacy groups wary. The American Economic Liberties Project warned against Google’s (now shelved) plans to launch some kind of bank account service in 2020. The organization said at the time that “the continuing push by Big Tech deeper and deeper into banking is at once alarming and totally unsurprising. It is a nightmarish example of the ways monopolies like Google can bully their way into new industries and it will open the door to all kinds of abuse.” Those concerns apply to Apple, too.

“There’s a reason we have traditionally separated out commerce and banking,” Stoller said.

The crowded field of fintech

Apple is hardly the only player in the fintech game, however. There’s a huge industry built around making your mobile device your financial hub, and to make spending money as frictionless as possible so you’ll do it more. It’s no coincidence that Elon Musk keeps bringing up “payments” as an essential part of his plan to turn Twitter into a “super app” called X.

Peer-to-peer payment apps — think Paypal, Venmo, Cash App, and Apple Cash — have become big business, with the majority of smartphone owners in the US using them to send money to friends or pay for services. They’re easy, fast, and convenient. That also makes them highly susceptible to scams and mistakes. With fewer protections than you’ll find in more traditional payment methods, there’s often no way to get your money back once it’s gone. You may be spending a lot more than you think in exchange for the ability to pay your friend back for those drinks almost instantaneously.

If you don’t have the money to spend or send immediately, there’s also a growing industry trying to solve that problem — but only temporarily, and there are strings attached. Buy now, pay later, or BNPL, apps like Klarna, Affirm, and Apple Pay Later typically operate by giving you a loan to buy a specific product, for which you can be approved in moments. You then pay the service back in installments. Some offer interest-free and fee-free plans, but you have to pay in full on time.

This allows people to buy things they otherwise couldn’t afford up front, or makes things seem cheaper than they are — which, in turn, makes people more likely to buy them. And people aren’t just using BNPL for frivolous or unnecessary expenses, either. People can and are using it for things like groceries. When it comes time to pay up, some people can’t. That subjects them to late fees or interest. Apple Pay Later doesn’t charge fees or interest, but it does require you to link the loan to a debit card, so the issuing bank of that card might hit you with an overdraft fee, and Apple may not be so quick to let you borrow from them next time. BNPL providers are incentivized to provide as many loans to as many people as possible, as they make money by charging retailers a fee (which may well translate to raising the prices for everyone) for each purchase financed through BNPL and through late fees and interest charges that some subject customers to.

“Currently, there are no requirements for underwriting for buy now, pay later,” Nadine Chabrier, senior policy counsel at the Center for Responsible Lending, said. “So there’s no analysis required — although some companies do — about whether this person has the ability to repay this loan.”

According to the Consumer Financial Protection Bureau, BNPL services approved 73 percent of applicants in 2021, and 10.5 percent of people who took out those loans paid a late fee. Chabrier said BNPL users tend to be younger, to have worse credit, and to be people of color. They’re also more likely to overdraft.

“People aren’t getting the protections that they want or need at times with these types of products,” Chabrier said. “People want the ‘frictionless process’ ... and businesses want that because you can lose someone if there’s a roadblock in the way. But ultimately, it’s important to have consumer protections so that you’re not hurting consumers in the process.”

I don’t use BNPL, and I don’t intend to use Pay Later, even as Apple keeps reminding me in the Wallet app that I have the option to do so. Of course, I didn’t see myself getting an Apple Card either, nor did I think Apple would have savings accounts. So I guess the door’s still open. And while Apple’s offerings may be good for me directly, they do have indirect harms. Rewards credit cards come with high swipe fees (and Apple’s is higher than most), which means merchants have to pay more, and then they pass that down to their customers. People who pay with cash end up subsidizing people who pay through cards. BNPL services often promote themselves as being free to the consumer, but they may charge merchants fees, which many are fine with paying because BNPL services mean more purchases are being made. They may also raise their prices for everyone to compensate for what they lose to BNPL providers.

And then. again, there is the issue of Apple having that much more to do with that many more parts of my life and that many more parts of the economy, not only in the iPhone ecosystem Apple created but also, increasingly, well beyond it. Maybe I’ve put too many eggs in Apple’s basket, and I’ve made it that much harder to get out of.

On the other hand, that basket is a deep purple iPhone 14 Pro, available through 24 small interest-free monthly installments on my Apple Card, with a 3 percent Daily Cash back bonus that’s deposited into a savings account with a 4.15 percent interest rate. I’m not complaining — yet.