latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/high-yield-savings-products-fall-back-in-fintech-bank-battle-for-market-share-67225720 content esgSubNav
In This List

High-yield savings products fall back in fintech-bank battle for market share


S&P Capital IQ Pro | Powered by Expert Insights


Post-webinar Q&A: Speed and Scalability – Automation in Credit Risk Modeling

Case Study

A Chinese Bank Takes Steps to Minimize Risks as it Supports International Trade


Middle East Africa MA by the Numbers: Q3 2021

High-yield savings products fall back in fintech-bank battle for market share

Large banks awash in deposits have been retreating from the high-yield savings competition as the battle for retail customers has shifted toward the ability to offer a complete suite of financial products.

Just a few years ago, several large banks paid above-market rates on their savings products in an apparent battle with up-and-coming fintechs. But with a surge of liquidity amid the pandemic, some large banks have actually looked to defray deposit growth. And as consumers have flocked to investment products that can generate strong returns, financial companies are racing to develop a "super app" approach that puts high-yield savings accounts as one component in a bundle along with stock trading, crypto wallet or buy-now, pay-later options.

Some banks are investing in full-suite platforms instead of paying up for client growth. Synchrony Financial, which had one of the highest rates on savings accounts in 2019, is no longer in the top 10 and management is touting the company as a "partner of choice" as companies and consumers seek "best-in-class wallet optionality." Goldman Sachs Group Inc., via its digital consumer banking app Marcus, was also a top payer a few years ago and is no longer in the top 10. The company recently agreed to purchase home improvement lender GreenSky Inc. as part of the company's "efforts to build the consumer banking platform of the future," executives said.

"We're happy to be the service provider, and we're also happy to be a platform," said Goldman Sachs executive Stephanie Cohen, one of the top executives for the bank's retail banking brand Marcus. Marcus started in 2016 with personal loans and savings accounts and rolled out its first retail investment feature in February. The robo-advisory service is part of Marcus' strategy to build "multi-product relationships" with its customers, Cohen said at the Money 20/20 conference Oct. 24.

Whereas the top 10 rate-payers in 2019 included several regional and national banks, the current list is dominated by community banks, most with less than $2 billion in assets, according to data compiled by S&P Global Market Intelligence.

SNL Image

SNL Image

Fintechs are also prioritizing a full suite of products. In September, PayPal Holdings Inc. announced a high-yield savings feature in partnership with Synchrony, which Synchrony management said will provide it with low-cost deposits. It is part of PayPal's approach to build an "all-in-one" app that offers consumers various services including savings account, earned wage access, crypto wallet, payments and online shopping. Similarly, Affirm Holdings Inc., a buy-now, pay-later platform, debuted its high-yield savings account in June 2020 with bank partner Cross River Bank, and recently released a debit card product as it looks to combine e-commerce payments and consumer financial services into a single platform.

"The opportunities to monetize a customer become much, much greater the more time that consumer spends in your app," said Alex Johnson, director of fintech research at Cornerstone Advisors. "PayPal is way ahead of the curve here. Cash App is ahead of the curve here. Companies like Affirm are trying to catch up. But every fintech company is sort of going in this direction."

Moving away from high-yield focus

Going forward, it will be tougher for fintechs to grab market share from banks simply by offering attractive rates. When the competition heated up between 2016 through 2019, fintechs gained ground through a technological advantage that lowered operational costs. Since then, many banks have closed the gap, said Kevin Miologos, managing principal at consultancy firm Capco.

"Everybody's basically on the same playing field in terms of technology now. That competitive edge [of fintechs] isn't as strong as it was between 2016 and 2019," Miologos said.

Among the high-yield savings accounts offered by fintechs, neobank Chime Financial Inc.'s APY is 0.5%; Affirm's rate is 0.65%; and PayPal's planned high-yield savings product will offer a 0.4% APY. Chime uses Stride Bank NA and Bancorp Bank to hold deposits. High-paying banks are in the same range, with Marcus' and Synchrony's current rates both at 0.5% as of Nov. 8.

One exception appears to be Varo Bank. The digital bank offers up to 3% in yields for qualified accounts. Varo is a licensed national bank since 2020, unlike many of its fintech competitors that need to bargain with partner banks to hold deposits insured by the Federal Deposit Insurance Corp.

While banks seem to have reduced the firepower on savings products, they are not letting slip the opportunities in digital banking. The spotlight now is around designing a fully digital experience and improving the economics around demand deposit accounts, Miologos said.

In January, card issuing platform Marqeta Inc. announced a partnership with Goldman Sachs' Marcus to launch checking accounts in 2021. Marcus was one of the industry leaders to use aggressive rates to attract consumer savings deposits in 2019, but Marcus' savings rate is now below the median average of the 10 banks that offer the highest APY rates as of Nov. 9.

SNL Image

Goldman Sachs' Cohen recently pointed to checking accounts as the next growth focus for Marcus to develop core banking relationships with consumers.

"Checking is a good example where people felt like, how in the world are you ever going to have a real checking product without a branch? And I think we've learned that lots of people with varying ages, not just young people, are willing to bank entirely on their phone," Cohen said at the Money 20/20 conference.

On the other side, several fintech companies continue to inch into banking. Fintechs with an established niche product are increasingly looking to add bank account opening capabilities to their product suite, said Chris Dean, CEO of Treasury Prime, a software developer enabling banking-as-a-service partnerships.

Fintechs are also redefining the scope of money management. As consumers seek yields, there has been increased interest in fractional stock trading, cryptocurrency investing, crypto-backed lending and investments in nonfungible tokens, said Cornerstone's Johnson.

As fintechs look to take market share — and banks hope to defend their turf — success in core, retail banking will depend on much more than savings rates.