Embedded Finance News - First Republic Takeover, Apple High-Yield Savings: The Takeaway
Every first Tuesday of the month we compile some of the most important and interesting embedded finance and fintech news stories and tell you why they matter. Find last month’s issue of The Takeaway here.
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JPMorgan Chase takes over First Republic Bank after failure
Regulators seized the $229 billion First Republic Bank and immediately sold all of its deposits and the majority of its assets to JPMorgan Chase. First Republic marks the second-largest bank failure in U.S. history and is the third mid-sized bank to fail in the past two months.
Although other mid-sized banks showed stabilization after their earnings calls, First Republic still was losing deposits – the bank lost $100 billion in deposits mostly in mid-march after the news on Silicon Valley Bank broke. Similar to SVB, investors and depositors were concerned over the amount of uninsured deposits and the possibility of failure.
The Takeaway: Avoiding a single point of failure has never been more important.
We are still seeing the trickle-down effects of the SVB failure. While JPMorgan Chase CEO Jamie Dimon believes that “this part of the crisis is over,” First Republic reinforces the need for businesses to avoid a single point of failure. Having access to a large bank network and connected risk mitigation tools can help bring more stability and redundancy.
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Fed reports SVB failure was due to mismanagement and poor supervision
The Federal Reserve reported that Silicon Valley Bank’s failure was largely due to poor risk management and supervisory oversight, which was then exacerbated by social media frenzy. The report notes that some of the federal oversight was due to regulators’ lack of understanding of SVB’s problems, which made the Fed slow to react.
The Takeaway: SVB report could lead to major regulatory changes.
Fed Vice Chair of Supervision Michael Barr said they must “strengthen the Federal Reserve’s supervision and regulation” and be realistic about their ability to accurately “assess and identify new and emerging risks.” Some unforeseen risks that Barr noted included the ease of withdrawing money digitally, as well as the rapid spread of news on social media.
Some changes that could be implemented are standard liquidity requirements for a broader range of banks, as well as more supervision of management compensation. Anyone operating in the financial industry will likely feel the effects of these new and stricter regulations to the extent they are promulgated.
Apple launches high-yield savings account
Apple is digging deeper into embedded finance with the launch of its new high-yield savings account with Goldman Sachs. The account offers a 4.15% annual percentage yield and will be FDIC-insured.
The savings account is Apple’s latest foray into the payment space, since its launch of Apple Pay in 2014. In 2019, Apple launched the Apple Card with Goldman Sachs.
Apple CFO Luca Maestri said in an earnings call that payments services continues “to set new highs' ' for the company. A Statisa survey found that Apple was the fourth-most-used online payment brand in 2022, behind PayPal and its subsidiary Venmo.
The Takeaway: Embedded finance and BaaS market offer opportunities for both fintechs and banks in an increasingly competitive financial industry.
Apple’s new savings account indicates that tech companies are doubling down on financial services. The financial services industry may be becoming more crowded, but bank and tech partnerships can prove fruitful.
Forbes posits that the partnership between Apple and Goldman Sachs goes beyond simple profits. Two billion people in the world use Apple devices, but less than 10% of them have an Apple Card. For Goldman Sachs, the partnership lets them tap into Apple’s ecosystem and customers. The partnership will help make Apple products stickier with consumers, while letting Goldman Sachs leverage Apple’s reputation as consumers move away from legacy banks.
Mastercard unveils international payments with Cross-Border Services Express
Mastercard has launched a new, digital-first tool to simplify international payments for both consumers and small-to-medium-sized businesses. Called Cross-Border Services Express, the tool allows financial institutions to offer payments in more than 60 different currencies in over 100 markets, covering 90% of the population.
According to Mastercard Executive Vice President of Transfer Solutions Alan Marquard, the service gives users much more flexibility in how they pay and can deliver funds to bank accounts, mobile wallets, cards, and more. It also lets small and mid-tier banks, including community banks and credit unions, offer the same kind of international payments as a larger financial institution.
The Takeaway: Need for cross-border payment solutions highlights opportunities for embedded finance solutions, especially for SMEs.
The need for cross-border payment solutions is there, given how globalized business has become. However, research by PYMNTS shows that innovations in the B2B cross-border payments space have fallen significantly behind consumer-focused solutions.
SMEs in particular are struggling with those cross-border roadblocks. According to another PYMNTS report, 27% say the complexity of making international payments is one of their biggest challenges. Another report found that only 23% of SMEs were satisfied with their cross-border payment solutions.
Smaller and mid-tier banks can leverage these kinds of embedded finance solutions to better compete against larger banks, especially in the SME realm. According to McKinsey, SMEs have historically been underserved by their banking partners. Digital solutions that target their specific needs can be key to closing that gap, while increasing profitability for both business and bank.
Shopify adds integrated accounts payable solution to its platform
Shopify has created an integrated accounts payable solution called Shopify Bill Pay that lets merchants pay and manage bills through their Shopify admin page. Shopify worked with Melio to integrate their B2B embedded finance solution.
With Shopify Bill Pay, merchants can choose to pay via credit, bank transfer, or wire transfer, and can choose whether vendors receive payment via check, bank transfer, or wire transfer. Merchants can also use Bill Pay to pay invoices overseas.
The Takeaway: Consumers continue to drive adoption of embedded finance.
Millennials and Gen Z are increasingly shaping consumer markets. According to Forbes, millennials are currently the largest consumer segment, and Gen Z is estimated to have $360 billion in disposable income. Combined, these demographics hold a lot of influence over how businesses operate.
According to a PYMNTS report, B2B businesses are offering more embedded finance solutions because of these younger generations’ preference for contactless and digital payments. These generations have entered or been in the workforce and are now influencing business decisions at their companies, which means they have brought their payment preferences to the forefront.
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