Big Tech are the Big Winners in a High Interest Rate Environment
Since the world’s central banks started raising interest rates in early 2022, there’s been neverending talk of the impact of increasing loan repayments on everyone from residential mortgage holders to overleveraged corporations. But loans are just one side of the the equation, savings are impacted, too.
It wasn’t all that long ago that we were all lamenting the paltry interest rates we were getting on the cash we held in savings accounts, with most people coming to accept that earning anything at all was a bonus. That’s all changed now, and it’s become something of a new sport to shop around for the best deposit rates available amongst the banks. That phenomenon hasn’t gone unnoticed by the corporate world and just as FinTech jumped onto the loans bandwagon when interest rates were low, a new generation of technology companies is doing just the same for deposits.
To give you a sense of just how rapidly things are changing, Apple, who only launched their Apple Card savings account in April this year, now has more than US$10 billion in deposits. That’s a huge amount of money, but it pales in comparison to the estimated $3.1 trillion that the St. Louis Federal Reserve estimates are held by US corporations alone. It also explains why FinTech is getting so excited about disrupting the savings account industry that has traditionally been the exclusive domain of banks.
Amongst the FinTech offerings with institutional cash in their sights is Likwidity, an Australian startup that is looking to change the way big corporations manage their cash deposits by making it easier for them to shop around for the best rate. According to Linley Scorgie, CEO and Founder of Likwidity, it’s still very difficult for bigger companies to gain any visibility into deposit rates. Unlike for retail deposits, rates for businesses who are looking to deposit over $5 million can’t just go to a bank’s website and see all the rates available to them, they have to go through their relationship manager and hope that they’re being offered something competitive.
Likwidity has built a platform for corporates that automates price discovery across multiple banks for best deposit rates, enabling competitive tension and increasing visibility for businesses who just want to get the best return on their excess cash.
Unsurprisingly, many banks aren’t exactly thrilled about these latest developments. A 2023 paper authored by Martin Hodula found that the rise of alternative credit lines offered by FinTechs was correlated with an associated decrease in margins at traditional banks. It’s fairly easy to conclude that the same thing is likely to happen in the deposit space, a view also shared by several leading economists at the OECD.
Platforms like Likwidity are emerging to level the playing field for deposits and businesses can gain access to competitive rates of interest on their savings. Whether the banks will choose to partner with these platforms or fight the change remains to be seen, but history suggests that they’ll have to be dragged kicking and screaming all the way.