This year the Effective Federal Funds Rate (EFFR) reached its highest levels since 2007, providing an opportunity for individuals and businesses to capitalize on cash that otherwise could sit idle or worse: lose value due to elevated inflation. This draws new attention to how businesses embedding financial services into their workflows can leverage these high interest rates to both acquire new customers and deposits, as well as monetize existing deposits more fully.
For consumers, a standout example from 2023 is Apple. Last month, the company announced that the Apple Card’s high-yield Savings account, made possible by Goldman Sachs, has reached over $10 billion in deposits in the four months since it launched. The combination of the coveted Apple name plus valuable yield consumers could earn helped drive awareness and interest, while the easy-to-use wallet experience converted many. While there’s been plenty of reported cases of upset customers as Apple and Goldman Sachs work through their partnership, it’s hard to deny the early success of customer adoption.
Consumers may not be able to afford the inherent risk and volatility that comes from traditional stock investments due to short-term financial commitments, but earning upwards of 4-5 percent for money that is otherwise “sitting” idle is a historic advantage. Finding the most competitive rates may mean shopping around, as a recent survey from Bankrate reports that the national average yield for savings accounts is only 0.56 percent APY. With research and planning, consumers can use high-yield savings accounts as an alternative to their day-to-day checking account, essentially the equivalent of an operating account.
The other side of the coin is a B2B enterprise that needs to optimize a vast network of supplier payments and financial programs. The treasury management function within many enterprises manages liquidity and will seize the opportunity to earn interest from relatively liquid assets, like operating accounts.
Treasury experts explain that the portfolios that treasuries manage need to be ready to be deployed as soon as the next day, meaning long-term investment options aren’t realistic. That said, investing is important to reach their own capital requirements, noting “the opportunity cost of not investing is 0%, thus any yield (positive) is immediately a success.” (Toptal network)
Four ways to leverage yield in embedded finance
Leveraging embedded financial programs, there are four standout ways enterprises and fintechs could use yield:
- Acquire new customers. Savvy consumers or employees will certainly investigate interest rates when deciding where to store their money. Individual interest-bearing accounts with a competitive rate are table stakes to draw consumers, especially those who are already banked.
- Monetize program vaults. Behind-the-scenes of any embedded account or card product are the treasury vaults that act as operating accounts to maintain a program’s day-to-day operations and keep end users funded in line with expectations. Critical is keeping all funds in FDIC-insured accounts, which Alviere supports on a pass-through basis through bank partners. Simultaneously, the funds held in these accounts can earn interest with the Alviere HIVE platform.
- Enhance reward programs. For brands that want to help consumers save for future purchases, adding yield to consumer accounts set up for Recurring Deposits & Savings will help consumers reach their purchase goal faster. This Save Now, Buy Later (SNBL) concept is a debt-free option that requires no credit check. Brands could earn yield on customer deposits and pass a portion on to the consumer.
- Optimize a financial ecosystem. For enterprises that create their own “B2B Venmo” with a B2B Payments Ecosystem, all account holders can utilize interest-bearing accounts to earn on deposits while continuing to take advantage of the streamlined cash flow operations that come from a fully contained network.
Is it all upside?
Integrating yield products into any embedded financial program helps enhance the core offer for customers, partners, or employees. Whether a business aims to acquire new customers, monetize program treasury vaults, enhance reward programs, or optimize a financial ecosystem, earning interest should be a consideration in the program design. Depending on the goals of the program and the pre-funding model between Alviere and the enterprise, there could be cases where yield doesn’t play a role, but those are few and far between.
As the Federal Reserve continues to hold us with bated breath each quarter, we’ll continue to look at how Alviere clients and their end consumers can leverage interest-bearing accounts to manage their money more effectively.
