More financial technology startups are wading into a crowded, stodgy business: checking accounts. Last spring, personal finance app Acorns and lending startup SoFi announced new debit cards. “Neobank” Chime has been offering free online checking accounts since 2014, and it has 2.3 million users today. Now Robinhood is crashing the party, offering 3% interest on both checking and savings accounts. That’s the highest rate on the market. It dwarfs the national average of 0.10% for savings accounts, and it’s well above the second-highest rate of 2.25% offered by BBVA, according to Bankrate.com.
Founded in 2013, Robinhood has built a base of more than 6 million users by providing commission-free stock and cryptocurrency trades. It makes money through the rebates brokers provide when Robinhood sends them trades to execute. It collects interest income on the cash and stocks its customers hold, and it earns revenue on its premium membership. This model has carried the 300-person Menlo Park company to a $5.6 billion valuation. Across Robinhood’s six million accounts, Forbes estimates its customers’ assets are in the tens of billions of dollars (the company declined to comment on total assets).
Why is Robinhood expanding into checking accounts? The main reason seems to be to seize market share. As competition for digital-first deposit accounts heats up, and as JPMorgan Chase walks further onto Robinhood’s turf by offering free stock trades, Robinhood wants to hoard more customers for their long-term value, even if it loses money in the short term. Co-CEO Baiju Bhatt says Robinhood aims “to make it so that customers don’t need to go anywhere else for financial services.”
Robinhood’s checking and savings accounts have no account minimums, no monthly fees, no overdraft fees and no foreign transaction fees. The new Mastercard debit card can be used for free at 75,000 ATMs around the country, and Robinhood will start shipping the cards to customers in January. Since Robinhood doesn’t have a banking license, it’s partnering with Ohio-based Sutton Bank to offer these services.
Bhatt says Robinhood has been thinking about offering a checking account product for two years. But the timing of this release also aligns well with a changing U.S. economy. We’re in the late stages of a bull market, trading volumes are declining and interest rates are rising. Those dynamics give consumers more incentive to pull their money out of brokerage accounts that bear no interest. Robinhood’s new products may plug that potential outflow.