MENLO PARK, Calif.–More fintechs are moving beyond just credit cards and loans and into a traditional old-line business: checking accounts.
Chine, which describes itself as a “neobank,” recently reported it now has 2.3 million users of its free online checking account. And now another fintech, Robinhood, has entered the market offering a 3% interest on both checking and savings accounts, the highest rate on the market, according to analysis by Forbes.
Founded in 2013, Robinhood has built a base of more than six-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, Forbes reported. It also collects interest income on the cash and stocks its customers hold, and it earns revenue on its premium membership. With 300 employees, Robinhood now has a $5.6-billion valuation, and with Forbes saying it estimates its customers’ assets are in the tens of billions of dollars.
“Why is Robinhood expanding into checking accounts?” asked Forbes. “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.
Forbes quotes Co-CEO Baiju Bhatt as saying 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 has partnered with Ohio-based Sutton Bank to offer these services, Forbes reported.
To help fund the sky-high 3% rate, Bhatt told Forbes the startup will invest customers’ deposits into other securities like Treasurys. But with short-term Treasury yields well below 3%, Robinhood will initially take a loss on that spread. It will make up for some of that difference on the interchange fees, according to the company.