INSUBCONTINENT EXCLUSIVE:
This time it actually has insurance
Zero-fee stock-trading app Robinhood is launching Cash Management, a new feature that earns users 2.05% APY interest on uninvested money in
their account with the ability to spend it through a special Mastercard debit card
The waitlist opens today in the U.S
with the first users to be admitted soon
“If you have $5,000 in your account while you’re thinking about what to invest in, you’d have an extra $105 at the end of the year”
thanks to Robinhood Cash Management’s interest, co-CEO Baiju Bhatt tells me.The $7.6 billion-valuation startup first attempted something
similar in December with Robinhood Checking, promising a stunningly tall 3% interest rate
But the product turned into a PR disaster when the Securities Investor Protection Corporation that was supposed to insure users’ funds
declared Robinhood ineligible, with its CEO noting it had never agreed to cover checking accounts
That led Robinhood to shelve the feature, scrub its site of any mention of Checking and apologize.Robinhood Cash Management’s debit cards,
featuring the same design from the scrapped Checking launchNow despite Bhatt claiming “Cash Management is a brand new program built from
the ground up,” it will offer the same debit card design and network of 75,000 ATMs
It’s even using an identical promo image for its half-translucent green, black, white and American flag debit card designs
But each user’s funds will be covered by the Federal Deposit Insurance Corporation up to $1.25 million
To get around the $250,000 FDIC limit per bank, Robinhood is partnering with six banks that it will spread a user’s cash across as
necessary to bundle up to that sum
Robinhood earns money by taking a chunk of the interchange fees from transactions on its debit card run in partnership with Sutton Bank, and
from a fee paid by the six banks cash gets swept into.To help it avoid further regulatory missteps, Robinhood yesterday added former SEC
commissioner Dan Gallagher as its first independent board member
He joins the startup’s recently hired COO, CFO, chief compliance officer, VP of Risk - Compliance and VP of Legal - Regulatory to bring
more supervision to Robinhood.Robinhood co-founders and co-CEOs (from left): Baiju Bhatt and Vlad TenevThe opt-in feature prevents users
from missing out on earning interest if they keep money in their Robinhood account, and makes funds from stock sales quickly accessible via
the debit card for spending or withdrawal
That convenience could give Robinhood an edge as its loses one if its key differentiators
Last week, its top incumbent competitors Charles Schwab, E*Trade and AmeriTrade all dropped their $4.95 to $6.95 fees on stock trades to
match Robinhood’s free offering
That makes Cash Management and Robinhood Crypto even more critical to its continued growth
That’s necessary to justify the $7.6 billion valuation from its recent $323 million Series E raise led by DST Global that brings it to
$860 million in total funding.“We decided the best thing to do is giving people the peace of mind that their money is held at these banks,
while trying to pay back the very best interest rates,” Bhatt tells me
[Disclosure: I know Robinhood’s co-founders from college.]With Cash Management, once users deposit cash into the Robinhood accounts and
opt into the program, they’re eligible to earn interest
Any balance on their account, including returns from sales of securities or cryptocurrencies, is swept into the FDIC-insured partner banks
via Promontory’s debit suite system
Those banks include Wells Fargo, HSBC, Goldman Sachs, Citibank, U.S
If one of those banks folds, the FDIC will make customers whole for up to $250,000, equaling $1.25 million across all six working with
Users are able to opt out of specific banks.There the cash earns a variable annual percentage yield (APY) that may fluctuate based on market
factors like the Fed fund’s rate
Currently Robinhood offers a 2.05% APY, but refused to compare it to competitors
However, it ranks relatively high amongst popular banking options like these, according to Bankrate, especially given it has no minimum
balance:BMO Harris – 2.20% APY, $5,000 Minimum BalanceBBVA – 2.15% APY, $10,000 Minimum BalanceUFB Direct – 2.15% APY, $25,000 Minimum
BalanceSallie Mae – 2.00% APY, No Minimum BalanceState Farm Bank – 2.00% APY, No Minimum BalanceTIAA Bank – 2.00% APY, $500 Minimum
BalanceWells Fargo – 1.95% APY, $25,000 Minimum BalanceInvestors eAccess – 1.90% APY, No Minimum BalanceRobinhood Cash Management will
also compete directly with Wealthfront Cash that launched in February and now offers 2.07% APY interest, but lacks a debit card or ATMs
Betterment Checking - Savings does provide a Visa debit card, but its current APY is 1.79%.Cash Management users can select from the four
debit card styles that are accepted anywhere that takes Mastercard, plus 75,000 ATMs
It also works with Apple Pay, Google Pay and Samsung Pay
There are no foreign transaction fees, maintenance fees or account minimum.A variety of new Cash Management features are being added to the
You can get notifications and emails for all your transactions, and lock the card from your phone if you suspect fraud
You also can opt for location protection, which alerts you if your card is used too far away from your phone
An in-app ATM finder shows users where they can get cash without a fee.“Partially we want this to be a good business but we also want this
to be a big part of customer’s lives,” says Robinhood VP of product Josh Elman
Instead of nickel and diming Cash Management users, the startup monetizes by charging its partners
But the bigger strategy is to get more users on Robinhood in hopes some will subscribe to Robinhood Gold
There users pay a variable monthly fee depending on how much they want to borrow from the startup to trade on margin.Robinhood co-CEO Baiju
Bhatt speaks with TechCrunch’s Josh Constine at Disrupt SF 2018“I think the main takeaway over the last year has been that since last
December, our company has been very committed to building an organization that has a really strong culture [of compliance]” Bhatt
“We’ve grown the leadership team over the last year with experience from risk and finance backgrounds
We think that’s reflected pretty clearly in how Robinhood operates and the diligence that went into building this new program.”No longer
a scrappy startup, the budding fintech giant must now grapple with much greater regulatory scrutiny
With more than 6 million users, the SEC won’t stand for it putting people’s finances in in jeopardy.
