INSUBCONTINENT EXCLUSIVE:
Robinhood is undercutting the big banks by forgoing brick-and-mortar branches with its new zero-fee checking and savings account features
With no overdraft or monthly fees, a juicy 3 percent interest rate and a claim of more U.S
ATMs than the five biggest banks combined, Robinhood is using the scalability of software to pass impressive perks on to customers
The free stock trading app already used that approach to attack brokers like E*Trade and Charles Schwab that charge a per-trade fee
Now it’s breaking into the larger financial services market with a model that could put the squeeze on Wells Fargo, Chase and Bank of
America.Today Robinhood launches checking and savings accounts in the U.S
with a Mastercard debit card issued through Sutton Bank that starts shipping December 18th
Users earn 3 percent on all the dough they keep with Robinhood, yet there’s no minimum balance or fees for monthly membership, overdrafts,
foreign transactions or card replacements
That’s a pretty sweet deal compared to the other leading banks that all charge for some of that or offer much lower interest rates
The trade-off is that while customers get 24/7 live text chat support, they won’t be able to walk into a local bank branch
Users who want early access can sign up here.Robinhood expects to turn a profit thanks to a lean 300-employee operation, earning a margin on
investing your money in U.S
treasuries and a revenue share with Mastercard on interchange fees charged to merchants when you swipe
The launch could be critical to keeping Robinhood worthy of its $5.6 billion valuation from when it took a $363 million Series D in March
just a year after raising at a $1.3 billion valuation
The 6 million-user app invested in launching a free cryptocurrency trading exchange early this year only to see coin prices plummet and
mainstream interest fall off
But with banks hammering users with surprise fees and mediocre user experience, there’s a huge opportunity for a mobile-first startup to
disrupt how we store money.“Brick-and-mortar locations are costly
Our goal with this product was to build a completely digital experience so we can reduce our overhead so we can pass more of the value back
to customers,” Robinhood co-CEO Baiju Bhatt tells me
[Disclosure: I know Bhatt and co-CEO Vlad Tenev from college.] “Saving accounts in the U.S
pay on average 0.09 percent and we all know the banks are making far more than that from the deposits
With Robinhood you earn 3 percent off all of your money. Mental math is hard, so if you look at the median U.S
household that has about $8,000 in liquid savings, they’d earn $240 a year.”Robinhood will be sending invites to users in January for
the new feature that they can use exclusively or alongside their existing bank
Anyone approved to use Robinhood’s stock brokerage is eligible, but users can also sign up directly for checking and savings with no
obligation to trade stocks
Robinhood claims signing up won’t impact your credit score
Users get to customize a Robinhood-branded debit card that’s accepted wherever Mastercard is
Because the feature is run within Robinhood’s brokerage, it’s ensured by the SIPC instead of the FDIC, but you still get the same
insurance on up to $250,000 cash
[Update: A lot of people are confused and think no FDIC means you’re not insured
If a market downturn causes a decline in value of the treasury securities Robinhood invests your checking/savings money in to earn interest,
you’re insured up to $250,000 and will get your money back
Only money you personally gamble on stocks is at risk, as is standard.]One of the most appealing features of Robinhood checking and savings
is getting access to 75,000 free-to-use ATMs in places like Target, Walgreens and 7-Eleven
Users won’t be able to tell just by looking at an ATM whether it’s in the network, but the Robinhood app features a map for finding the
You can deposit checks via Robinhood’s app too, and if you need to send a check, you can just tell the startup how much to deliver to whom
and it will mail the check for you.“These fees like overdraft fees — they’re not fees millionaires are paying
It’s ordinary folks paying
It’s actually more expensive for those that have less money and it’s cheaper for those that have more money
We think that isn’t right and we think that’s bad business,” Bhatt gripes
Because Robinhood built its own clearing house for moving money, and it lacks the overhead of traditional banks, it’s able to save enough
money to make its no-fee structure work
“We want to build a financial services company that democratizes America’s financial system.”Robinhood will have to convince users
it’s worthy of their trust, as a security breach could be disastrous
There’s also the question of whether people are ready to ditch their bank branch
“Behaviors about and going into a branch are definitely changing,” says Bhatt
My biggest concern was not having any consistency in who I talk to when I need banking help
Bhatt tells me the company plans to roll out more personalized customer service features in the coming months, but there may always be edge
cases that make the lack of in-person support annoying.Getting into banking could open a lucrative revenue stream for Robinhood as it charts
The startup recently hired Jason Warnick, a 20-year veteran of Amazon, to be its CFO and get it prepped to go public
Wall Street will want to see a more robust business that’s not as vulnerable to foes like stock brokerage Charles Schwab, which is already
lowering fees to stay competitive with Robinhood
Not only will checking and savings see users move more money into their Robinhood accounts that it can invest to earn a profit, but it also
poises the startup to tackle more financial services in the future
More lucrative products like loans could make paying 3 percent much easier for Robinhood to handle.
