Online brokerage startup Robinhood has introduced a cash management service that will give customers 1.8 percent interest on any money they don’t have in stocks, Bloomberg reported on Wednesday (Dec. 11). This new service follows last year’s unsuccessful launch of a checking and savings account product, which was not well received.
Silicon Valley’s Robinhood is known for making free stock trading accessible, and has spent the last year figuring out the best way to offer cash management services.
“Our entire business was built knowing we weren’t going to be charging trading commissions,” said Co-CEO Vlad Tenev. “We’ll still have existing revenue streams, and, in addition, we’ll add revenue from interchange on debit card transactions. As we launch even more products covering even more needs of customers, that revenue stream will continue to diversify.”
The cash management feature is offered in partnership with a bank, and has debit cards, as well as deposits backed by the Federal Deposit Insurance Corporation (FDIC). Last year’s checking and savings product did not have a bank partnership.
Robinhood had its sights set on becoming a bank, but withdrew its application for a charter. This new product is a smaller, modified version of its banking ambitions. No FinTech startup has been successful at getting a bank charter. The cash management offering follows other FinTech startups that have launched banking services, like Betterment and Wealthfront, along with traditional firm Charles Schwab.
The firm is also seeing competition in its primary business of free stock trading. Over the last several months, Charles Schwab, E*TRADE and TD Ameritrade dropped trading fees for U.S. stocks, exchange-traded funds and options.
Robinhood, which launched in 2013, attracts millennials interested in trading stocks and cryptocurrency. It quickly expanded to 1 million subscribers in 2016, and 6 million by October of 2018. Earlier this month, it announced that it signed over 10 million subscribers.