Fintech company Robinhood set to debut banking service
Robinhood, the popular investment platform, is set to launch a new banking product, Robinhood Banking, later this year. This move marks Robinhood's first foray into traditional banking services, aiming to provide an accessible and innovative banking experience for its members.
Robinhood's banking venture began with a high-yield cash management account announced in October 2019, following a previous failed launch in December 2018. The new banking product will offer checking and savings accounts for its gold members, as well as a 4% annual percentage rate on savings and up to $2.5 million in Federal Deposit Insurance Corp. insurance.
In addition to banking services, Robinhood is also adding two new features: Robinhood Strategies and Cortex. Robinhood Strategies is an advanced investing service with a cost cap of $250 per year for gold members and no management fees on amounts over $100K. Cortex is an artificial investment tool providing real-time market analysis, investment opportunity identification, and market news updates.
Robinhood Banking aims to bring a "private banking experience" to its members, including options for estate planning and professional tax advice. However, unlike traditional private banks, Robinhood's services will be accessible to all, not just the ultra-wealthy.
Despite the growing popularity of neobanks like Chime, SoFi, and Revolut, they still hold a relatively small but rapidly growing share of the banking market compared to traditional banks. Robinhood, with its existing user base and innovative approach, could potentially disrupt this market dynamic.
One area where traditional banks may have an advantage over neobanks is backward compatibility with essential banking features. Deepak Rao, a fintech expert at Robinhood, criticizes neobanks for lacking integration or continuity with traditional banking infrastructure. This means neobanks often cannot support legacy banking features or services that established banks provide, such as full-service offerings, seamless compatibility with older banking software ecosystems, and deep integration with older payment rails.
Robinhood, however, is partnering with Coastal Community Bank to offer its banking products, potentially mitigating some of these issues. The Robinhood banking app will display a member's entire net worth, including liabilities not on Robinhood's platform, when opened. However, it will not display physical checks or comprehensive services like bill pay, mortgage payments, and auto payments that traditional banks offer.
As the digital banking landscape continues to evolve, it will be interesting to see how Robinhood Banking fares against both traditional banks and other neobanks. With its focus on innovation, accessibility, and a private banking experience, Robinhood is poised to make a significant impact in the banking industry.
References:
- Neobank market valuation, growth projections, and digital transformation in banking [link]
- U.S. digital banking user trends and adoption figures [link]
- Technical and operational reasons for neobanks' lack of backward compatibility as articulated by fintech experts including Deepak Rao [link]
- Neobanks like Chime, SoFi, and Revolut have been prominent in the fintech space, with Chime recently adding instant loans to its service. [link]
- The banking product aims to solve challenges with legacy bank accounts. [link]
- The Robinhood banking app will display a member's entire net worth, including liabilities not on Robinhood's platform, when opened. [link]
- Robinhood Strategies is an advanced investing service with a cost cap of $250 per year for gold members and no management fees on amounts over $100K. [link]
- Robinhood's initial savings account initiative was halted due to failing to notify the Securities and Exchange Commission and Securities Investor Protection Corporation before launching. [link]
- The Robinhood banking app will not display physical checks or comprehensive services like bill pay, mortgage payments, and auto payments that traditional banks offer. [link]
- Robinhood applied for a bank charter with the Office of the Comptroller of the Currency in April 2019 but withdrew it in December of the same year. [link]
- Rao believes that neobanks have not gained significant market share from traditional banks because they lack "backward compatibility" with essential banking features. [link]
- Robinhood has partnered with Coastal Community Bank to offer its banking products. [link]
- With the launch of Robinhood Banking, the fintech company aims to merge finance, technology, and business by providing an innovative banking experience to its members, challenging the status quo in the financial industry.
- As Robinhood Banking integrates with traditional banking services, technology, and fintech solutions like Robinhood Strategies and Cortex, it could potentially disrupt the current market dynamics in both the traditional banking and fintech sectors.
