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Is Robinhood unstoppable? Do they just give us EVERYTHING we want?
Posted on 12/13/18 at 9:47 am
Posted on 12/13/18 at 9:47 am
New! Checking and Savings accounts...I've got to read, but 3% interest rates??!
LINK /
LINK /
quote:
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 US 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 US 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.
This post was edited on 12/13/18 at 9:57 am
1
Posted on 12/13/18 at 9:51 am to bayoubengals88
quote:
Robinhood expects to turn a profit thanks to a lean 300-employee operation, earning a margin on investing your money in US 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.
quote:
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 nearest one. 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.
This post was edited on 12/13/18 at 9:54 am
Posted on 12/13/18 at 10:01 am to bayoubengals88
I don't know enough about Robinhood but the idea is interesting.
Two things from the article you linked jump out at me:
1) "...earning a margin on investing your money in US treasuries"
The only Treasury on the yield curve right now earning more than the 3% they're paying on deposits is the 30 year bond. I KNOW they are smart enough not to borrow overnight money and pay 3% on it while investing the funds into 30 year assets, right? So is the 3% just a temporary rate teaser to get people to open accounts?
2) Does Robinhood have a commercial bank charter thus making it eligible for FDIC coverage on the deposits it takes in? I don't see anything in the article you linked which says anything about FDIC coverage.
Two things from the article you linked jump out at me:
1) "...earning a margin on investing your money in US treasuries"
The only Treasury on the yield curve right now earning more than the 3% they're paying on deposits is the 30 year bond. I KNOW they are smart enough not to borrow overnight money and pay 3% on it while investing the funds into 30 year assets, right? So is the 3% just a temporary rate teaser to get people to open accounts?
2) Does Robinhood have a commercial bank charter thus making it eligible for FDIC coverage on the deposits it takes in? I don't see anything in the article you linked which says anything about FDIC coverage.
Posted on 12/13/18 at 10:03 am to LSURussian
So is the 3% just a temporary rate teaser to get people to open accounts?
CNBC
FORBES
CNBC
quote:
Bhatt, who co-founded Robinhood in 2013 with Vlad Tenev, said that the yield is not a "teaser rate." Given the direction from the Federal Reserve, which is slowly raising interest rates, Bhatt said their the 3 percent rate should be sustainable.
FORBES
quote:
To help fund the sky-high 3% rate, Bhatt says the startup will invest customers’ deposits into other securities like Treasurys. But short-term Treasury yields are well below 3%, so Robinhood will initially take a loss on that spread. It will make up for some of that difference on the interchange fees (charged to merchants) it will collect when someone uses a Robinhood debit card to make a purchase. But the program likely won’t be profitable in the short term.
quote:
The new high-interest accounts are an unabashed marketing move. Robinhood chose 3% by “looking at what was the highest possible amount we could pay and still have a long-term sustainable business,” Bhatt says. “We also really love simplicity of 3%. It’s very easy for people to remember.” He insists it’s not a “teaser rate” that the company will soon lower.
This post was edited on 12/13/18 at 10:08 am
Posted on 12/13/18 at 10:11 am to LSURussian
quote:
So is the 3% just a temporary rate teaser to get people to open accounts?
Even if it is, still worth it to move your money until the 3% payout dries up huh?
quote:
Does Robinhood have a commercial bank charter thus making it eligible for FDIC coverage on the deposits it takes in?
Was wondering the same thing.
Posted on 12/13/18 at 10:11 am to bayoubengals88
for some reason, i just feel like this is not sustainable 
Posted on 12/13/18 at 10:11 am to LSURussian
quote:
2) Does Robinhood have a commercial bank charter thus making it eligible for FDIC coverage on the deposits it takes in? I don't see anything in the article you linked which says anything about FDIC coverage.
All I See is FINRA and SIPC, which is just investments, right?
This post was edited on 12/13/18 at 10:13 am
Posted on 12/13/18 at 10:12 am to HailToTheChiz
I was rushing over here to post this...love this disruption! 
Posted on 12/13/18 at 10:17 am to lynxcat
Love the idea but I’ll need FDIC protection before moving my money. I don’t even care if the 3% is eventually lowered as it’ll still likely beat the .01% I get at Chase right now.
Posted on 12/13/18 at 10:28 am to HailToTheChiz
Posted on 12/13/18 at 10:28 am to boosiebadazz
SIPC insures up to $250k cash and $250k securities i believe. protection seems to have no difference vs fdic. i haven't looked into it, but several other brokerages also offer "checking" accounts, i presume using the same insurance.
Posted on 12/13/18 at 10:33 am to bbap
quote:Not for me. I don't leave much cash in bank deposits, usually less than $50,000. Especially if their rate gets reduced in one, two or three months.
So is the 3% just a temporary rate teaser to get people to open accounts?
Even if it is, still worth it to move your money until the 3% payout dries up huh?
Right now with the overnight Fed funds rate at 2.25%-2.5% and predicted to stay under 3% for another 6-9 months and the 90 day t-bill having a yield to maturity of only 2.4%, they have a negative spread of anywhere from .5% to .6%, at least.
Let's say they take in $100,000,000 in deposits initially over the next month or so. That means they are losing approximately $50,000/month on their deposits. That's a pretty steep price to pay for customer acquisition expense.
Posted on 12/13/18 at 10:34 am to lsujro
quote:
SIPC insures up to $250k cash and $250k securities i believe. protection seems to have no difference vs fdic.
I won't have to worry about that for a long long time.Posted on 12/13/18 at 10:37 am to Hussss
quote:
Smells like another Zecco back before the GFS
It seems that Zecco never approached RH's levels of funding...and 2006 aint 2018
quote:
By April 2018 Robinhood had raised a total of $176 million in venture capital funding, with the last valuation at around $6 billion, up from their previous evaluation of $1.3 billion.
Posted on 12/13/18 at 10:40 am to lsujro
quote:Both Schwab and TDAmeritrade have a subsidiary which has a bank charter into which they can deposit cash from their brokerage accounts and have FDIC coverage on the deposits. I have accounts at both of those and I had to sign an agreement that it was okay with me if they used their subsidiary bank to deposit cash from my accounts into.
but several other brokerages also offer "checking" accounts, i presume using the same insurance.
Merrill Lynch is owned by Bank of America so I assume they have a similar arrangement.
I don't know about other brokers.
Posted on 12/13/18 at 10:50 am to bayoubengals88
quote:
"The four most dangerous words in investing is 'this time it's different'". --Warren Buffett
quote:Sooooo, you're saying 'this time it's different'?
It seems that Zecco never approached RH's levels of funding...and 2006 aint 2018
Posted on 12/13/18 at 10:53 am to LSURussian
I’m assuming credit cards next somehow.
Posted on 12/13/18 at 10:54 am to LSURussian
quote:I'm essentially saying that the iphone wasn't even a thing in 2006, and the number of RH users is much higher than any Zecco platform ever dreamed.
Sooooo, you're saying 'this time it's different'?
I've used RH since 2015 and have seen them improve steadily ever since. I guess you can say that they've earned a bit of trust from me. Am I weary of this 3% number? Yes! But they've only impressed up to this point.
Posted on 12/13/18 at 10:55 am to leoj
quote:I hope so. Need some rewards pts.
I’m assuming credit cards next somehow.
Posted on 12/13/18 at 11:01 am to bayoubengals88
quote:Fair enough. I was just joking.....sort of.
I'm essentially saying that the iphone wasn't even a thing in 2006, and the number of RH users is much higher than any Zecco platform ever dreamed.
quote:That's good to know. I'm sure they will attract some more business with their new deposit service.
I've used RH since 2015 and have seen them improve steadily ever since. I guess you can say that they've earned a bit of trust from me. Am I weary of this 3% number? Yes! But they've only impressed up to this point.
I'm just a little skeptical that such an obvious overnight above market interest rate is sustainable over the long run. But then again maybe this time it's different.
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