Robinhood relives check with new debit card and 2% interest – TechCrunch
This time, it actually has insurance. The Robinhood Zero Charge App launches Cash Management, a new feature that earns users 2.05% APY interest on uninvested money in their account with the option to use it through a special Mastercard debit card. The waiting list opens today in the US with the first users coming soon. "If you have $ 5000 in your account while thinking about what to invest in, you would have $ 105 extra by the end of the year," thanks to Robinhood Cash Management's interest, says co-CEO Baiju Bhatt.  The $ 7.6 billion valuation startup first tried something similar in December with Robinhood Checking, promising an amazingly high interest rate of 3%. But the product turned into a PR disaster when the Securities Investor Protection Corporation, which was supposed to insure users' funds, declared Robinhood unqualified, while the CEO noted that it had never agreed to cover a checking account. That prompted Robinhood to step in, scrub the site for some Checking out and apologize.
Now despite Bhatt claiming "Cash Management is a brand new program built from scratch", will It offers the exact same debit card design and network of 75,000 ATMs . It even uses an identical campaign image for the semi-transparent debit card designs with green, black, white and American flags. But the funds for each user will be covered by the Federal Deposit Insurance Corporation up to $ 1.25 million. To get around the $ 250,000 FUSIC limit per bank, Robinhood is partnering with six banks to spread the user's cash over the need to collect that sum. Robinhood makes money by taking part of the exchange fees from debit card transactions run in partnership with Sutton Bank and from a few paid by the six banks that cash is swept into.
yesterday let former SEC Commissioner Dan Gallagher to his first independent board member. He joins the startup's recently hired COO, CFO, Chief Compliance Officer, VP of Risk & Compliance, and VP of Legal & Governance to oversee Robinhood.
The opt-in feature prevents users in missing out on earning interest if they keep money in their Robinhood account, and making funds from stock sales quickly available through debit cards for expenses or withdrawals. That convenience can give Robinhood an advantage as it loses one if its main dividers. Last week, top sitting competitors Charles Schwab, E * Trade and AmeriTrade all dropped $ 4.95 to $ 6.95 in stock trading to match Robinhood's free offer. This makes Cash Management and Robinhood Crypto even more critical for continued growth. It is needed to justify the $ 7.6 billion valuation from the recent $ 323 million increase in Series E led by DST Global, which brings it to $ 860 million in total funding.
How Robinhood Cash Management Works
give people the assurance that their money is kept in these banks while trying to repay the very best interest rates, ”Bhatt explains. [Disclosure: I know Robinhood’s co-founders from college together]
With Cash Management, when users deposit cash into Robinhood accounts and select the program, they are eligible to earn interest. Any balance in their account, including returns from the sale of securities or cryptocurrencies, is swept into the FDIC-insured partner banks via Promontory's debit-suite system. These banks include Wells Fargo, HSBC, Goldman Sachs, Citibank, U.S. Bank and Bank Of Baroda. If one of these banks breaks down, the FDIC will charge customers for up to $ 250,000, equivalent to $ 1.25 million in all six working with Robinhood. Users can opt out of specific banks.
There, the cash earns a variable annual percentage rate of return (APY) that can fluctuate based on market factors such as the Fed funds rate. Currently Robinhood is offering a 2.05% APY, but refused to compare it with competitors. However, it ranks relatively high among popular banking options such as these according to Bankrate, especially given that it has no minimum balance:
- BMO Harris – 2.20% APY, $ 5000 Minimum Balance
- BBVA – 2.15% APY, $ 10,000 Minimum Balance
- UFB Direct – 2.15% APY, $ 25,000 Minimum Balance
- Sallie Mae – 2.00% APY, No Minimum Balance
- State Farm Bank – 2.00% APY, No Minimum Balance
- TIAA Bank – 2.00% APY, $ 500 Minimum Balance
- Wells Fargo – 1.95% APY, $ 25,000 Minimum Balance
- Investors eAccess – 1.90% APY, No Minimum Balance
Robinhood Cash Management will also compete directly with Wealthfront Cash, which was launched in February and now offers 2.07% APY interest rates but lacks a debit card or ATM. Betterment Checking & Savings provides a Visa debit card, but its current APY is 1.79%.
Cash management users can choose from the four debit card styles accepted anywhere. who takes Mastercard, plus 75,000 ATMs. It also works with Apple Pay, Google Pay and Samsung Pay. There are no foreign transaction fees, maintenance fee or account minimum.
A number of new Cash Management features are being added to the Robinhood app. You can get alerts and emails for all transactions and lock the card from your phone if you suspect fraud. You can also choose location protection, which alerts you if your card is being used too far away from the phone. An ATM finder in the app shows users where they can get paid cash at no charge.
"In part we want this to be a good business, but we also want this to be a big part of the customer's life" says Robinhood's VP of product Josh Elman. Instead of nickel and dimming cash management users, startups make money by charging their partners. But the bigger strategy is to get more users on Robinhood in the hope that someone will subscribe to Robinhood Gold. Where users pay a variable monthly fee depending on how much they will borrow from the startup to trade on margin.
“I think the most important takeaway over the past year has been that since December last year, our company has been very committed to building an organization that has a very strong culture [of compliance] concludes Bhatt. "We have grown the leadership team over the past year with experience from risk and financial backgrounds. We think that is clearly reflected in how Robinhood operates and the diligence that went into building this new program."
No longer a scary startup, the The emerging fintech giant now has to deal with much greater regulatory scrutiny, and with over 6 million users, the SEC will not stand for endangering people's finances.