The Robinhood app will be launching a rebranded "cash management" feature, nearly a year after an embarrassing checking account fiasco.
Robinhood's new service allows investors to spend money in their brokerage account with a linked Mastercard (MA) debit card. They can also earn interest on uninvested cash — a current 2.05% annual percentage yield (APY), paid by a network of partner banks.
The cash management feature will boost Robinhood's sources of income. The company will receive fees from purchases made with the debit card and for sweeping funds to partner banks. It also will continue to earn interest income on uninvested customer cash that isn't swept to partner banks.
Launched in March 2015, the Robinhood app helped to pioneer zero-commission stock trades and now has more than 6 million users. Incumbent brokers like Charles Schwab (SCHW), E-Trade (ETFC), TD Amertirade (AMTD) and Interactive Brokers (IBKR) have raced to offer lower fees and recently rushed to cut them to zero on some trades.
Robinhood's latest move is widely seen as an expansion into broader, more banklike offerings, ahead of a possible IPO. financials can join the wait list for Robinhood's cash management feature today. The service will launch at a date yet to be named.
The Robinhood debit card is issued by Sutton Bank. Robinhood itself is a brokerage, not a bank. The new product is insured by the Federal Deposit Insurance Corporation, which also insures bank deposits.
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Charles Schwab stock closed down 0.6% on the stock market today, further undercutting the 50-day line. E-Trade fell 1.45%, TD Amertirade lost 1.6%, and Interactive Brokers sank 4.6%, sliding further below their 50-day lines.
Robinhood debuted checking and savings accounts with fanfare last December, touting an industry-beating 3% APY.
Robinhood also said the new service would be SIPC insured, but the move backfired. SIPC, a brokerage industry member-funded nonprofit, protested it only protects money used for the purchase of securities and warned of risks to investors.
Robinhood app quickly yanked the product and has promised a rebranded "cash management" feature ever since.
"We made mistakes with that announcement, which led us to hit the reset button and start over from scratch," Robinhood said on its blog Tuesday.
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