Robinhood Markets Inc. has finally launched its take on a bank account, albeit a very different version of the service it once hoped to offer.
On Wednesday, the Menlo Park, Calif.-based online brokerage firm rolled out Cash Management to a subset of users. The product will sweep the money customers don’t currently have in stocks into a separate account with 1.8% interest.
The introduction comes after a debacle for the company last year, when Robinhood, known for popularizing free stock trading, announced a product called Checking & Savings that drew swift backlash. The start-up has spent much of the last 12 months retooling how it would offer cash management services and making sure that this time, it wouldn’t raise any red flags with industry watchdogs or regulators.
The product is part of a larger effort at Robinhood to broaden its business model.
“Our entire business was built knowing we weren’t going to be charging trading commissions,” said Co-Chief Executive Vlad Tenev said. “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.”
Cash Management will offer bank-like services — including debit cards and Federal Deposit Insurance Corp. coverage on deposits — through a partnership with an existing bank, unlike Checking & Savings, which did not have such a partnership.
The product represents a scaling back of banking ambitions for the start-up, which had originally planned to become a bank itself. But last month, the company withdrew its application for a national banking charter. Being granted such a license would have allowed the company to offer checking accounts, debit cards and similar services on its own. No fintech start-up has so far successfully won a charter.
The debut of Cash Management comes after several other financial technology start-ups have rolled out their own banking services, leading to an increasingly crowded field. Betterment and Wealthfront Corp. also have their own versions of cash management services, as do more traditional competitors such as Charles Schwab Corp.
At the same time, Robinhood’s main business of free stock trading is also seeing more competition. Over the last several months, Charles Schwab, ETrade Financial Corp. and TD Ameritrade Holding Corp. have eliminated trading fees for U.S. stocks, exchange traded funds and options.