Robinhood launched its new zero-fee checking and savings account, while undercutting the big banks by forgoing brick-and-mortar branches with its awesome features. Robinhood’s services offer no overdraft or monthly fees, with a low interest rate of only 3 percent.
The company claims to own more U.S. ATMS than the five largest banks combined, using the scalability of software to pass impressive perks on to customers. The free stock trading app already attempted this approach, attacking brokers like E*Trade and Charles Schwab that charge a per trade fee. Though it will now break into the larger financial services market with a model that holds the potential to put pressure on Wells Fargo, Chase, and Bank Of America.
Robinhood launches its new checking and savings accounts in the U.S. today, with a Mastercard debit card issued through Sutton Bank that will begin shipping on December 18. Users will earn 3 percent on the money kept with Robinhood, making it a terrific deal since there’s no minimum balance or fees for monthly membership, overdrafts, foreign transactions, or card replacements.
“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,” Techcrunch reports.
The 6 million-user app invested in launching a free cryptocurrency trading exchange early this year, though coin prices began to plummet, while mainstream interest fell off. However, with banks hammering users with surprise fees and mediocre user experience, there’s room for opportunity with a mobile-first startup to disrupt how we store money.
“Brick-and-mortar locations are costly. Our goal with this product was to build a completely digital experience so we can reduce our overhead so we can pass more of the value back to customers” Robinhood co-CEO Baiju Bhatt stated to Techcrunch. “Saving accounts in the US pay on average 0.09 percent and we all know the banks are making far more than that from the deposits. With Robinhood you earn 3 percent off all of your money. Mental math is hard so if you look at the median US household that has about $8000 in liquid savings, they’d earn $240 a year.”
Robinhood plans to send out invites to users in January for the new feature that they can use exclusively or alongside their already existing bank. Anyone approved to use Robinhood’s stock brokerage is eligible, though users are also able to sign up directly for a checking and savings with no obligation to trade stocks.
Robinhood notes that signing up will not impact your credit score. Users will even get to customize a Robinhood-branded debit card that’s accepted wherever Mastercard is. It’s ensured by the SIPC instead of the FDIC, since the feature is run within Robinhood’s brokerage, but you still get the same insurance on up to $250,000 cash.
What might be one of Robinhood’s most appealing features is the 75,000 free-to-use ATMs in places like Target, Walgreens, and 7-Eleven. Users won’t be able to identify whether an ATM is in the network by simply looking at it, but the Robinhood app features a map for finding the nearest one. You can also deposit checks via Robinhood’s app and send a check, if needed, by simply notifying the startup of how much to deliver to whom and it will mail the check for you.
“These fees like overdraft fees — they’re not fees millionaires are paying. It’s ordinary folks paying. It’s actually more expensive for those that have less money and it’s cheaper for those that have more money. We think that isn’t right and we think that’s bad business” Bhatt states “We want to build a financial services company that democratizes America’s financial system.”