Robinhood Drops Plans to Become A Bank; Withdraws Application
Robinhood, the pioneering zero commission stockbroker, has put banking ambitions on the backburner.
Robinhood withdrew its bank charter application to launch a federally insured bank. It had filed an application with the Office of the Comptroller of the Currency on April 19, 2019. At the time, Robinhood said consumer banking services were a “natural extension” of its goal to give more consumers access to financial services.
The startup fintech’s app-based stock trading facility is popular with millennials. The company raised $ 323 million in a July funding round which valued it at $ 7.6 billion.
The discount brokerage gave no reason for the withdrawal of its banking applications, saying that it was doing so “voluntarily.”
However, a company spokesperson said Robin Hood would continue to focus on increasing participation in the financial system. It would also challenge the industry to better serve everyone.
Back to square one
Start-Ups such as Robin Hood, which do not have a banking license, must partner with existing licensed banks to offer services such as checking accounts and debit cards.
For example, Apple tied-up with Goldman Sachs for its debit card. TD Ameritrade’s arrangement with TD Bank for customer cash is another example. Discount broker Charles Schwab has its in-house bank subsidiary to handle and invest customer cash.
Last month, however, Robin Hood said it would offer a cash management program tied to its brokerage account. It would move customer cash to associated banks and pay 2.05% APY as of October 8, 2019. It said the said deposits would be eligible for FDIC insurance up to a total of $ 1.25 million subject to FDIC rules. However, this feature is not yet live.
Last year, the startup ran into a regulatory fiasco after it tried to launch no-fee checking and savings accounts with inadequate arrangements for their insurance. Robinhood quickly axed the initiative.
[Related Story: UBS: Fintech Darling Robinhood’s Business Model in Serious Jeopardy ]
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