Robinhood Walks Back “Checking & Savings” Announcement
When Robinhood announced their “Checking & Savings” product this past week — something that they had apparently been working on for over two years — they were probably hoping to grab headlines. However, as it turns out, they may have received more than they bargained for when, after announcing their plans on Thursday, the head of the Securities Investor Protection Corporation (SIPC) publicly voiced concern over Robinhood’s plans on Friday. Now the company is walking back the details of their proposed product.
In case you missed it, Robinhood originally unveiled an upcoming offering dubbed Robinhood Checking & Savings. The idea was that account holders would earn 3% interest on their cash, receive a Robinhood and Mastercard co-branded debit card, and have access to more than 75,000 free ATMs — all without minimum balance fees, overdraft fees, foreign transaction fees, etc. From the jump, some were skeptical about how the company would be able to pull off such a great deal and still turn a profit. However Robinhood CEO Baiju Bhatt explained that his company planned to make money via interchange revenue, as well as by investing customer cash in “government-grade assets.”
The problem is that, according to SIPC President and CEO Stephen Harbeck, his organization was never informed about Robinhood’s plans before they were made public. Furthermore, while Robinhood marketing materials stated that funds would be SIPC insured and that customers didn’t need to invest on the platform in order to use use the “Checking & Savings” feature, Harbeck said those types of funds would not be insured. That’s because SIPC insurance is meant to cover cash that will be used to buy securities and not deposits made for other reasons.
Needless to say, Harbeck’s assertions raised more questions about Robinhood’s plans and whether they’d pass regulatory muster. By Friday night, Robinhood shared a blog post titled “A Letter From Our Founders” that addressed the controversy. In it, the company’s co-founders and co-CEOs Baiju Bhatt and Vlad Tenev admitted that their announcement “may have caused some confusion.” They proceeded to write, “As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program.” Perhaps most notably, they went on to add “We’re revamping our marketing materials, including the name.”
Following the release of that letter, Robinhood’s site and app were updated to remove the “Checking & Savings” moniker, with the term “Cash Management” taking its place. Also of note, images of the four debit card designs that were released with the product announcement were also removed, with a cartoon cat wearing a jetpack appearing instead. Despite these alterations, Robinhood does appear to still be accepting waitlist applications, with the current list nearing 800,000 sign-ups.
At this time it’s unclear what form Robinhood’s so-called “Cash Management” offering will ultimately take or if it will still begin rollout in January as once planned. In fact the company’s leaders have yet to release further details. Closing out their letter to users, Bhatt and Tenev wrote, “Our promise is unwavering—we always put our customers first—whether it’s deciding which features to build, keeping your cash and securities protected, or offering products that allow everyone to participate in and benefit from the financial system.” While that remains a noble goal, only time will tell whether the duo may have endangered their efforts by seemingly jumping the gun.