Silicon Valley is creeping onto the big banks’ turf. Today, for example, brokerage app Robinhood is rolling out a bank-like checking and savings service that pays surprisingly high interest rates.
Robinhood says these services will offer 3% interest, which tops every other instant-access online savings product in the US, according to Bankrate. The accounts are backed up to $250,000 by the Securities Investor Protection Corporation (SIPC), an organization that insures funds held at broker dealers. (This is different from the Federal Deposit Insurance Corporation (FDIC), the federal agency backed by the full faith and credit of the US government that most savers are familiar with.)
Robinhood says it can offer this rate by investing the money in things like Treasuries (the two-year note currently yields about 2.8%) and by collecting Mastercard interchange fees—a payment-card levy paid to cardholders’ banks by retailers’ banks. The company says the accounts will roll out today (Dec. 13), and most cards will begin to ship next month.
Robinhood’s longer-term ambition is to become a full-on financial services company. The Menlo Park, California-based firm started out as a commission-free brokerage service for buying things like stocks and exchange-traded funds. The company says it also won’t charge fees for the new checking and savings products, which have no minimum balance.
Robinhood isn’t the only fintech upstart with an eye on big banks’ business. Square CFO Sarah Friar has said people should expect the payment app to behave increasingly like a bank. She noted in an interview with Quartz that the financial industry has been spared the tech disruption that’s upended the retail sector.
If companies like Square and Robinhood get their way, that could change. In Europe there are a slew of upstarts, like London-based Monzo and N26 from Berlin, that already have banking licenses, fancy apps, and sought-after cards. Revolut, a company founded in the UK, just got an EU banking license, as did peer-to-peer lender Zopa.
A growing number of fintech founders think the conditions are right for the creation of the Amazon of banking—a tech startup that grows to epic scale by focusing on financial services. It’s an ambitious goal, but the one thing tech companies have in abundance is ambition.