Robinhood Financial LLC’s grand plan to disrupt the traditional bank account with a checking-and-savings offering isn’t quite as innovative as it might seem.
The startup, which got off the ground as a no-fee stock trading app, began to roll out its “Robinhood Checking & Savings” on Thursday.
Because Robinhood is investing in short-term securities, it will be backed by the Securities Investor Protection Corp., not the Federal Deposit Insurance Corp. On its website, the FDIC states that it “Covers the traditional types of bank deposit accounts – including checking and savings accounts.” SIPC, by contrast, notes that “Money market mutual funds, often thought of as cash, are protected as securities.” In most cases, the distinction won’t mean much because Treasury bills are the closest thing to a risk-free asset and are unlikely to decline sharply in value, which SIPC doesn’t protect against.
At the same time, Robinhood is hoping to turn a profit at least in part by investing customers’ deposits, which can lead to reaching for yield.
1 Again, there’s no indication that Robinhood would make such an investment with money from the checking-and-savings plan, but it’s something any user would have to monitor closely.
For now, Robinhood’s service will be an added feature for its approximately 6 million customers.
It’s celebrating its 40th birthday in May. Baiju Bhatt, who co-founded Robinhood with Vlad Tenev, said, “The idea of reinventing checking and savings is something Vlad and I have been talking about since probably 2010.” Ultimately this move is less a game-changer and more a clever rebranding of a foundation of the financial markets.