Just in time for the holidays, traditional banks are being disrupted again by their fintech rivals, this time when it comes to the rate they will pay for clients deposits.
But it’s not an online bank that is doing the disrupting. It’s Robinhood, the mobile trading app company that counts more than 6 million people as customers. A favorite among millennials because of its no-fee mobile trading platform, it announced the launch of a savings and checking account that pays 3% interest. That surpasses the high of 2.25% being offered by online banks for savings accounts and the 0.01% traditional banks are paying out. It’s checking account interest rate is on par to lower than some of its rivals. With interest compounding daily, Robinhood amps up the return on the money sitting in the account.
When announcing the new products Robinhood said it wants to democratize banking, just as it has done to investing. When it entered the investment market it was still known for having high fees and little in the way of transparency. Its mobile app has leveled the playing field, opening up investing to the masses.
“Currently, traditional checking and savings accounts cost more for people who make less, are riddled with unfair and hidden fees, and earn you minimal returns on your savings,” wrote co-founders and co-CEOs Vlad Tenev and Baiju Bhatt in the blog post. “We believe you should earn more on your money, and shouldn’t be charged fees to access it.” The accounts have no fees associated with them, provide access to more than 75,000 free ATMs and comes with a personalized debit card. Robinhood’s network of free ATMs is another example of how it plans to trounce the competition when it comes to convenience. According to the Palo Alto, Calif.-based fintech, it has more free ATMs than the five largest banks combined. Customers will find some of those ATMs strategically located in stores such as Target, Walgreens and 7-Eleven.
Traditional Banks Need To Pay Attention
Traditional banks who shrug off the news may want to think again. After all online brokerages didn’t view Robinhood as much of a threat when it launched its mobile trading app in 2014 and today it has more customers than E*Trade Financial, the New York brokerage that has been at since 1982. In May Robinhood announced a $363 million capital raise, giving it a valuation of $5.6 billion. At the time it said its brokerage accounts hit 4 million, higher than the 3.7 million E*Trade had at the end of March. Robinhood saw that jump to 5 million customers in August and added another 1 million in October, bringing the total to 6 million.