We laughed when we learned about Robinhood, the trading app for Millennials with the adorably naive mission statement and the most ass-backward name we'd ever seen. We stopped laughing as hard however when we got a look at RobinHoods numbers, a data set that showed staggering user growth, impressive trade volume, and an absurd burn rate from low commission fees. Combined, the whole thing blared "E*Trade must die, and we'll spend everything we have to do it."
Now Robinhood is a success, and by that, we mean another Silicon Valley unicorn with no foreseeable profit structure and a disruptive idea that needs evolution. The company has already rolled out a few subscription products, has started clearing its own trades and selling user trades to HFTs, but disruption can be limiting unless you find someone else to disrupt...
The five-year old company unveiled "Robinhood Checking & Savings" on Thursday, which offers checking and savings accounts with no fees and pays an interest rate roughly thirty-times the national average. Customers will earn 3 percent annually on money in either accounts, paid out on a daily basis.
"We as a company are going make the financial services industry more inclusive and are going to do it with zero commissions, a lower cost structure, and by relentlessly automating and building an engineering-first company," Robinhood's co-CEO Baiju Bhatt told CNBC in an interview. "We're charging no fees, period."
Looking beyond the mindnumbing interest rate, the lack of fees and the horseshit about "inclusivity," you can find a small sliver of psychological space to applaud Robinhood's chutzpah. Savings accounts are likely one of the last things that Robinhood users think about when it comes to finance, but offering an actual "free money" rate is the kind of thing that might very well entice 27-year-old crypto bros to put a few hundy in a deposit account and let it sit there. That possibility presents an obvious and immediate existential risk to almost every regional and community bank in America.
More than half of all deposits in the US banking system are held by 15 banks, and there are currently 5,477 FDIC-insured institutions in the US. Robinhood [which will be covered by SIPC instead of FDIC because, well, c'mon] is essentially elbowing its way into the dogfight for the other half with stacks of cash in its hand and what we would hope to be a very well-defined metric of how much market share makes this whole thing worth the cash burn. It's...a plan.
But we think we see one very specific goal that Robinhood should have in mind.
We all know about Marcus by Goldman Sachs, right?...No? Well, we're not that surprised. Goldman has a little retail lending and banking startup with a really bad name and roughly $29 billion in deposits. Lloyd Blankfein was particularly fond of Marcus, as is Goldman's former retail banking chief and newly-minted CFO Stephen Scherr, but D-Sol seems to be making it clear that he is less so, rolling it into Goldman's broader wealth management unit. Marcus is simply too incognito and small to really get anyone at 200 West Street horny enough to do anything about it, but the idea that it will now be part of a larger consumer finance arm and possibly hungrier than ever for money presents a really interesting twist on Robinhood's new savings account.
If Robinhood can make this highwire act work, it might be able to grab enough market share and grow its deposit base fast enough that it becomes a super-attractive acquisition target before it becomes too obvious that a 3% annual rate is cripplingly unsustainable when you're not charging fees but are allowing adult children to trade crypto and pot stocks on your platform. Remember how we said that the top 15 banks hold the majority of all deposits in the US? Well, as of March, Goldman was number 15 on that list, a mere $2 billion in front of Morgan Stanley, putting Goldman on the ass end of the deposit power pack with its fiercest rival nipping away at its heels.
Goldman has been pretty unsubtle that it wants -and maybe needs- to make Marcus into something, so what's preventing a reality in which Robinhood manages to pull down $10-20 billion in savings deposits over the next three quarters [stranger things have happened], making it a relevant and enticing option for Scherr to pitch as an acquisition? Adding Robinhood's cash to Marcus' growth [we would assume that Robinhood's burn rate would provide a discount on the purchase price] would put Morgan Stanley in the dust and push Goldman towards competition with consumer finance rivals like Schwab and SunTrust.
And then there's the fact that Goldman would be getting Millennial money. We all know how obsessed the dads at 200 West are with the youths, so putting a ton of their money and attention into Marcus would be a backdoor way of invigorating a confusing brand with literal young money. It's also worth considering what Goldman tech guru Marty Chavez could do with Robinhood's trading platform, and the data it has on its more than 3 million users.
Obviously, this is all batshit contemporaneous thinking, but we're old now and watching a trading app offer kids 3% annual on an essentially uninsured savings account makes us think crazy things.