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Robinhood Checking Moved Fast and Broke (bloomberg.com)
462 points by kgwgk 32 days ago | hide | past | web | favorite | 256 comments



It seems odd to me that they would make such move in the first place without proper legal analysis. Especially, given that it's fintech which already is quite tightly regulated and Robinhood has been in the stock game for a while as well. Or was it just "the magical ampersand" as the article suggests and hope that they would slide under the radar.


I think this is an example of the SV/startup mentality that regulations don't matter and just do it, it'll be fine.

And in a lot of cases it is.

But not in something as tightly regulated as banking -- and not when as the Bloomberg piece astutely points out, the "innovation" in question was already done in the 20s before regulation.

It's like crypto Ponzi schemes. People who start them think they are doing something innovative, when really, it's the same "robbing Peter to pay Paul" trick that existed long before Charles Ponzi and his postal reply coupons scam made it a household name. And yet, investors still willingly invest in clear Ponzis, because they are convinced the math will work! The math never works. (To be clear, I think there is a difference between someone like Charles Ponzi and the BitConnect scamsters and the people who invested with Madoff. Madoff was successful for so long, in part because he didn't promise ridiculously outrageous returns. He was running a Ponzi, but what made him so much worse was that it looked legit to investors, whereas most Ponzis offer returns that are never sustainable and look weird to a more savvy investor.)

I'm not implying Robinhood is a Ponzi, btw, but I think what it did here by actively misleading the public is really gross and I've lost all respect for the startup and will never give them a cent -- "free" trades or not.


I mean there were a bunch of people in cryptocurrencies running clearly labeled ponzis. I remember one person getting scared after hundreds of people actually bought into their ponzi smart contract (that clearly explained what it was).


I believe that was PonziCoin


LOL. Yes -- I forgot about that!

Oh man, the alt-boom the last half of 2017 was really fun -- provided you didn't put any money into anything!


A small amount of people do make a lot of money in a Ponzi scheme though (not just the creators of the scheme). I suspect this is why some people bought the ponzi coins - they figured if they threw some money in early enough they'd get a decent multiple back.

If not and they lost it - probably not a huge deal if you're playing and know the game.


Banking is only tightly regulated for the little fish.

See GS, 1MDB, AIG, etc.


whosoever that goes from finance executive to lawmaker (admittedly, necessarily a successful lawmaker, at that,) can end up making the rules arbitrarily complex and thus arbitrarily beneficial, too. can't find the source atm but nassim taleb talks about this in an interesting way.


It seems to be one of two options, IMO:

1. They are doing everything like this (i.e. with not enough legal analysis), and have only just now happened to do something illegal. This would make sense if the top-level people at Robinhood were techbros and not people with experience in finance, but that seems kind of unlikely given that they're able to set up an investment app in the first place - I would assume that's very hard to do if you're not already neck-deep in that industry.

2. They are (for some reason) trying to set this up as a "Robinhood vs The Man (tm)" thing. They're already branding themselves hard on the "Giving financial freedom to the average person" thing, and I could totally see this giving them some free advertisement if they choose to take advantage of the "Big bad government hurting poor people's opportunities!!!" idea.


> They are (for some reason) trying to set this up as a "Robinhood vs The Man (tm)" thing.

They are banking (unintentional pun) way too hard on "millennial research" telling them that the '82-'04 crowd wants "a meaningful connection" with their jobs, and apparently, their financial services provider. Maybe this is how they're hoping to relate to them?

The connotations of "Robin Hood" are such that it's a pretty brazen name to pick. Especially so when you consider that it's a VC-funded startup that will almost certainly go to a Too Big To Fail institution when an IPO beckons.


Their Chief Compliance Officer isn't an attorney. That's a major red flag.


It could be just a publicity stunt. Announce an unbelievable thing, get ton of attention and then figure it out later.


The Klein effect strikes again!

> I need to coin a term for this concept, I see it on every Hacker News thread once it reaches a certain size. It is the attribution of the topic to some nefarious intention of a dude in marketing. Once you start noticing it you can't unsee.

> Intel fires their CEO? It's a PR stunt.

> Startup abandons Europe due to GDPR? PR STUNT!

> AlphaZero beats professionals at Dota 2? You guessed it, it's just PR for oligarchy parent Alphabet.

> I see this so often now it's becoming humorous. As if some how this being all about PR explains everything. It doesn't explain anything! Although I'm sure Bill over in marketing loves that he has subsumed the historical role of deity in explaining the unknown.

[1] https://news.ycombinator.com/item?id=17499447


Indeed. Combine that with the HN tendency to assume literally every single story that runs in the press is a "submarine" story (also known as PR) that's essentially the same as an advertisement, and you have an impressive collective delusion that all of perceivable reality stems from the mind of a few ingenious communications professionals.


That was OpenAI who did the Dota 2 competition just as an FYI. AlphaZero is DeepMind created used for playing chess, shogi, and go with no affilitation to Dota 2 whatsoever.


They got negative attention. Would you trust a company with your life savings, after they didn't bother making a phone call to SIPC to ensure something as basic as the insurance status on your accounts?

The timing was also terrible, right after their big crash earlier in the week. Every single interview addressed that.

Where trust is involved, bad publicity can be worse than no publicity.


That's not how negative press works in 2018.

One-off press events with negative sentiment typically only affect brands that are getting to be known for the first time.

While a disastrous launch, most people who heard about this Robinhood checking already knew about the app. I don't think it's going to affect their brand much but will have driven app downloads to check it out, or re-acquisition of churned users. Referral events like this end up driving more core activity, which for Robinhood is making more deposits and trades (not signing up for checking).


I have a single datum that contradicts your last premise. My father asked me about Robinhood after the announcement, and he hadn’t heard about the company before. After I sent him the memo from the SIPC, he now associates Robinhood with other fly-by-night internet companies.

Robinhood got a lot of press from this, well beyond their existing target market.


Makes sense to me. News like "trade crypto on Robinhood" wouldn't mean anything to someone not interested in that sector, but everybody understands the value of high interest chequing account. And now that they realize it's not happening, they are right to feel that the company is a fly by night operation.

The fact that they announced this before confirming it with regulators smacks of CEO arrogance in the "Funding Secured!" vein.


What you just said supports my comment, since your father had never heard of it before and isn't the target market

From my comment:

>One-off press events with negative sentiment typically only affect brands that are getting to be known for the first time.


Google trends shows a significant spike:

https://trends.google.com/trends/explore?date=today%203-m&ge...


Besides "all attention is good", simply compare the amount of media attention for the original news vs this "negative" one. It still looks like one of the most successful announcements from branding ROI perspective.


Further, no trust was ever requested or place. IIRC they didn't even have a waitlist or anything. They just announced that they were going to launch a product in the future and now are redesigning it some more.

Furthermore, this fits into their narrative of disruption. Their target audience will likely see this as, "stupid big banking industry trying to make it hard for them again."


I guess I'm not their target audience, then, as a 25-34-year-old tech worker with disposable income and a desire to care about the ROI of my checking account.

Because not only will I not use them for this, I closed my account entirely 'cause this is the sign of a disreputable company.


They did have a waitlist. They also had a referral system where referring your friends would bump up your place in the waitlist.


They did indeed have a waitlist. I was number 215000 or so to sign up, according to them.


> number 215000

I wouldn't be surprised to find out that's a lie.


> Their target audience will likely see this as, "stupid big banking industry trying to make it hard for them again."

That's a pretty small target audience, and those people are heavy into crypto and gold. Robinhood needs customer growth, and a nice, safe interest-bearing chequing account would have been a good way of doing it.


To be fair, they only got negative attention among the people who wouldn't have used Robinhood anyway. Their business model is going after people who don't know better.


Finance is such a massively studied, optimized and engineered business. There are zillions of people working day and night for literally centuries trying to squeeze another penny out every type of deal. It's just unbelievable that they thought they could just say "technology!" and find some huge loophole to make big profits for nothing.


I get 3% interest on my checking account at LMCU (up to a balance of $15K). Because of this, I didn't find robinhood's product unbelievable.

https://www.lmcu.org/personal/banking/checking-accounts/max-...


The reason why Robinhood was venturing into "too good to be true" territory was they required no minimum balance, no minimum activities (direct deposit, debit card purchases), no maximum balance for the high interest rate., plus ATM reimbursements.

In contrast, for LMCU:

Maximum of $15,000 for the 3% interest rate, most people with houses and/or families are going to want to have an emergency fund greater than $15,000, I spent almost $10,000 on emergency house repairs a couple weeks ago. If you're saving for a major purchase (car, down payment on house, major purchase, etc.) you're probably going to have more than $15,000. There is ZERO interest paid over $15,000!!!

The following are required to earn the 3% interest:

Direct deposit (self employed need not apply)

Minimum 10 debit card purchases per month (this alone should be a dealbreaker, one should almost always be using a credit card over a debit card if you're going to use plastic)

Minimum 4 logins to home banking per month

Requires eStatements

You're only getting an extra $12.50 a month over if you're keeping $15,000 in an Ally or Discover Savings account, and if you spend a modest $500/month on your debit card you're leaving at least $10 on the table in credit card cash back, not to mention the other benefits that come with using a credit card (extended warranty, price protection, purchase protection, travel insurance, etc. - depending on your card)


>if you spend a modest $500/month on your debit card you're leaving at least $10 on the table in credit card cash back, not to mention the other benefits that come with using a credit card

I use a credit card and then pay it off with the money in my LMCU checking account, the day after the interest hits :) I only do the minimum number of transactions with the debit card and I use them on low cost purchases.

>You're only getting an extra $12.50 a month over if you're keeping $15,000 in an Ally or Discover Savings account

Savings accounts have restrictions on the amount of times you can move money in and out of them. Checking accounts do not have that restriction. I'm sure I could find a savings account with better interest, but in my current life position I need a checking account.

I am unemployed right now, but I am meeting the direct deposit requirement with my monthly dividend from a stock I own, O. They also accept things like transfers from PayPal towards the direct deposit requirement.

If I were instead a homeowner with a family, I could get my spouse to make a separate checking account to double up on the amount emergency reserve money kept in a checking account. But again, it makes way more sense for emergency reserve money to be kept in a savings account. That's what they're made for.

IM(potentially uninformed)O, if your family is keeping more than $30K in a checking account, then you should probably be investing in stocks or bonds or mutual funds at that point anyways. It's not like you can't sell off investments to pay for emergency costs.


Well, my point is getting the higher interest rate for those "high interest checking accounts" is a major pain in the ass and rarely "worth it" for many (most?) people. On top of that the limits are so low they have limited usefulness. Robinhood was promising all the interest (and more) with none of the pain in the ass/effort.

>IM(potentially uninformed)O, if your family is keeping more than $30K in a checking account, then you should probably be investing in stocks or bonds or mutual funds at that point anyways. It's not like you can't sell off investments to pay for emergency costs.

Emergency fund should not be invested! It needs to be in a liquid account that has zero (or near zero) risk to the principal. How big your emergency fund should be is dependent on your life situation. You're most likely to need your emergency fund at the same time the market tanked. I'm not selling securities (maybe at a loss) when I have an emergency, I'm going to use the money I've already set aside for such an occasion.

https://www.investopedia.com/terms/e/emergency_fund.asp

>Financial advisers view an investment strategy as a pyramid. A strong base is fundamentally important to support the levels of risk an investor bears as securities with varying levels of volatility layer over the foundation. Before an individual ventures into intermediate- or long-term investment vehicles, the establishment of an emergency fund is recommended as the first step toward creating stability and minimizing risk. Stashing three or even six months’ income in a highly liquid account, such as a money market, should preclude the purchase of any instrument that holds risk to principal or requires lock-in periods during which penalties are assessed for early withdrawal. As more volatile securities sit atop above the base of savings accounts or Treasury bills, overall portfolio volatility is minimized and necessary access to risk-free capital is optimized.


It's great you can make it work, but astura's response was specifically that two (at least one, anyway) of the requirements are specifically designed to make you jump through hoops in order to get the highest interest rate.

What possible benefit could LMCU receive if you log in four times a month instead of just the one time to pay off your credit card? There is none, it's a dark pattern.


> What possible benefit could LMCU receive if you log in four times a month instead of just the one time to pay off your credit card? There is none, it's a dark pattern.

I don't login to pay off my credit card, that's set up to happen automatically on the credit card company's side.

I basically just login to see if I've done 10 transactions yet. If I've met that but haven't logged in enough, I'll just logout and login real quick until that part is done. It's really not that big of a deal.

The benefit LMCU could receive from requiring monthly logins is:

- Not having to pay interest to a dead person

- Potentially being the institution you go to when you need a loan. This is where they (and other financial institutions) really make their money. In this respect, it's in their best interest to be with the customer as they become more financially savvy.


So, like the Chase Sapphire Card model:

https://news.ycombinator.com/item?id=16056408


The mass promotion of the Chase Sapphire card coincidentally corresponded with the roll out of Apple Pay. Perhaps this could have been complete luck, but part of me wonders whether JP Morgan isn't given enough credit for this given its a huge advantage if you become someone's default credit card in Apple Pay.


Never attribute to malice what can equally be explained by stupidity.


We shouldn't rule out the possibility that they did have seemingly proper legal analysis, it just wasn't complete.


Eh, I think you immediately run into one of the lawyer-earmarks of a scam in that case.

A lawyer can't really tell you what will happen in a novel situation. They can speak with great confidence about legal precedents and where the law is black and white, but once you start walking into the grey areas, where the law isn't clear and there is no precedent, the law isn't a computer program interpreted by machines. There's a whole layer of human judgement in deciding what happens in that case, you don't just overflow onto the stack and get to rewrite the legal code to suit your needs.

So when a lawyer says something like, "Ahh, but the law only talks about 'checking accounts' and 'savings accounts' not 'checking & savings accounts'", at best they are giving you a preview of the argument they will make to a judge or jury at your trial.

Then future lawyers will be able to refer back to the precedents set in your court case with more confidence.


I think this is an insightful point. Lawyers are largely trained in reading and applying precedent. That said, one would think a responsible company would have received best and worst case guidance from a team of attorneys who could have easily expected this as a possible and perhaps probable outcome.

In other words, "this hasn't been tested in court" doesn't excuse them from apparently not bothering to get an opinion from the regulators who have the potential to greatly embarrass them after a high-profile product launch.


Yes, this is precisely my confusion. I would have expected a good lawyer (of the sort a major fintech startup should employ) to say something more like:

"This language doesn't directly violate the rules, and hasn't seen a court case. But it looks like an unsubtle attempt to bypass those rules and a big announcement using this approach is at minimum likely to draw some unfriendly scrutiny."

The law isn't a computer, and regulators - especially in financial spaces - have substantially more freedom than courts to simply reject loopholes. Things like structuring rules are essentially "laws against circumventing the law" for exactly this reason. I'm pretty surprised that Robinhood either didn't get a warning about how poorly this could go, or chose to ignore it.


> The law isn't a computer, and regulators - especially in financial spaces - have substantially more freedom than courts to simply reject loopholes.

Regulators have strictly less power than courts here when applying existing law and regulation, though they can write new regulations (but not law).


> Regulators have strictly less power than courts here when applying existing... regulation

I guess it's a matter of terminology, but I think there are at least some cases where this isn't true. Ex post facto legislation is permitted in civil law, but it's not something courts can generate in response to a case.

Regulators operating under administrative law can create ex post facto rules wholesale if granted express permission by Congress, which is of course new regulation. But even without that grant, they can create limited retroactive rulings when new interpretations are offered during adjudication. [1] We can debate whether that's 'new regulation' or 'new interpretations of old regulation', but the net result is that regulators are empowered to cover unforeseen circumstances in ways that direct lawsuits are unlikely to offer.

(I am not a lawyer, but...) a move like this looks like an invitation for a Chenery II action, if one is was even needed. The SIPC didn't want to issue brokerage-account protections for a "Checking & Savings Account", and whatever the SEC said to Robinhood produced a very swift change of tune. I suspect it was something like "if we go into adjudication and say magic ampersands don't change your issuing rights, every court in the country will back us up".

[1] http://www.minnesotalawreview.org/wp-content/uploads/2013/02...


A financial lawyer should fully understand the consequences of misleading consumer financial products, especially post-2008. First, you aren't allowed to do that anyway. Second, consumer finance is one area where cleverness is virtually not allowed.


> So when a lawyer says something like, "Ahh, but the law only talks about 'checking accounts' and 'savings accounts' not 'checking & savings accounts'"

I'm not a lawyer, but that line of reasoning sounds like something out of a comedy skit.

"Sure, the law regulates sales of alcohol and sales of firearms, but it doesn't say anything about an Alcohol And Firearms Combo Pack™!"


I mean, yeah, it is absurd.

But there are many types of lawyers in this world. Besides the obvious professional divisions -- real estate vs patent law, trial law vs contract law, etc etc -- you have lawyers who advise their clients versus lawyers who assist their clients. The former are the kind you want, who will tell you what to do to keep everything above board; the latter view it as their job to help you do whatever it is you wanted to do, with the thinnest veneer of "obeying" the "law".

It "works" insomuch as you don't come under scrutiny and your lawyer's legal theories are never tested at trial; a lot of the people making use of this sort of lawyer will rarely if ever actually go to trial -- they'll drag things out until their opponents eventually settle.


The world of technology has made me cool with entire industries built around ideas that sound like they're out of a comedy skit.


It what other world would apps like "Yo" be considered a multi-million dollar opportunity?


I'm a banking & securities regulation attorney and I don't know one single attorney who would've given this the green light. Not one. Not even the attorneys I know who have a reputation for their "liberal" interpretation of regulations would have okayed this without at least notifying SIPC of their plans.


I thought a strength of the lawyer is also in knowing the quirks of the judicial system, such as knowing the quirks of a judge, or even the quirks of human irrationality, as opposed to being a merely excellent interpreter of legal text.


Just you don't know which judge you will end up with before you got sued... Might be tricky to know all the quirks of all the judges and then also predict which ones will be relevant, no?



Even if I buy that (I don't), it doesn't explain the fact that they were marketing the account as SICP insured when it very obviously was not. They didn't say "we hope for these accounts to be insured in the near future!", they said that it _is_.


I'm not excusing their behavior here, but just to clarify, they thought their existing SIPC insurance would cover this new account. So they didn't lie so much as they made an assumption and were grossly mistaken.


Ok I better understand you now. Still, that makes little sense to me. They have reportedly been working on this product for two years[1]. Are we two believe that they never once reached out and asked "hey, you guys cool with this?" It's either gross incompetence or something more nefarious.

[1]: https://www.forbes.com/sites/jeffkauflin/2018/12/13/in-a-bol...


They didn't think to reach out to the SIPC , the SIPC themselves confirmed that the announcement was the first time they were hearing about the new account. Was all over HN and other sites a day after the announcement.


Yeah I worded that in an odd way. What I meant to imply was "it's insane that they didn't reach out to the SICP"


SICP themselves stated that they were not consulted nor informed about this, so yes, it does seem that they never once reached out and asked.


Even a comment like "we hope for these accounts to be insured in the near future!" betrays a ton of uncertainty. I'd feel like I was dealing with an Etsy artist who's unsure if they can fill a big order by Christmas, not a multi-million dollar financial institution.


This is fair, but if you are a zillion dollar startup company and can not see what is so blatantly obvious to the general public, you have to question the efforts...

For me it's actually hilarious. The follow-up response letter from the founders group is hilarious. If , robinhood did have a legal team to audit this new tool, they suck ass. They probably made a couple hundo thousand a pop, didnt do any work, and they are now living their lives just a tad richer.


Robinhood has been in the game long enough and has had enough support at all levels such that it's hard to attribute their actions to ignorance.


The "Letter from Founders" mea culpa linked to in the article only says "we promise to work more closely with regulators". If they were confident about their legal position prior to the announcement, they would have said so.


They got a lot of free marketing out of it ( little bit negative but not too bad)


excuse my ignorance but what is the magical ampersand?

edit: Doh.. I guess I just got caught commenting without reading the article. Sorry everybody!


Matt Levine opined (tongue in cheek, as is his usual style) that Robinhood may have thought that “Robinhood Checking & savings” was distinguishable from a checking and savings bank account and so could be regulated differently because of the ampersand, in a previous “money stuff”

“””

There is a lot of confusion about what Robinhood’s thing is. Delightfully, it is called “Robinhood Checking & Savings,” apparently because calling it a “checking account” or a “savings account” would come too close to implying that it is a real bank account insured by the Federal Deposit Insurance Corp., while “checking & savings” is not a thing and so does not carry that implication. A magic ampersand!

“”” https://www.bloomberg.com/opinion/articles/2018-12-14/nyse-n...


Lots of brokerages have money market accounts that pay interest, allow checking and debit cards, and are SIPC-protected. What makes this different? The name? The rate? The challenge to incumbents? Seems Like the salty response of regulatory capture.


> What makes this different?

The intent. The SIPC will insure the funds if their purpose is to be exchanged for securities as some point.


Funds are invested to be able to get that 3% return. It’s like the sweep accounts for your brokerage are put into money markets to get higher interest. Cash isn’t just sitting there.


Disclaimer: this is how I understands all this, I could be wrong though

> Funds are invested to be able to get that 3% return.

If they are, then they are not insured either. SIPC doesn't insure bad investment decision, thus if the 3% return fail, you would lose money.

The SIPC protect the cash that is stored there which you are going to invest at some point. Let say you put 1000$ there and you invest 200$, it's alright, theses 800$ are protected whatever happens, but if you put 1000$ there but wasn't planning to invest anything, then it's not alright and this is the issue. It's mostly a semantic point, but that semantic is what make it manageable for the SIPC.


SIPC covers things like missing investments If Robinhood was undercapitalized and used money in the sweep accounts to cover the liabilities of bad investments to keep themselves in business.


This is weaseling out.

The reason why people move cash into a brokerage account is because they intend to invest it at some point in future.

If I intend to invest my coverage limit amount at some point in future but for now I'm using it as a place to dump my cash into and use it as a DDA, i absolutely fall under that umbrella.

The reason why SIPC is having a fit is because someone who is supposed to be fleecing the retail clients is also planning on fleecing those those business is fleecing retail clients.


The reason why people move cash into a brokerage account is because they intend to invest it at some point in future.

This is the problem. Robinhood is marketing the product to people who have no intention of investing.

You're taking a very conspiracy-theory view of the situation. If there were an agenda to maliciously over-regulate Robinhood, it could have been executed well before this point. The fact is that Robinhood was trying to introduce a novel product that doesn't neatly fall into pre-existing categories that benefit from insurance protection. (It's great they're trying this-- I hope it succeeds!) But they appear to have done this without contacting SIPC. Had they done so up front (as they're now doing) they probably could have massaged the marketing and legal details appropriately (as I expect they will do).


According to the president of SIPC, it's that they were marketing it as sonething that required no investment. As such, it's not in line with what SIPC covers. As for money market, it might look similar to a money market account, but it isn't one, so it's not covered by FDIC either (money markets are)


Money markets are not covered by the FDIC or NCUA. [1] During the financial crisis, the Reserve Primary Fund "broke the buck" and lost principal for investors. [2]

[1] https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-mar...

[2] https://en.wikipedia.org/wiki/Reserve_Primary_Fund


Nearly the very first line in your first link states they are covered by FDIC or NCUA, depending on whether it's a bank or credit union:

Like a regular savings account, a money market account at a bank is insured by the Federal Deposit Insurance Corporation (FDIC)...

Where they are not insured is in a Brokerage firm, like Robinhood.


Weren't they partnering with Sutton Bank for the debit offering? I assumed that my money would actually be held by Sutton, similar to how my Fidelity cash management account is held in an actual bank that is not branded as Fidelity (which leads to some confusion when doing transfers).


You're right, I was confusing a money market mutual fund with a bank money market account.


You're being downvoted, likely due to your tone, but I'm not sure the information has been spread widely. Those accounts are insured by SIPC because the funds will be used to purchase securities. This is the distinction.


right. They will rebrand the offering in a way that will be covered by SIPC, but the offering will still most likely happen


Yep. I am curious if they will be able to remake the offering in a meaningful way such that it will be insured by the SIPC and still be a product substantially similar to what was originally offered. I imagine the SIPC wouldn't be overly amused if they see a thinly veiled pretense. The other investment firms that offer interest paying checking seem to do it via accounts at other banks that are FDIC insured.


It’s mentioned in the article, the author appears to have coined it for the original story.

“Checking” accounts are regulated. “Savings” accounts are regulated. “Checking & Savings” accounts are not a thing and thus could be considered a grey area.

The ampersand magically gets you out of regulation.

Well, it DIDN’T, but that was the theory it seems.


I don't think they ever tested that--the issue was with SPIC saying they would not protect the accounts, not with the banking authorities saying the name was misleading.


According to the article:

> Robinhood can’t issue a “checking account,” or a “savings account,” since those are things only banks can do, but “checking & savings” is technically neither of those things and so perhaps it falls into a gray area. “A magic ampersand,” I called it.


It's in the article. Use CTRL-F.


It seems odd to me that they would make such move in the first place without proper legal analysis

As we hear repeatedly on HN from Google's Dragonfly apologists, it's perfectly normal to keep the legal department out of the loop in modern-day "disruptive" businesses.


I wonder if it's the same people who complain that the marketing & sales department make their lives hell because they keep adding features to close sales, and then tell the devs to build those features because the deals depend on it.


They should have just gone with `Friend to Friend & Interest Yielding`

Man I can't wait to be done with the banking cartel!


TFA anticipated your comment:

> One possible explanation for the regulatory efficiency here is that so many of fintech’s financial innovations have been tried before. Robinhood was certainly not the first non-bank to get the bright idea of pretending to be a bank and taking deposits!

[...]

> In many areas of “tech,” companies are racing to do things—in virtual reality, in artificial intelligence, in surveillance and data collection—that have genuinely never been done before and that pose novel social and regulatory challenges. In many areas of fintech, though, companies are racing to do things that were done in the 1920s, before modern financial regulation came into effect, only this time with an app. The regulators know how to handle that.


Matt Levine is a treasure. His Money Stuff column/email has taught me, a programmer not versed in fintech, a lot about the intricacies of the financial world. In particular, his clearheaded view of blockchain tech is useful counterpoint to the hype.


He's doing an AMA right this minute, if you're interested: https://www.reddit.com/r/IAmA/comments/a72gc8/im_matt_levine...


Is nice that Bloomberg has an rss by author https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe...


His "are index funds communist"[0] theme is great and he has said it's a personal favorite of his (there are many of his articles over the years which discuss this question, I've only linked to the most in-depth one). I also recommend his discussion of the DAO 'hack'[1], and for pure absurdity value this story about insurance contracts[2].

[0]: https://www.bloomberg.com/opinion/articles/2016-08-24/are-in...

[1]: here, he also links to other analysis by him around the same time: https://www.bloomberg.com/opinion/articles/2016-06-17/blockc...

[2]: https://www.bloomberg.com/opinion/articles/2015-02-27/arbitr...


Do you have any particular links for Matt Levine content you found interesting?


(Not PP)

I just discovered his writing recently, and he publishes a daily newsletter that's, more often than not, all of funny, interesting, and informative. I haven't gone back to the archives, but the day-to-day is terrfic:

http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...


Honestly - I read Money Talks daily and it's pretty much all interesting.


This whole thing was a net negative PR for Robinhood. The fact that they removed old tweets, blog post and started calling this cash management is downright fraud.

It doesn't make sense even as a growth hack, because they already have millions of users, it's not like without this, they will not be able to acquire more users. My reaction was, "What were they thinking"?


Disagreed. You aren't the target market market here (highly analytical). They just want millennials who see "ohh 3% checking thats more than I'm getting". Very likely those people will forget that they signed up, but are now in the RH activation funnel ("Oh I guess I never really needed this but look at how easy it is to buy stocks! One button...vs 8 buttons on E-Trade")


You mean signed up for the email?

I guess maybe but if they sort of try to squeak by using signed up users who signed up in a period where there was bad data out there and don't go out of their way to correct what they told them.... I gotta think there is very real legal risk there.


No one is denying there is a legal risk. However, they got an estimated 600k signups (probably more?). Even converting 10% of those (which a company of their "growth hacking sophistication" should be trivial to do) could provide a substantial amount of growth for the company. Since they don't charge for order execution (and are likely paying a 3rd party to do so), they're clearly going for volume to make up for it.

As I've mentioned previously in another thread, this is clearly a gamble. When you're on the VC track to justify $4b+ valuations, taking gambles is par for the course.


I guess so as far as taking risks.

I just see bringing those customers along after putting out information that could be seen as deceptive / was deleted and already called into question info a recipe for legal and regulator ... pounding.

Silly social media stuff is one thing, but financial stuff where you rope in users with stuff that sounds like "bank" but isn't. Whole mess of folks out there with serious legal tools to come down on you, and a lot eager to do so.

This just seems unusually risky.


Do you really think it would be easy to convert 10% of the people who were excited by a product that it was illegal for them to announce? Almost all of that 600k is going to be darn angry about it. As a member of the 600k, I am WAY less inclined to give them my money than I ever was before.


I was approximately number 601,000 on waiting list. Assuming typical financial product CACs (high) this was worth tens of millions at the minimum. Hard to see it not paying off even if it does have some negative repercussions with regulators.


> its not like without this, they would not be able to acquire more users

The “personal financial independence” crowd avoids this stuff like the plague, although seemingly ironic, those crowds primarily cater to people that lack the most basic understanding of a bank account who need to repair and control horrible financial situations

They are steered clear from capital markets, aside from managed ETFs and retirement plans

But add .25% interest rate improvement in a bank account and these people will salivate over it

Robinhood going above competitors, even at the expense of going above market rate, would have gotten there attention

They would park their money in that account and have easy access to stocks and cryptocurrencies, allowing Robinhood to continue their big data/market sentiment/payment for order flow selling business with greater efficacy


Their having to remove old tweets, blog posts, and marketing material likely had to do with pushback from regulators.


They were hoping to collect a different type of finical data, mainly how the ATM card was used. They thought issuing an ATM card was easier than it actually is.


So why don't they get a banking license? Aren't they stuffed full of VC money? Either get a licence for RH, or buy a small bank that has a license.

A guy was telling me I could do that with just $10m a few years ago, just go and buy some small bank and there would be deposit capital to invest.

Surely the thought must have crossed their minds to become a bank?


From what I understand, it's so expensive and takes so long to form a bank in the US that it's generally better to acquire a bank than start one. The capital requirements are the easy part.


On the other hand if you're able to get the money and time together to start a bank, it is literally the least likely business to fail. In fact, in growing areas it is not uncommon for local businesses to throw in together to do just this.

Starting a restaurant? You've got a 21% chance of failure in the first year.

You've started a bank? Congratulations, you can now lend money you don't even have and earn interest on it. You have joined the club of 7,053 FDIC insured institutions of which about 0.25% fail per year.


Starting a bank isn't just an issue of money and time, it's also about doing the hard work to obtain the necessary licenses, insurance and meet regulatory compliance requirements in every state you operate in.

The 0.25% failure rate sounds like an under-estimate. I would guess that most banks are simply acquired by bigger ones before they're formally declared "insolvent".


> doing the hard work to obtain the necessary licenses, insurance and meet regulatory compliance requirements in every state you operate in

Which, I presume, is only done by paying lawyers to work for a decent length of time. Hence the money+time.


Because running a bank isn't easy, especially in post-2008 USA.

For example, you have to maintain a fraction of your total deposits in a cash account. That means that if RH becomes a wild success story, they may have to keep millions or even billions worth of cash stack.

I believe there are many other requirements that are not easy to satisfy when you're a small nimble startup.

Personally I hope the banking industry in the US gets disrupted, right now it's a dinosaur and consumers suffer.

However, with the current legal framework that doesn't seem easy.

Seems like RobinHood was trying to disrupt banks and then the big boys (SIPC) shut them down fast.


Notably, major fintech startups in Europe got their banking licenses relatively quickly: N26 (Germany), Monzo (UK), Bunq (Netherlands), Revolut (Lithuania). Also, Freetrade, a British answer to Robinhood, became a member of the London Stock Exchange before even launching publicly.


I work at a top 3 bank. The amount of regulators a bank deals with on a regular basis is insane. we have several $200 million applications just in my department to satisfy them.


Sorry, I'm very interested in how this all works. What does an application mean in this context?


For us we have giant database like applications that consume data across the entire bank to calculate risk indicators. There are all kinds of risk at a bank so it gets pretty complicated with all the products we have. They either generate views for downstream business partners or directly generate reports. The views are frequently over 1000 columns wide and are at an account level (the data is initially transaction level). We also have some web apps to provide a user interface or off the shelf customizable reporting like tableau or microstrategy.


I'm not at a top 3, only a large regional. But I'm going to guess software packages and services from companies like Wolters Kluwer Financial Services (http://www.wolterskluwerfs.com for those interested).


I'm sure we buy tons of products like that. Some of my coworkers worked on Black Knight's MSP before. The costs over there are even more insane. But in my department (a risk department) everything is custom ETL, custom web apps, and custom or off the shelf reporting.


How much of the costs are from the bloat of things like custom web apps and custom reporting? Are newer online-only banks saving substantial amounts of overhead by getting by with the basics and doing their own API integrations?


regulations depend on what tier of bank you are.

a smaller bank has less complicated products and requirements. Also of course less legacy.


> Because running a bank isn't easy (...) For example, you have to maintain a fraction of your total deposits in a cash account.

What is hard keeping a fraction of not-your-money in a cash account?


Paying people to understand exactly what form that regulatory capital should take. Determining where it should be held. Proving to your regulators that you or someone you retain followed the proper procedure in determining how much and what kind of capital should be held. Demonstrating that the proper changes to those balances were made at the proper times and that an internal framework exists for making modifications as risk exposures shift. (And more and more and more.) Here's the simplest summary I could find of one of the many required compliance frameworks: https://www.bis.org/bcbs/basel3/b3_bank_sup_reforms.pdf


the problem is not in keeping the cash stashed away, but in the opportunity cost of doing so. startups are first and foremost expected to grow quickly and setting money aside dampens their growth rate (along with the hefty regulatory requirements of running a bank).

if banking is needed, most startups will partner with a bank instead, so it has access to all of its cash, even if it has to pay a bit more to do so. flexibility has value (which is the same reason options have value beyond the underlying asset).


"maintain a fraction of your total deposits in a cash account" != setting operating capital aside. Those are two different piles of money.


Disrupted... how? Consumers suffer... how?

Is depositing money hard or something? Is spending money using a debit card online difficult?

Because those two things are the primary purpose of consumer banking.


Yes, compared to the rest of the first world, USA consumer banking sucks and consumers suffer. Fees are higher than in other rich countries, there's lots of unbanked people who aren't able to get free or near-free bank accounts, there is a lack of fast&cheap wire (account-to-account) transfers, the identity theft problems of USA consumer banking are like almost nowhere else, USA seems to be way behind on contactless card payments, and automatic electronic payment of all (or almost all) household bills also isn't a thing yet there as far as I understand. Those all are a major parts of consumer banking experience, and there is a lot of aspects that can be improved and disrupted in USA.


What fees? Depositing and spending money at all the major consumer banks in USA is free.


Some (maybe most or even all?) banks will charge a fee if you don't maintain a minimum balance in your savings or even checking accounts. Some banks will waive this fee (and related ones like inactivity fees) if you have direct deposit set up, which isn't always an option for people. Banks will also do things like reordering transactions to maximize overdraft fees.


> Consumers suffer... how?

Looked at bank fees recently?

Why should it cost $50 to change some values in a database?


No, because there are no consumer bank fees for depositing and spending money. That’s what I and most consumers use a bank for. In the US, consumer banking is free. Most checking accounts have no cost and neither do the debit/credit cards.

What $50 fees are you talking about? I’m assuming you mean interbank transfers ?


I'll say that the typical consumer in my country uses intra and inter bank transfers (nationally) for quick payments between other consumers(instead of say handing a mate a 20 dollar bill you'd just transfer it). Now personally I wouldn't be doing that if it cost $50 dollars (or even $5) instead of being free.

On a side note I now understand the popularity of apps like venmo considering the environment they are in.


FWIW, Fidelity now offers brokerage accounts that include checking, bill pay, etc. and have access to no minimum, no fee, no load index funds.


This account has been around for ages; Schwab has one too.

The difference here is Robinhood was offering a 3% interest rate without a balance limit, without any minimums or minimum activities (direct deposits, debit card purchases). That interest rate with no requirements was the selling point, nobody else offers that.


Fidelity also bans people from their platform, does not tell them why, and makes it a pain in the ass to liquidate assets and get your money.

Source: It happened to me, I have fine credit, I don't daytrade (I'm an index investor for 95% of my investments), don't rapidly move money in/out, don't exploit interest-bearing accounts like weirdos do on various sites, and I have no idea what the hell the problem was. They still won't tell me anything beyond "We don't want your business."


If they aren't telling you that means it's AML-related and they legally can't. It could be for any number of things ranging from online gambling to your name (or even the name of a family member of your business/employer) appearing on a "watchlist" or being similar to a name that appears on such a list.

You should try to figure out where you're getting flagged because if it's a problem at Fidelity it's only a matter of time before you get the same flag from other financial institutions.


Hasn't been a problem at any other financial institution that I'm at, including Vanguard (been there over a decade).

Also, there is some irony in you telling me to figure out why I am getting flagged while also telling me I can't be told what it is.


Sorry, I meant via performing your own searches against the watchlists. Most of them are public. Treasury Department sanctions are a good place to start.


Since you are from the US, can you sue them and then they tell what happened?


>don't exploit interest-bearing accounts like weirdos do on various sites

Can you elaborate on what "weirdos" do to exploit interest-bearing accounts?


Not OP but I think the intent here was something analogous to credit card churning but for the bank accounts, e.g. join for 60 days, get the sign-up bonus, immediately move the money elsewhere, rinse and repeat.


I do this myself, though I don't hit it as hard as many people (I do about ~$1,500/year). I've never heard of anyone being banned from existing accounts, just being prevented from opening new accounts.


That sounds interesting. Are there any particular sites you follow to find out about bonuses? I like Bankrate but don't think they have info on signup bonuses.


Yes.

https://www.doctorofcredit.com

Its one of the very few financial blogs that doesn't do credit card referrals, thus they don't try to steer their readers to any specific financial products or using any particular links that are less attractive than other ones available but earns them commission.

Bankrate (and others) shouldn't be used, because of the following (directly from their site):

>Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.


Fidelity's cash management offering kicks ass. I use it exclusively. I paid the down payment for my house through Fidelity.


I'm curious why you would want to do that. I have an IRA/brokerage with Fidelity but haven't yet understood the value prop for their cash management product.


No account fees whatsoever

No minimum balances

No minimum debit card purchases

No minimum direct deposits

No minimum bill pays

Free checks

Free wire transfers

ATM fee reimbursements (If you pay $2 to the ATM owner to take out money, you'll see a $2 credit on your account immediately)

No limit to ATM fee reimbursements

FDIC insurance

Paycheck posts a day early (not advertised, but that's been my experience)

It's obviously a loss leader to encourage you to use their brokerage offerings, but no brokerage account is required to open the account.

The only other companies that offer products that are comparable is Schwab (which is another brokerage), and USAA (whose membership is limited to military, veterans, and immediate family)


Nearly everything there describes my credit union.


In addition to what astura said, Fidelity being a top brokerage has a much better website and mobile app than any bank I've used.


FDIC insured?


Yes, up to $1.25 million through a sweep program [1]. They also reimburse ATM fees and let you trade anything inside them.

[1] https://www.fidelity.com/cash-management/fidelity-cash-manag...


Interesting! Thanks!


No big surprise here. I worked on a project for a fintech startup. They were dealing with small business bank accounts in the US and were missing some basic security. Had there been a data breach someone could have come in and cleaned out their customers accounts. Unlike consumer accounts, US banks have no legal obligation to make a business customer whole under that circumstance. Some small businesses have gone out of business over things like this.

When I brought it to the founders attention they blew it off so I immediately told them that I'm rolling off the project. I'm all for disrupting the industry, but not at the expense of knowingly putting your customers in harms way.


I'll be honest, 90% of the reason I signed up was their debit card looked super clean.


Do you ever introspect that commercial "super clean" design is a hack on your brain to make you buy things that you wouldn't otherwise and that you should not use design as a purchase criteria?


No, because design is part of the value proposition. A brain hack that brings me happiness is... what any product is.


I have considered this and still fallen for it. I admit I am a sucker for aesthetics, to a fault indeed.


I am guilty of making decisions like this as well.


I think it's important to acknowledge our vulnerability to irrational and emotional manipulation in things like product design where product design shouldn't matter and in advertising; our own irrationality. It's hard to admit, at least for me... but denying it makes us more vulnerable to such manipulation, I think.


That's exactly why I posted my comment! You just elaborated on the idea much better than I did. :)


The Robinhood card looks to have some transparency to it. AMEX has patents on transparent cards.


It's true AMEX has patents in this area; however, they license "clear payment card technology" to others.

https://www.creditcards.com/credit-card-news/amex-licenses-c...


Companies are racing to do things that were done in the 1920s, before modern financial regulation came into effect, only this time with an app. The regulators know how to handle that.

Yes. Come on, a fake bank?

The ICO industry is the penny-stock market, but with "blockchain". Some of the same suspects, too.


There's no free lunch. A quick check of the markets and where short-term treasuries are trading can tell you that 3% is too good to be true.... Glad it broke quickly rather than deluding people into thinking their money was safe and getting a good return.

High Reward =~ High Risk...

If you can call 3% high...


Interestingly, 3% was the magic number that helped break the global economy in 2008 according to Planet Money:

https://www.thisamericanlife.org/355/the-giant-pool-of-money

In short, finance professionals looking for reliable 3% annual returns could no longer count on US treasuries to help get them there so they turned to securitized mortgages.


You can buy CDs from Ally Bank that give you 3.1% with only a 90 day interest penalty for early withdrawal. Not too far off what they were offering assuming that you aren't using it as your main checking account.


Uh, 90 day penalty is a 25% per annum haircut on day 364 => 2.325% and even lower on any day before. Saying that's "not too far off" is the financial illiteracy that upthread is talking about.


I'd be shocked if RH can eventually launch this product in any form. People on HN seem to think its a marketing issue, but it isn't. The problem with the product is much deeper.

The core issue is that there is no way right now to provide savers with a 3% risk free interest rate. 1 year treasuries for e.g are at a 2.7% yield and that assumes you lock up your money for a year. Basically, their "novel" idea was to supplement the rate they would theoretically be getting from investing your money in t-bills with interchange revenue. But the interchange revenue wouldn't be a sure thing. It depends on the behavior of the customer. This in turn means that they would have to just pay depositors out from their VC money until they attract that type of customer that could support their interchange revenue assumptions.

There is a good reason that ideas like this are strictly regulated. If I could just set up a company and promise main street investors a guaranteed return based on my rosy view of the world, a lot of people could end up hurt. I'd be shocked if the product, after they finally launch it, offers any of the features that attracted people to the offering in the first place.


The 3% was definitely interesting, but to me at least, moving money quickly between my account and trading/investing account would be nice. Especially when its all in one application.

To me, the 3% is not that interesting. 3% is chump change, 3k on 100k.. who cares? Most Americans don't even have 400 bucks in any of their accounts. I don't think most people are going to sign up with a bank for 10 bucks extra per year. Usually much less than that.


Robinhood's whole business model is making money from people who think they're getting a free lunch. You're still paying money for the trade. But instead of paying a direct fee, you're paying more money via the bid-ask spread.

Everytime you make a trade, Robinhood sells that trade to a market maker. Robin hood charges more money for forwarding this trade than most other brokers. To make up for this increased cost to market makers, they then pass the cost to you by charging more money for the trade.

This is akin to restaurants that claim you get free delivery. You don't really get free delivery. They just increased the price of the food.

Looks like they were trying to play a similar game with that 3% savings account by claiming your money was risk-free when it really wasn't.

https://www.wsj.com/articles/why-free-trading-on-robinhood-i...


This is an old trope that gets passed around a lot. It simply isn't true -- you are, in fact, getting a free lunch [1].

If you place a limit order at a given price, you will get that price or better, period. Just as you would at any other retail brokerage. At any other retail brokerage you will get charged fees as well. It is structurally impossible (modulo odd lot requirements that are unlikely to affect you unless you are buying extremely thinly traded stocks) for the price to pass you by while your limit order is active -- if you want to buy at $100, nobody in the US, retail or institutional, trading on any regulated market, will get executed at a better price than $100 while your order is active.

For market orders it is more complex, but you will never do worse than picking up the best price available. Yes, you will cross the spread; market orders are always taking orders, but at any retail brokerage you will also cross the spread, in addition to paying fees.

All retail brokerages eat price improvement above the executed price, and Robinhood is no different except that they don't charge you fees on top of that. Retail flow is by far the most valuable to wholesale market makers; they pay through the teeth for it, but regulation does not permit Robinhood to front run its customers.

[1] There is, of course, no such thing as a free lunch -- your lunch is being paid for by the wholesale market makers and the dark pools of liquidity. More specifically, you are paying for your lunch by expressing a liquidity preference.


> Robinhood's whole business model is making money from people who think they're getting a free lunch. You're still paying money for the trade. But instead of paying a direct fee, you're paying more money via the bid-ask spread.

This gets brought up in every thread about Robinhood and is simply wrong. Check out this explanation of Robinhood's business model: https://www.bloomberg.com/opinion/articles/2018-10-16/carl-i...


Due to RegNMS they still have to fill you at the NBBO. You're not crossing a bigger spread than you would with any other broker.


Yeah, they still have to fill you at the NBBO, and this trade routing is no different from what other brokers (Schwab/E-Trade/etc.) do when you place a trade.

I wonder whether the fact that Robinhood doesn't internalise its trades (i.e., capitalise on the bid/ask spread by matching buyers/sellers from their own customer base) is the reason why market makers pay more to Robinhood?


The reason why MMs pay more for RH is there are no toxic clients in there. RH's flow is almost entirely a bunch of little guys.

Toxic flow would be something like a huge institution that just keeps buying a stock they like. Once the market maker has sold them a few portions, he realises the price has moved against them.

With a bunch of little guys the MM combines:

- Benefit from the two-way nature of the flow. Some little guys are buying, some selling.

- Hedge against other pools of liquidity. Either find a similar stock (stocks are highly correlated) to sell, or an index.

- Hold on to the risk until it relaxes and goes the other way.

Ex MM / HFT guy.


Interesting, thanks for sharing your insights. I thought that huge institutions prefer to trade on exchanges directly (for anonymity), but it looks like there are other incentives in play.


There are degrees of huge. A large hedge fund still trades through a prime broker, who has the exchange connection. The PB plays yet another game by aggregating the risk of the funds they are servicing.


Except its more like you can choose if you wanted a fraction of a percent added to the price or if you wanted to pay a $5 delivery fee.

The answer varies for small and large orders (and even by share price) For most retail investors that use something like Robinhood, the average order size is small so a flat $5 fee would be way worse.


> you're paying more money via the bid-ask spread

No, you aren't. This is effectively illegal if you think frontrunning is occurring.

> Everytime you make a trade, Robinhood sells that trade to a market maker.

This is true about almost every single discount broker you would use in place of Robinhood.


To claim it is insured by the SIPC when it is not is just false advertising (or big time incompetence). It's not a good game to play if you will get sued for it.


It's more dangerous than being sued. You can have your broker-dealer license revoked by FINRA and other financial regulatory bodies. Do not pass go, do not execute and clear any further trades.


folks, be super careful with your money - even if they survived and got X number of customers, if they were to fail - I don't know how and when the customers would get their money back.

In the past, I have seen small mom-and-pop brick-and-mortar 'finance groups' pop up which promise to give you much better returns than the markets based on investing in some 'magical fund'. Such groups then take your money and for a while the going is good until Government halts them and then overnight these 'money mills' are gone and your money is stuck as is money of other folks with tax authorities taking action against the customers who had no idea. And the way these operations are setup and run, folks running these money mills get off scotch free only to shy away for few years until they come back again with yet another 'idea'.


"In many areas of fintech, though, companies are racing to do things that were done in the 1920s, before modern financial regulation came into effect, only this time with an app. The regulators know how to handle that."


One of the main things it communicates to me is that the decision makers in these start-ups are no different than the decision makers in bloated old firms that survive with regulatory capture.

If you follow the money trail, it eventually bottoms out with the same musical chairs of people making the same tired business moves with overt and deliberate goals to manipulate people into product lock in before changing terms to be unfavorable.

Most start-ups, even fancy seeming ones backed by sexy VCs where you think, surely this one must be genuinely innovating in some way, are just the same centuries old bureaucratic anti-consumer bullshit, just dressed up with a sleek infinite scroll and using hashtags and the word lolz on the webpage.


A tale in two acts:

Act 1: Checking available to everyone!

Several days later...

Act 2: Sorry, no more.


To be fair three acts:

1. announcing the thingy

2. gather emails of people interested in it [1]

3. Sorry, not going to happen...

[1] and possibly interested in other products ...


Also, emails of other people: there was a waitlist bump for referrals.


Hah! A worthy correction.


The whole thing may have just been a viral marketing scheme never intended to be implemented. They get to ride the wave of the news cycle for a week or so and potentially gain new trading accounts with the free publicity.


At a time when newspapers struggle to sign people up even with a "$1 for 4 weeks" deal, you really think people are pulling out their credit cards to do business with a financial firm that just got publicly told off by a reglator?


I’ve chased hot new banks and their interest rates before. It’s always a bait and switch. Or in this case a complete fumble. Credit Unions are where it’s at. Boring, safe, aligned with their members interests.


Hopefully the author here is right in that the SEC will continue to step in and say "No, you can't just call it something else. What you're providing is a bank account."

If Robinhood manages to get away with saying "It's not a bank account; it just does everything a bank account does", and therefore that it doesn't require the same level of regulation, then that's going to be a HUGE problem.


My guess is that it is really hard to become a bank in the US and this has slowed down innovation. Look at The UK and what they did with openbanking. You now have new banks like Monzo and Revolut which are completely disrupting the industry. I’d advise anyone to get a Revolut card, Monzo is unfortunatey UK-only, to see what it means to have a bank 2.0


The reason why it's hard to become a bank in the US is because there are regulations in place to keep companies from screwing over customers for their own gain or in their own stupidity. In this case, Robinhood didn't look into what they needed to do to follow those regulations. If they DID follow the regulations, then they could provide their banking service.


> slowed down innovation

When it comes to money and ensuring people manage mine correctly and honestly, I’ll take safety over innovation thank you very much. Feel free to continue “disrupting” low stakes stuff like juicers and scooters. Call me old fashioned.


Again. You should probably get a revolut card. You’ll save way more money this way believe me. It is disrupting shitty banking.


It is difficult to get a backing licence in the UK, though. OpenBanking is tangential to this and you still need regulatory approval (min £50k and several months of paperwork).

Monzo spent a long time as a card provider only, while working to obtain their licence. Revolut has been operating for years and only just got their European banking licence four days ago.

Other UK bank newcomers have bought smaller, established banks just for the licence; Aldermore bought Ruffler Bank mostly for its licence.


Right. Can you do this is in the US?


Well if the goal was to get people interested in the brand and create accounts on robinhood (needed to sign up for early access) then they succeeded. :) Now they can try to convert some of these new users to their core product.


I'm curious how this compares to SoFi's Money program. SoFi manages student loans and now they are moving into cash management.

It seems that this is an area new companies feel is ripe for disruption.


Well, SoFi Money hasn't launched yet, so the product doesn't exist.

The difference is SoFi Money claims to plan to offer 1% less interest than Robinhood claims to offer, also SoFi Money claims to plan to be FDIC insured.


It has launched - I have the debit card and use it


Really? I put my name on the waiting list in the first couple days and I didn't hear anything.

Looks like they offered it to people who already are "SoFi Members" first.


Sure, yes. Disruption, freeing us once and for all from, like, the shackles of deposit insurance?


Would you please stop posting in the flamewar style to Hacker News? You've been doing it enough that your username has started to stand out for it. And we've asked you already.

Also, please don't use HN primarily for ideological battle. That's destructive of the purpose of this site.

https://news.ycombinator.com/newsguidelines.html


I want robinhood to succeed. Retail brokers charge huge fees for poor order execution, and also charge fees for arbitrary stuff. $7-10/trade adds up fast and also huge fees for options.


If you’re trading that much you’re almost certainly already losing. High fees are probably good for you.


I want Robinhood to fail. Most retail brokers pass through price improvements to their customers, and their fee structure is reasonable for the services they provide. I don't want a Facebook Of Financial Services (you don't pay directly, you pay through being the product).

Robinhood is what Moviepass rebranded as a hip fintech startup that provides trading services would look like. They target the financially illiterate, and should be nuked from orbit.

If a few dollars per trade are breaking you, you have no business actively trading (and should have at least $25k in working capital per FINRA pattern day trading guidelines [1]). Put your money in an index fund at Vanguard and stop gambling in what is a glorified loot box at Robinhood user scale.

[1] http://www.finra.org/investors/day-trading-margin-requiremen...


Search for 'payment for order flow' if you want to know how robinhood gets paid and why you might want to pay trading fees instead of getting it for 'free'.


And most people should realize that all discount brokers are this way and Robinhood is not special in this regard.


Virtually all brokerages do that, including the ones which make you pay all the traditional trading fees.


What you'll be getting is no fees and even worse execution quality. Choose your poison.


There's been fee wars going on with brokerage accounts lately, so fees are down to under $5. Some brokerages offer X amount of free trades if you have $Y in funds deposited too and free trades on certain low cost index ETFs.


>> Retail brokers charge huge fees

What? $5-$10 for a stock purchase? If you are purchasing such a small amount that the fee is > 0.1 % you should not be trading stocks. (In general you shouldn't.)


So poor people need not apply to the stock market? I just love the amount of class separation that is considered a normal and moral standard of most of the HN crowd.


>So poor people need not apply to the stock market?

A single stock of Amazon costs just over $1500. That is more than the monthly rent a poor person pays. If they want Amazon in their portfolio, they can pick a mutual fund that includes it, and they wouldn't have to shell out anywhere near $1500.

As an aside, I find the argument that "this will help the poor" really disingenuous when you consider that the poor are the first ones blamed when things go awry. Remember 2008, when the crisis happened because "the poor were given houses they couldn't afford?"

Companies like Robinhood are not looking after the poor.


A poor person could still benefit from the stock market by investing in a fund over the long term. That is, if they had money to spare, which they probably don't--the definition of poor is that you don't have money to spare. It's not like free trades is some magical gateway out of poverty--in fact, it's more likely a way to lose money.

The solution to poor people not having enough money to invest is to get them more money.


I agree with you that poor people should have more wealth to invest. Meanwhile, a low net worth person can still benefit from the market by holding a bond, an ETF or a mutual fund. There are many commission free or nearly commission free ways to do this. Trading stocks is not on that list.


Poor people normally invest in things like lottery tickets, which are 100% loss. I think a real investment of any kind is better than that.


Low net-worth individuals should not trade stocks. They should own iBonds or market tracking ETFs. That's not snobbery, that's what any good investment advisor would tell you.


I agree with you! I just get a little bothered by some of the attitudes. I'm sorry if I've come off negative.


So only trade stocks in increments of at least $5,000? That precludes, for example, dollar cost averaging.


If you are investing like that are you really sure you are outperforming the strategy of just buying and holding of an ETF?

If you are a very sophisticated investor (and I bet some people on this forum are) maybe that works. But in general people who trade stocks for themselves at home take a bath.


Buying and holding ETFs is not incompatible with dollar cost averaging.


Only for small accounts. For large accounts with large transactions that fee is the least of your worries. Spread, execution quality, speed of transfers, margin and deposit rates, reliability/availability and yes, events like this or even the possibility of robinbros "breaking" some feature you rely on, would be. Don't be myopic.

I hope RH grows with its customers, otherwise it'll eventually be outgrown by them. One of the most obvious and biggest disruptions that still hasn't happened is to let you set a custom portfolio on autopilot. At the end of the day that's what anyone should want.


>>to let you set a custom portfolio on autopilot

Can't you invest in a set of 5 passive ETFs and forget about it for 40 years? Or even build your own ETFs for that purpose: https://www.motif.com? Or are you talking about "if risk of market crash is too high, sell everything for a bit -- buy back in when this calms down" type stuff?


I mean things as simple as rebalancing, to a bit more complicated like tax management, or trading rules. I want the mechanics of portfolio management, but I don't want somebody else's portfolio. You're still choosing from somebody else's portfolio with Motif.

If somebody wants to disrupt, quant hedge fund for retail investors would be the one but I suspect it's never going to happen because of the perverse incentives that exist to not do that. There used to be the Quantopian-Robinhood method but neither side wanted to go in the direction. I don't see these firms as truly disruptive.


I couldn't help but wonder if it could have been some gigantic robinhood scheme to take from the rich and possibly give to charities or something. Now we'll never know.


Let me just say that this is a fantastic summary of why financial regulation is important and good:

    Long experience has taught that those basic ideas
    are mostly good, but have some problems, and a
    regulatory system has been built to remember and
    address the problems. If you borrow short to lend
    long you’ll want deposit insurance; if you sell
    shares of a thing you’ll need to give buyers some
    disclosure; if you trade derivatives you should
    make sure your counterparties understand them; etc.


All types of regulation are important and good, for the reason stated in first sentence. It's just tragic that so many people in the tech industry fight tooth and nail against any sort of regulation, like during the GDPR discussion.


In part, it's because things move fast in the tech industry, and regulations based on expired premises can impede one's ability to react to change. It's the cost of regulation.

It seems deceptively simple and cheap at first to pass a law or engineer a mechanism to protect us from something. But that should be weighed with the long-term cost and risk of the regulation/mechanism going out of date. It's a lot harder to get rid of it than to add it.


The biggest tech companies in the world do advertising, retail, video distribution and business software services. What about any of these moved so fast that regulations would have stifled their innovation?

I would argue that DoJ vs Microsoft and EU v Microsoft encouraged healthy competition, and didn't hurt innovation. It even forced Microsoft to look outside of the Windows/Office businesses to make money.


>> All types of regulation are important and good, for the reason stated in first sentence

Come on. Absolutist positions like that are just wrong and bad for level headed discussion. Some regulation is good, and some is bad. We should be critical of government policy right? Hasn't history shown us that good intentions does not always lead to good results? We need our critics, just like developers need qa.


"All types of regulation" != "All regulations". But that nuance is hard to understand or appreciate when you start from the position that no regulation that affects your industry is good regulation.


I'm sorry! I did misinterpret you then. My disdain for extreme political positions and my annoying desire to be a contrarian must have blinded me. I don't come from the point that all regulation is bad (I swear I'm not a crazy person). I'd rather say that regulation is complicated, hard to undo and we rarely know all the effects or costs it has. More complicated systems aren't always bad though; sometimes they're much more fair and efficient.


There are lot of good regulations and lots of bad regulations. If we don't fight the bad ones we'll be stuck with them forever.


It's because they stand to make the most off deregulation. Really not hard to understand, incentives tie directly into profit. There is a trade off, but I've found many in Fintech refuse to acknowledge the huge pluses of regulation.


Did anyone get an account opened or make a deposit before this got shut down?


The service was marketed to be available in January, they were collecting email addresses to queue up for the pilot.


It was announced, not available.


Yeah I mean this feels like it amounted to some marketing and a viral sign up page.

I have no reason to believe there was any tech built yet.


Even assuming that they moved-fast-and-broke-things on the legal side, the development lifecycle of something as important as replacing conventional banking takes months, if not more.

Robinhood likely lost a good amount of development opportunity cost with the cancellation.


Even assuming that they moved-fast-and-broke-things on the legal side

Doesn't moving fast and breaking things on-as you say-"the legal side" in essence mean breaking the law, or did you mean something else and I've misunderstood?


Legal as relating-to-the-law, not legal as against-the-law.


Right, that much I grok, but when you say "move fast and broke things", in the context of "relating-to-the-law" what are you hypothesizing was 'broke'?

I think it's a matter of phrasing perhaps, that has me a bit confused of what your post is suggesting as a matter relating to the law.


I have an account opened (never gave them money though), but I put in a request to get it closed.


Everyone was waitlisted, the product never existed, it was planning to launch next month.


Did it break? Or was the cost to announce vs total new accounts worth it?


This article is brilliantly written. I could write an article about how much I enjoyed reading this article, but then I’d be distracting you from what I actually want you to read. Go read it.


Gorilla Marketing at its finest. Way to hack society Robinhood

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