It's a brokerage account where you buy US Treasuries but also made liquid via a deal with Mastercard and branded as a chequing account

It's kinda smart - but i'm curious how they settle some of the backend with daily transactions moving in and out - if they're actually making bond purchases/sales with each transaction, for each customer each day, or for all customers each day etc.

edit: fwiw I think the entire premise of these new products and 3% paid (way over what treasury bonds pay) is as a loss leader to the gambling that is a lot of the "investing" done by Robinhood users. Must be temping to buy some Tesla options once you have a chequing account in the same app.

edit 2: their fine print:

> Robinhood Checking and Savings is an added feature to existing Robinhood accounts and is not a separate account or a bank account.

so they're saying they might market it as a bank account, but it isn't

I'm not sure what you mean by "way over" but 6-month t-bills are paying 2.5% right now. It's probably a loss leader but since they'll make money from merchant fees on debit cards, it might not be that much of a loss.

I doubt they'd be able to 100% buy tbills at that maturity length (hence curiosity on what they're doing on the backend here), but even assuming 2.30~ average plus whatever Mastercard kickback is negative 50-70bp is still a hell of a margin to make on selling consumers tbills and not raising funds for your own investment activity

edit: a better way to explain it - we'll give you tbills at 3% p.a and let you pull out/in whenever you want and handle the rest is a hell of a business model without the rest of the story

My guess is: they're investing in 6-month T-Bills, they're expecting rates to rise over the next 6 months to 1 year, they're covering the remainder out of pocket, and by doing this they're capturing the lion's share of their target market before their competitors do.

In addition, I'm guessing their AUM are low relative to their popularity. Lots of millennials may be very vocal about Robinhood, but may not have the quietly massive asset balance that boomers have, tucked away in Schwab, Fidelity, or Vanguard. This could be a land grab for AUM to support future VC rounds, an acquisition, or an IPO.

Presumably they structure it as an investment fund and not a bank account? I think "what am I missing?" is the whole point really: this thing doesn't fit within existing regulatory structures. It likely wouldn't qualify for FDIC insurance either.

The question then becomes whether this is a good kind of move-fast-and-break-things a la early Uber breaking into an over-regulated market, or if it's defeating an important protection that consumers need.

I did some quick research. Discover has a money market account for 1.9% APR that is FDIC insured and has a debit card.

Money market accounts have been around a while. Is Robinhood's account different because they are subsidizing it to hit 3% APR?

Difference is the FDIC insurance, mainly. Being member FDIC means that you have to go through a ton of regulatory requirements to be sure that you're financially stable. A bank can offer whatever interest it wants on its account if it manages to stay in compliance. If Robinhood were to become member FDIC and offer 3% I imagine there'd be no qualms about it.

SIPC on the other hand is more relaxed because it covers less. It only covers when a member broker becomes insolvent and is unable to return a security to you that you own.

There are similar funds that invest in short term treasuries and often that you can write checks against, however they don't offer 3% and they're very transparent that you own these securities and are subject to the (very low) risk that comes with owning them.

Robinhood's marketing sounds a lot more like a standard FDIC insured bank account but they're saying it's SIPC insured instead, and the SIPC is confused about what securities they would actually be insuring

Silicon Valley Startup Syndrome (SVSS): Ignore the law and the consequences in favor of Disruption & Growth. Meanwhile ignore any banking laws you can, because you want to sell customer data to HFT.