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Robinhood removes proposed checking and savings features after being criticised

Robinhood removes proposed checking and savings features after being criticised
Image Source: Vox Media

Stock Trading App Robinhood announced earlier this week that it will include a new Checking and Savings account, which will be completely free of charge. This update was to be rolled out in early 2019. However, the proposal received intense criticism, leading to the company taking the addition back. They released a statement saying that they would be working more closely with regulators in order to launch their Cash Management Program.

Robinhood was first launched in 2014 and allowed brokers to trade stocks on the US Stock Market for free. They later claimed to have thousands of customers who have transferred as much as $1 billion on the platform. Earlier this year, the platform released a new feature which allowed users to track Cryptocurrency. Now, they announced their plans to talk to regulators to allow new banking features such as Savings Accounts.

Earlier this week, Robinhood did launch the new banking features. A savings account with a checking feature which came with a Mastercard debit card and no other ATM, Transaction, or Overdraw fee. If that wasn’t an offer lucrative enough, they also offered a huge 3% interest on savings. They also said that the features would be protected by the Securities Investor Protection Corporation (SIPC) instead of the Federal Deposit Insurance Corporation (FDIC).

Now that’s where things get a little complicated. It would seem that if it sounds too good to be true, things rarely are. They did not talk to SIPC regarding their plans before announcing or releasing it. SIPC and FDIC are corporations meant to protect the funds of people in the event that the banks holding on to them fail. However, these accounts don’t exactly operate like banks, meaning that these corporations don’t have much jurisdiction over them.

“Robinhood would be buying securities for its account and sharing a portion of the proceeds with their customers, and that’s not something that we cover,” said SIPC CEO, Stephen Harbeck. “Had the company approached me with the feature ahead of time, I’d have had serious concerns about this.”

Most analysts saw severe loopholes with their model of business. Most stated that the way they approached this looked more like an actual bank and that it may attract regulatory scrutiny. Some even said that the accounts looked more like a money market fund. However, a few also noted that Robinhood already has invested in treasury funds, which have an interest rate of around 2.7%. They speculated that perhaps the stock trading app has come up with some sort of deal with the ATM retailers to maintain an interest rate of 3%.

Following criticism, the blog post was soon deleted and a new one was quickly posted with a message from the founders which stated the following:

“While we are excited and humbled about the response to our latest product, we realize the announcement may have caused some confusion. We now plan to work closely with regulators as we prepare to launch our cash management program and revamp how the program is marketed.”

It remains yet unknown which direction the Robinhood trading platform is going to take as the company adamantly refuses to pass any further comments on the matter. The company is now taking signups for a “cash management” waiting list, but details on what that looks like remains sparse.