Growing the high-yield game: Robinhood crosses $10 billion in total deposits

Growing the high-yield game: Robinhood crosses $10 billion in total deposits

Amid losing deposits and mapping out shrinking asset bases, banks will have to pull their socks up to win back deposits

by SARA KHAIRI

Amid a slew of bank failures, a potential credit crunch, and the debt ceiling deal coming to the rescue at the last minute, banks seem a long way from offering higher yields on deposits that consumers are hungry for.

However, a difficult situation facing banks can act as a boon for fintechs. 

It appears fintechs are all geared up to cut banks out to grab their share in the deposit market. Apple, Wise, and fintechs like Robinhood are among the new entrants in the space playing the high-yield game to win depositors from banks amid Fed rate hikes.

Apple offers a savings account that yields 4.15% APY and Wise offers 4.13% APY on USD balances. Robinhood went a step further by offering products with even higher rates. Robinhood Gold offers 4.65% APY for Gold subscribers since the Federal Reserve approved its 10th rate increase in May. Interest is earned on uninvested cash swept from the client’s brokerage account to a network of FDIC-insured program banks.

Robinhood CEO Vlad Tenev said that total deposits in the Gold Sweep program have crossed $10 billion, "so it's kind of continued to increase even since our last earnings result." The surge comes as "banks are not passing along that much yield to their customers," he added at the Bernstein Strategic Decisions Conference held on 2 June.

Robinhood has been seeing a decline in its monthly active users for quite some time owing to a slowdown in stock trading during the continuing period of economic uncertainty. The firm's monthly active users decreased to 11.8 million from 15.9 million a year earlier. On the flip side, net interest revenue increased 25% sequentially to $208 million in Q1 2023, driven by growth in interest-earning assets, increased securities lending activity, and higher short-term interest rates. This is the first time the online brokerage's interest-based revenue outperformed its transaction-based revenues, which came in at $207 million.

The increase in net interest revenue is coupled with the firm's net deposits, which were $1.5 billion in March, and $4.4 billion for all of Q1 2023, equating to a 29% annualized growth rate. That growth was driven by the fact that Robinhood offers a variety of accounts, according to Tenev.

Additionally, the firm also launched Robinhood Retirement in December last year, which it says is "picking up with a lot of traction" as "confidence in the social safety net goes down." Customers have already invested over half a billion dollars into their IRAs. The IRA product lets users save for retirement in a traditional or Roth IRA with the added benefit of a 1% match on every eligible dollar contributed to the account -- provided certain conditions are met. This means that savers -- like gig workers -- who likely aren’t currently benefiting from an employer match can grow their retirement savings through the app, without requiring a participating employer.

Market recap

The fintech IPO Index saw more gains than losses last week

Affirm (AFRM) - up 29% to $18.85 per share

• Affirm stock pushed higher last week on news regarding the BNPL company added as a payment option at checkout for Amazon Pay.
• The partnership between the two companies will allow merchants who use Amazon Pay to offer Affirm's Adaptive Checkout, which allows customers to pay their bills over time.

SoFi (SOFI) - up 19% to $8.12 per share

• SoFi's stock price surged nearly 19% last week and is up some 67% year to date. The hike caused by the debt-ceiling deal has continued into June.
• A restart of student loan payments according to the debt ceiling deal can potentially move SoFi closer to profitability.

Coinbase (COIN) - down 14% to $54.90 per share

• Shares of Coinbase declined following the news that the SEC was suing Binance on allegations of violating federal securities law last Monday. In March, Coinbase itself received a warning from the SEC that it may soon receive enforcement action tied to its listing of potential unregistered securities. 
• Additionally, the price of Bitcoin fell more than 5% to below $26,000.

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