Robinhood Quickly Rebrands New Service after Marketing Backlash

[Leonardo]

Robinhood Financial, a private fintech company known for its no-fee stock trading app, announced at the start of last week its decision to launch a new service called Checking & Savings. However, by the end of the week, it had rebranded the offering and deleted all previous announcements amid tough questions concerning the insurance and protection of the funds, Bloomberg reports.

Robinhood has achieved success as a provider of commission-free investment services in the markets for stocks, exchange-traded funds, options, and cryptocurrencies, building a customer of about six million users. Apparently looking to conquer new ground, the company announced it would get into personal banking with a checking and savings account free of fees and a minimum monthly balance requirement. The service also promised a staggering 3% interest rate plus access to over 75,000 ATMs. The plan was to invest customer's money only into very low-risk assets such as short-term T-bills.

Initially, Robinhood said it wished to reinvent the whole idea of checking and savings, and one significant difference from traditional accounts was their insurance. The company explained that its new service would be offered by its brokerage arm, not a bank, so it would not be insured by the Federal Deposit Insurance Corp (FDIC) but the Securities Investor Protection Corp (SIPC), which deals with brokerage accounts.

However, a few days later, Robinhood took down the page with the new service announcement from its website and also deleted tweets about the event. On December 14, "A Letter From Our Founders" was published on the company's blog, where Baiju Bhatt and Vlad Tenev, Robinhood's co-founders and co-CEOs, presented a new version of the product. Notably, they described it as a "cash management" service, without any mention of checking or savings.

"We realize the announcement may have caused some confusion. As a licensed broker-dealer, we're highly regulated and take clear communication very seriously. We plan to work closely with regulators as we prepare to launch our cash management program," the duo wrote.

The reason for this fast rebranding was the community's doubt over the legal aspects of the offering and the level of protection. To begin with, unlike government-backed FDIC, SIPC cannot guarantee a full refund of investors’ money. Moreover, it turned out that funds would not be afforded even this partial protection. SIPC president Stephen Harbeck told Bloomberg on Friday that despite its claims, Robinhood had not applied for SIPC support. Harbeck also said:

"Had they called us, I would have told them … that I have serious concerns about this."

He went on to add he first heard about the new Robinhood service only on Thursday. Harbeck firmly believes that any funds deposited in Robinhood checking and savings accounts would not have qualified for SIPC protection since they do not meet the organization's requirements.

Source: https://cryptovest.com/news/robinhood-quickly-rebrands-new-service-after-marketing-backlash/