By
Godfrey Benjamin
April 22nd, 2024
Robinhood has announced a voluntary withdrawal of its application for a bank charter, to become a proper bank in the U.S.
Popular stock-trading startup Robinhood has decided that it is no longer interested in becoming a federally insured bank. Months ago, the company applied for a bank charter with the Office of the Comptroller of the Currency (OCC), in an effort to become a fully-fledged bank but has now decided to shelve said plans.
According to the statement, the company has taken this step to shift its attention away from banking to its own core business directed at improving the efficiency of the financial system at large. The company stated:
“We are voluntarily withdrawing our OCC application for a national bank charter. Robinhood will continue to focus on increasing participation in the financial system and challenging the industry to better serve everyone.”
Even though reports consider the withdrawal as a setback, Robinhood says that the new development does not see it that way. The statement adds that “Robinhood will continue to focus on increasing participation in the financial system and challenging the industry to better serve everyone.” Regardless, the withdrawal somewhat highlights some difficulty that could possibly hit a disruptive firm like Robinhood in its quest to overhaul the existing traditional financial methods.
A banking analyst Dick Bove has suggested that while a bank charter is a huge accomplishment, Robinhood is not ready for that step especially because wading through such waters requires a lot more than Robinhood currently has. He stated:
“The minute I get a bank charter, I have to deal with a ton of regulations. Life is a lot easier without a bank charter until you reach a certain level. At that level, you might want FDIC insurance to make sure people are putting their money with you.”
In 2018, Robinhood had some trouble when it announced that it would start offering checking and savings accounts on its website. Called Robinhood Checking, the feature was announced to have no commission fees and promised a 3% interest rate. However, trouble began with Robinhood Checking not long after it was announced when the Securities Investor Protection Corp. (SIPC), which was supposed to be handling insurance details, said its function is only to protect funds used in the purchase of securities. Robinhood Checking was eventually shut down due to regulatory pressure.
Robinhood Checking somewhat paved the way for a new feature the company announced in October called Cash Management because of similarities such as the inclusion of a Mastercard debit card. Cash Management promises a lower annual percentage yield (APY) of 2.05% and will be fully insured by a $1.25 million plan from the Federal Deposit Insurance Corporation (FDIC), with a maxed-out $250,000 upper limit spread across five banks. They include Goldman Sachs, Citibank, Bank of Baroda, Wells Fargo, and HSBC.
Robinhood is officially approved to function as a broker in the UK and received a nod from the Financial Conduct Authority (FCA) back in August. The company is currently valued at $7.6 billion and has received a total funding of $860 million.