This Is How Robinhood Can Afford Giving You 3% Back
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- Опубликовано: 25 июл 2024
- Robinhood just announced their 3% cash back card and people are wondering if it’s too good to be true. In this video we break down what the card is about, how they can afford to pay you 3%, and who the card is good for and not so good for. Spoiler alert - the answer is in their financial statements
00:00 Robinhood just released a 3% cash back credit card
08:23 How can Robinhood afford to give you 3% back?
14:42 Who is the card good for?
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Bottom line is that RH is a business. The company is offering the 3% because the company believes it will make money by doing this. The company is probably figuring they will make money by drawing in more customers/clients. That by itself will allow them to make money because the more RH clients, the more money they will make on their services (like the monthly cost of being a "Gold" member). Plus, many of those customers will not pay off their card balances each month, which means more money in revenue on the interest of those card balances (just like any credit card). RH, like any business, will not be offering freebees if they cannot make money off it in some way. If they don't make money someway on this, they will discontinue this program or alter it in some way to make a profit.
Yeah average US revolving credit paired with their other services… seems like a slam dunk.
No, it’s a loss leader. The CEO himself said that he cannot say if the rewards will still be this high in 18 months
Great video. Love how you broke down the financials and also explained all your statements with numbers. Keep up the great video’s 👍🏼
Thank you!
Another great video explaining another "financial" product coming to the market. Thank you. I cannot get those product since I am Canadian , but I thought after reading Lieber in the NYT a few days ago: If I could would I get it? If the 3% was guarantied on a yearly basis, probably. But going through all the trouble and the terms possibly changing in three months just killed the idea. I guess the mentality or risk tolerance is different in the USA than in Canada.
No worries, thanks!
Matt, as always, thanks for this great info, Sir!
No worries!
It has always baffled me how many robinhood users I have met that don’t like robinhood but continue to use the platform.
I use it since its a SIPC member, I’m good.
Also it’s ultra beginner friendly
@@JPression if I was already using Robin Hood I’d likely take advantage of the CC and the IRS match but I don’t and the release of these things isn’t going to get me to come over. I’ve already learned how to use the fidelity and I’m happy enough with them. From my perspective of not being a robinhood user it seems that they are trying to get customers to come over and I’m not sure anyone with swabb, fidelity, or any of the big ones would even consider it. I know people that have multi of them , robinhood, webull, fidelity and not sure why they do it. Most of those types that I know are meme stock investors to the max and the last thing they need is more access to donate their money to wallstreet
I love Robinhood. They give me 5.25 % on my sitting cash…now this… perfect because I always pay off my credit card. 😂
I like robinhood
Hyped for this card tbh
Thanks for the insight. I'm fine with my PayPal 2% for now, tho that gold metal card would look nice. What I would like to see one day is dividend tracking tools.
Dividend tracking tools in Robinhood you mean?
@@mattderron Yeah. So far I only seen dividend history, but noting in detail like the total of the moth, estimate for the year, etc. I'm using other app for that witch is good, but I have to type every move I do.
Great video - your content is awesome. Great overall analysis and I appreciate the balance sheet analysis - i plan to rewatch this and make some notes tomorrow. Want to get to your level man ;)
Thank you, much appreciated! It’s not that hard just a willingness to dig into companies and know that you won’t always get it right!
already on the wait list as a rhg member. I am one of those, lets do it and see how long this lasts category people. I already make something around 2% on another card due to 5% bonuses but being a consistent 3% for however long it last is up my ally.
Nice!
Im getting a year of gold and transferring 20k from an old 401k. The 50 dollar fee is worth the 600 match. The card is just icing imo
Loving the content! Keep stacking wins!
Thanks!
I’m currently on the waiting list for the card, I’ll take the 3% for however long they offer it. One note, I’m not a gold member but I’m guessing since I’ve used RH since 2016, they added me anyways. Maybe because I also had their debit card for the two weeks the program ran lol
Good analysis on RH financials. The 3% cc cash back and the 3% on Ira’s peeks my interest. I’m a fidelity user and have their 2% cash back card. Not sure for that extra 1% is worth the hassle. I’m also hesitant on the ira transfer since I don’t have full trust in RH. Like yourself I also rather keep all my accounts in one place. If it was vanguard or Schwab making these offers I may reconsider.
I think you’re in good hands with Fidelity, if it was a bigger player like you said I’d second the recommendation to switch. Robinhood can’t match the customer service and fluid experience of Fidelity 1% more isn’t enough for the gamble.
I personally keep my accounts spread across different banks and services. That way if one bank fails, then I’ll still have other accounts to fall back on while waiting for FDIC, or SDIC, or any other insurance to kick in.just be careful with fintech companies since a lot of them use the same handful of banks.
I could see it as a card builder because people who have gold can add family members and set limits to get thier credit increased
Pretty perfect analysis!
Thanks!
Great analysis Matt! Honest as always
Thank you!
Also I think they will get per transaction- but also because they get $50-$60/yr for gold members but also the 3% most likely will remain within the Robinhood ecosystem - redeeming mostly for value in their portfolio
I wish this was available in Canada.
Fyi... this Robinhood gold card is actually issued by Coastal Community Bank. It's likely RH is getting a % from Coastal, with Coastal owning the credit risk, and balances. That said, Coastal appears to be a smallish regional bank with 14 branches. RH has minimal risk other than staking their name and reputation. However, after seeing RH CEO speak, I don't have much confidence in him or the company. I do like RH innovation of free stock transactions thou.
Yes, it's a great point that I didn't even address in the video because it was already 18+ minutes long. The fact that Coastal Community is issuing the card actually makes this a more complicated scenario and IMO less likely that the economics work out. Coastal has to be getting a chunk of the profits themselves, and if they are taking the credit risk then they are likely controlling the bulk (if not all) of the underwriting.
It also makes it to where the card almost has to be profitable on its own because Coastal Community can't / isn't going to run it as a loss regardless of if RH gets benefit somewhere else.
@@mattderron I actually think this is better for RH. To issue a cc, they prob need to set up a banking subsidiary which has a different set of regulatory huddles. Currently, they are insured by SPIC... but banks are insured by FDIC. Plus, as you pointed out its unknown what credit score is needed to get this card. If they want people who carry balances, its more likely they are going to be a higher credit risk. Best to just get a % of interest being collected vs owning everything. Depending on the various bonuses on the brokerage side, it might be worth the hassle to sign up for RH.
@@mrallan8063 yes but they’ll still have an issue of giving 3% back no matter what and hoping that Coastal Community is willing to take on high risk customers just so they can a sliver of the profits. Obviously Robinhood shouldn’t issue it themselves, the issue is the big promise of 3% back when they don’t actually control the whole process.
This is similar to the Apple Card where Goldman had issues with underwriting and losing money on the relationship. Even then, Apple offered 2% cash back when used with Apple Pay…because Apple already gets a cut from the banks for each Apple Pay transaction in addition to whatever extra cut they negotiated from Goldman.
I honestly don’t see how 3% works with 2 mouths to feed in this scenario. But I guess we’ll see.
@@mattderron It works when customers carry balances at 28% interest rates. CC put up with customers who pay in full & on time each month, and take a loss on those few people. However, they make money hand over fist on balance carrying customers, who might be late every now and then (late fee was $39 or $49?). Given their customer base likely skews younger, there's a higher chance they'll carry a balance.
of course, that's what I mentioned in the video - they will need revolvers to make the numbers work. But here's the question - you have a customer base of people with revolving balances, like you said...likely younger. Do they really have assets to bring to Robinhood? Or are they literally just profitable credit card balance holders paying 29% interest? If they don't have money to pay their credit card bill, they likely don't have money to invest. If that's the case...how much of that credit card profit is RH really getting versus Coastal Community? Because the "ecosystem" play at that point is moot, they have no money.
All I'm saying is - what Vlad is saying in those clips versus the numbers in their financial statements versus the reality of the card economics don't add up to me. But again, time will tell.
Great video
Thanks!
Hmm good video, got me thinking, i hate robinhood but i do like the card. Still thinking about it.
Thanks!
My man Matt! dropping informative videos all the time. Thanks brother!
No worries, glad it was helpful!
Great video as always! It is a little interesting to see them roll this out now as we are probable at peak Federal Funds Rates so while they may grow the volume of assets on their platform I don't expect these rates to last! Thanks for sharing!
Yeah ultimately it will depend on how they maintain (or expand) their interest rate spreads. But agreed if rates go down and their ability to earn on deposits goes down it will be hard to keep the same benefits IMO
I dont understand the 1% deposit boost. Do you have to keep your cash there for 3 or 5 yrs ?
I kno u have to keep your IRA for 5 yrs if u get the 3% match. But not sure about the 1% boost
It says the boost is paid out over 24 months so it’s basically a way to keep you subscribed to gold it seems. Ie you make a deposit and your 1% boost is spread out over 24 payments each month after. When you make the next deposit it’s another 24 months.
This actually would’ve been good for the video because it reinforces their want to keep people subscribed and bringing assets to their platform
@@mattderron thank you for clarification. I did transfer my Roth over to robinhood to get the 3% match and will also get the credit card since I'm already a gold member. But im new to robinhood so we shall see how it goes.
90% of my money is at fidelity at the moment. I like fidelity so far but I can't say I'm in love with it
@jeancarloferreira9770 that’s cool, I’ve used Robinhood before but just for small stuff. I’m pretty much all at Schwab. I hope it works out great for you though. If you’re already a Gold Member it makes perfect sense
@@mattderron I just got an email from webull with a 4.5% match on IRA contributions or transfers 🙀
To me, as you said, it’s more a commercial campaign 😉
Once reached a satisfying target this 3% will be reduced..
I think it's likely to be reduced, the question will be when / how long. Ultimately if it's a big hit and they get a bunch of interest revenue elsewhere, maybe it can last
Honestly, I dont think it will be reduced. Robinhood has shown that they will take bold steps that disrupt the norm when it comes to fee free trading, so I think that they will keep the 3% because it draws in more people which is what they are looking for.
Robinhood definitely pioneered no fee trading, but remember it's because they get paid by the market makers on the back end - which is controversial in itself as to the transparency of cost / execution to the user.
You may be right that they won't reduce it, but IMO the only way that happens is if their attempts to lure assets is wildly successful. If it's not and they maintain their current customer / revenue base - the numbers say they will need to reduce the benefits somewhere.
@@9thebigcool It's all about the bottom line though - and RH can only lose money for so long. Eventually they have to be profitable or they will have to fold.
And that's when I'll stop using it 🙃
Im already a gold member. To me works fine.
Nice!
16:00 "To make up the $50 annual fee, you have to spend $5,000 more annually because you can earn 2% fee free from other credit card" . This calculation is incorrect. Not only the extra $5,000 will make up the annual fee, your normal spending part will also earn 1% more to make up the annual fee. For example, assume you spend $10K on credit card earning 2% with no fee, you earn $200 annually, and if you move your credit card to RH with the same spending amount, you earn $300-50= 250 annually, i.e. earning more without spending $5000 more
I didn’t say spend more annually, I said you have to spend at least $5,000 a year to make up for the fee. Anything above $5,000 you’re earning more than a 2% card with no fee
I have the X1 card, it was bought by Robinhood so no choice there the more I hear feedback from others about Robinhood I think I will pass on the RH Gold card. I think it was dumb of them to end the X1 card and scrap plans for the X1+ card that would have offered some travel value they never should have bought the X1 card.
Yeah this is a good point, I didn't even bring up the X1 card
I haven't seen anything on how the 3% cash back is delivered. If the reward goes into a RH trading account, then I can see how this makes sense for RH.
Yes the only “cash back” option is to deposit into your RH brokerage
Would it not make sense to use this card to pay monthly bills such a rent, utilities, and services that you wouold normally pay anyway with a 3% discount? Allowing you to invest that money back into RH.
Yes definitely, just like any card if you can use it responsibly and get as much cash back as possible, then it's definitely a win. In this case you'd have to be ok having Robinhood Gold (unless you already do) and you have to assume the 3% will be around for a while
Yeah... I have enough credit cards as is. 😅
But the other benefits does sound tempting.
You forgot to mention that this card has no SUB. You have to factor that in also.
I've been in the waitlist for 6months now
Yah when is the card coming out or how can you se more information about your wait status it just says your on the list atleast the IRA gave you a number what you where in the wait list
For building the credit comment, that has to do with being able to add anyone as an authorized user (even someone under 18) and setting a smaller credit limit for them. This feature allow parents to help build up credit for their children.
That is for sure a cool feature - but Vlad specifically said "on those customers building their credit we make revenue on their balances" so he is specifically talking about people revolving their balance.
@@mattderron There is speculation that Robinhood will use assets in your account along with your income to create your credit limit rather than a credit score hard pull. If this is correct then it will help as another line of credit reducing your credit utilization (as long as you dont increase spending) without the immediate hit on your credit. Overall I think it will help more people as the 3% cashback deposited into your account will be eligible for the 1% deposit bonus. The 3% is sustainable if they account for taking some of the interest on balances and putting it towards the rewards. We will see, but I do not see them changing this 3% cashback.
I'm pretty sure they're still doing a hard pull. Their site says "See if you’re approved with no impact to your credit score. Your credit will not be impacted unless you decide to accept the card offer."
Many companies are doing this now (Apple does it with the Apple card) where they pre-approve you based on what they know but then if you accept the offer they do a hard pull and confirm. Robinhood's card is ultimately being issued by Coastal Community Bank - I would be shocked if they're not doing the normal credit pull / credit reporting stuff.
Again, I'm not knocking Robinhood. If people are already in their ecosystem and like their app / services there's no reason not to try it. Still, the numbers say the credit card is unprofitable unless they get a lot of revolving balances or influx of assets into other accounts. It could work, but I don't think there's a way to say for sure right now that "the 3% won't go away"
@@mattderron it may be semantics, but what do you say is "a lot of revolving balances"? Based on the numbers they need either need a lot of people to have a balance for a short period of time (about every person carrying 60% balance each month) or a small group of people who have a large balance for longer period of time. Based on statics, I just dont see how this would generate profit on its own with the current level of users.
I guess what I'm saying is - more people carrying a balance than just people transacting and paying it off. Based on my assumptions of the card economics - every swipe is a loss for Robinhood. They are giving more cash back than they are receiving in interchange. The Gold fee partially makes up for that, but they will need enough users keeping a balance and paying 20%-29% a year on that balance to make up for the deficit they will be taking for every single card swipe.
I say this with some experience. I worked at a Fortune 100 bank where we tried to implement a 2.5% credit card. It was wildly popular with the initial test population (we rolled it out to employees and some customers) but it was unprofitable. Because most of the users were transactors who just wanted the 2.5% cash and paid off their balance every month. They ended up discontinuing the card even though everybody loved it because it lost money for the company.
Thank you for doing the heavy lifting (analysis) on HOOD financial. I am with Schwab also. As you pointed out, needing to spent $5,000 annually to break even BEFORE enjoying the 3% just doesn't make sense.
No worries!
The card does not go off credit score you have to link bank account so they know how much you make per year.
I haven't added myself to the waitlist personally so I don't know what they say there. Usually they "pre-approve" you based on what they know about your RH activity (kind of like what Apple does with the Apple Card), but then they pull your credit to confirm once you accept the offer. But also, this is in the terms on their website:
Credit Reports
You understand and agree that we may obtain a consumer credit report in connection with your request for credit and in connection with any updates, renewals or extensions of any credit as a result of your request. If you ask, you will be informed whether or not such a report was obtained and, if so, the name and address of the agency that furnished the report. You understand and agree that we may obtain a consumer credit report in connection with the review or collection of any transaction on your Account or for other legitimate purposes related to such transactions. California Residents - you agree to waive your right to keep confidential from us information under Section 1808.21 of the California Vehicle Code.
That makes no sense. I heard of petal and the cash score, but never of a card scanning for annual income.
Normally you just update that line yourself.
Still better than any credit card out there today ! Coinbase started giving 4% cash back in crypto from the beginning and then cut it 2 years later to 0.5% 😀But RH still holds its 3% cash back now ! I'm on the waiting list for this card more than one month. So let's see how long it will take.
It might be - but I think the fact that a lot of folks are still on the waiting list is a sign that they're trying to roll it out slow to make sure it'll be profitable enough
@@mattderron everybody wants this card, it's too good to be true...but I see your point, yes the waiting list is forever and no clear answer when can I apply, just endless waiting list...
signed up for RH gold when I applied for the card, nearly 4 months ago, rollout due last summer they told me
Not gonna like, I got gold just for the 5.5% interest rate. Other than that, I don't really touch it.
They really only have to make up about 1% after transaction-fees. Between the gold-membership & interest that 1% is covered. Now consider how much free advertising they received, just for having the card. They should make a LOT of profit just from the amount of traffic.
Losing 1% per transaction is not normal. That's why most cards give 1.5%-2% back so they can at least break even on the transaction. Gold membership is $50, so it only covers the first $5,000 in spend on the card. Everything above that is net loss for them.
Maybe they are expecting mostly smaller spenders, in that case cool. But that also means they'll less in interest revenue from those people (because they have less assets to move to RH). Or maybe they expect a lot of folks to pay interest. Again that's fine, but again you're increasing the risk for your company because you're depending on higher risk customers.
Either way, it'll be easy to tell if it's working or not, depending on how long the 3% lasts.
@@mattderron That $5000 will go further then we think. It's only 3% cash-back. So people will still be using 5-6% cash-back cards for things like Groceries/gas. Then there's the millions in free-advertising they gained which can bring many investors that will likely be in that target demographic. It's not really meant to attract whales and people already heavily invested in other venues. This was a well-executed great offer to people that are mostly novice/beginner. It's pretty much an offer they can't refuse when comparing or just looking for an investment firm.
@liahfox5840 time will tell
Remember robinhood's debit card? The one they issued and eliminated? Pepperidge farm rememmbers
Awesome video mate! Could you please do a comparative between VGT vs FTEC? They have almost identical returns but FTEC's expense ratio is cheaper, gives more dividends and the price is more than a third of VGT (mentally is more rewarding to know that you have 3 shares instead of 0.89 eventhough its almost the same)... I just can't understand why FTEC hasn't blown out and would love to listen to your thoughts... thanks mate!
I haven’t looked at FTECs details but I can see what’s there
Isn’t this the company that froze investor accounts to prevent them from unloading GameStop stock awhile back? I wouldn’t trust Robinhood as far as I can throw them.
they prevented people from selling it...or maybe buying it. I can't remember, but yes
Id bet some money that the vast majority of ppl who will be using the gold card aren't high risk sub 600 credit score applicants. If you're using RH gold then you're most likely using their other services like parking your cash there, IRA match etc and most likely a financially healthy individual.
it's gold
Maybe it’s me but people that are going to apply for this CC aren’t financial illiterate “most” so they might not make that much money. This isn’t Apple where everyone in the world has its CC.
I don't know what the breakdown of customer is for RH, but I'm guessing they'll get a mix of folks who are less financially literate and then also very financially literate people trying to maximize perks / bonuses through their program
The fact that they don't know when the Gold Card will be issue is very suspicious,looks like they are lying to get more customers
I'm guessing it's because they are rolling it out slow to ensure it's profitable before opening it up to a lot of people
I was so tempted by the Robin hood matching the 3% roth ira but i can't see how they can sustain it.
How can they offer that with a straight face, seriously. I'd love to know. I'd love to roll over if it's real and reliable
I explained what I think in the video (for the card but also applies for the IRA) - as long as they can get enough interest revenue to get profitable and stay there, they can continue with the benefits. If they can’t, I would guess they’d have to reduce the benefits at some point. But that’s just my opinion
watch the video if youd really love to know?
@@crohmer so the profits from credit cards have to pay for roth ira and the company costs?
@@VictorSanchezVS13 no I think it’s more that they need to continue growing their deposit / asset base for all the benefits to continue as is. As of right now the company is operating at a loss or at best a slight profit. They need to keep increasing interest revenues through user balances to sustain profitability IMO
Robinhood has a good idea imo. Their making a all in one financial app
If you expect a marketer to not be somewhat misleading, you are ignoring the way the world works.
Doesn't make it OK, but being aware of and dealing with reality is a great idea.
For me, them claiming it's a no fee card, but charging a $5 a month fee is a big turn-off, both in the cost and in the fact that they're already lying to the customer.
So Robinhood is supposedly about no or low fees, but they charge fees, like monthly gold service fees. NO THANKS -- that's like freaking Amex, which is among the worst in the business, re fees.
I don't trust Vlad and the more he speaks the less I trust. That simple.
I agree, part of it is I worked in financial services so it’s an area where I know some things. When I hear him talk he’s either using an uninformed talking point or trying to be intentionally misleading. I don’t know which one.
Good example of this - when Becky says “how do you make money” he says they earn on swipes (interchange) and then “because we’re vertically integrated we earn on balances” which he means credit card balances. Every issuer earns on balances that’s not new. Maybe he meant “because we earn also on Robinhood gold balances elsewhere” then fine that would be true. But that’s not what he said. Again - on purpose? I don’t know
Excellent content. But it would have been better without those expressing faces
without the what?
Credit card delinquencies being the highest in history right now seems like a good bet to him?
I don't think he'd be wanting to bet on delinquencies since that would mean they're not paying at all
Im still getting 5.25% lol?
Huh?
@@mattderron uninvested cash, im still getting 5.25% instead of just 5%
making money from those who wont pay their balance in full lol. evil.
we like it or not that is main source of income on offering credit cards, making poor and uneducated [people already in financial situation] to pay interest. That's why I follow Dave Ramsey
I mean - it's every credit card issuer - it's just part of the business. The only thing I think about the Robinhood situation is they often tout themselves as "for the little guy" and "disrupting these big bad banks" yet they are needing to earn on revolving balances to make this work. Also saying "a great card for those building credit" is just wrong or at best misleading and not in tune what they say they're about. That's why I mentioned it in the video.
At the end of the day, the business model is fine as long as you're up front about it IMO.
The Robinhood CEO is not very impressive. He doesn't come off very intelligent, confident, or convincing. He reminds me as a person entering middle age, but think they are still in college.
I've had the same feeling about him too, it's been a while though so I was wondering if that had improved. Hearing him say "well because we're vertically integrated" when talking about earning on credit balances I was like 🙄
I also thought this same statement!
As long as he doesn’t speak like a politicians, I’m good. Many great CEO have trouble public speaking doesn’t mean their distrustful. Great example would be Elon, Jeff, and the idiot guy from FB. They’re sometimes not verse at public speaking especially under pressure
Then start your own multi billion dollar company. When will that be again?
@@Matt67012 I don't need to stroke my ego that much. But i guess you do it for him.
When Vlad calls pay-in-full customers "Transactors", what he means is "Deadbeats" because we use the card as an ultra short term loan, get the benefits of the card, and then pay it in full each month, robbing him (no pun intended) of revenue.
Well most card providers plan for a certain percentage to be transactors and that's why you don't see cards more than 1.5%-2% cash back in general. So I guess we'll see how long it lasts for them
@Ciborium I disagree, and I don't think you are looking at the full picture...
I believe Robinhood sees them as a different avenue of revenue. Those who pay their card off every month are more likely to be in a better financial position, and likely better overall with finances. Thus, they are a great candidate to use other Robinhood offers and features, and also much more likely to keep a larger amount of cash in Robinhood.
Those that carry a balance on the card will be an easy source of interest revenue, this is true; however, those who pay their card balance off every month might well be much more valuable to Robinhood overall.