Libra isn’t the only payment system that stands to threaten the banks. Popular stock market and crypto trading app Robinhood is going after legacy banks with the relaunch of a cash management feature. Robinhood COO Gretchen Howard is cited in Fortune as saying:
“We’re going to come out with a cash management account soon.”
The feature was previously launched and then quickly discontinued in December 2018.
To an extent, the existence of cryptocurrency has already disrupted traditional banking because it is decentralized. When decentralized financial systems integrate with a fintech platform like Robinhood, banks clearly become superfluous. This is something that many of the big banks are trying to respond to using policy lobbying to slow adoption of such technologies or by constructing their own centralized alternatives.
It will be recalled that back in December, Robinhood announced the launch of a fee-free checking-and-savings account offering a 3 percent yield to its largely youthful audience. This came after the introduction of crypto trading on its app, which allowed many to interact with bitcoin for the very first time.
On that occasion, the launch was botched because regulators quickly pointed out that it was effectively offering an unregulated bank account with no deposit insurance as required under U.S. federal law. This time, however, the company has come prepared with the legacy investment banking establishment firmly in its crosshairs as it seeks to disrupt their business model. The approach seems to be unstoppable.
Robinhood Disrupting Banking Without Offering an Account
Following December’s humiliating retraction, Robinhood is eager to stress that the new product is not in fact a bank account but rather a cash management tool embedded within customers’ existing Robinhood brokerage accounts. While important for regulatory reasons, this is little more than a semantic difference because the new service still has the ability to functionally replace a conventional bank account.
The company is very unsubtle about its plans to unseat the existing order and create a new investment paradigm focused on bringing in large numbers of youthful retail investors instead of a handful of well-heeled investors. From a bank’s point of view, this can only mean more disruption to add to that already created by cryptocurrency.
According to Howard, in addition to expanding its brokerage services, Robinhood has also applied for a federal bank charter, which would authorize it to offer products and services currently restricted to legacy banking establishments. In the long term, the company’s goal is not just to disrupt investment but banking as a whole. If the reaction of the banks is anything to go by, this threat is being received with a palpable sense of alarm.
Going to War With the Banking Establishment
Apart from startups like Square and Robinhood, other fintech solutions like Facebook’s Libra stablecoin have effectively declared war on the legacy banking establishment.
Libra presents a particularly formidable challenge because it not only has a huge marketing budget but also a platform with over 2 billion people on it – multiple times the customer base of even the largest banks in the world put together.