Robinhood launches 3% checking account • Hacker News Board

Re: Robinhood launches 3% checking account

#431

Post by sireat » Thu, Dec 13, 2018, 9:03 PM UTC

TuringNYC wrote: post #415

mikeash wrote: post #218

Earlier quoted context omitted.

Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate? I agree that the high rate is reasonable in that scenario, but the high rate is also actively fighting to ensure that scenario doesn’t happen. I don’t see people here thinking that Robinhood is bad at math. They’re all asking, “what’s the catch?” Because it sure seems like the…

No one knows what Robinhood will do, but no bank can promise a perpetual 3% rate. The rate is probably a teaser. Even if it is perpetual, it may be "on the first $10,000, with a minuscule rate on larger sums...something that allows them to advertise 3% but offer much less on larger sums.

Kind of funny but I remember 3% rate being kind of normal for a checking account in the early 90s. Of course inflation and Fed was higher back then too.

What I don't understand is those people who willingly park their money in CDs at under 1% and the banks proudly advertising these rates.

This era of seemingly permanent low(or even negative) rates just somehow seem unnatural.

What happened to banker's 6-3-3 rule? "Lend at 6%, borrow at 3% and go golfing at 3:00PM"

Re: Robinhood launches 3% checking account

#432

Post by jkqwzsoo » Thu, Dec 13, 2018, 9:05 PM UTC

teach wrote: post #395

jkqwzsoo wrote: post #337

Earlier quoted context omitted.

I'm sorry, but your post is completely wrong. If this was an essay on American retail banking, you'd receive an F. > Most Americans have (at least) those two accounts, and those two cards. They usually spend from their checking account with their credit card, and save on the savings account. This is not true. A), most Americans do not have two accounts. The card used on your checking account is a debit card, and it d…

> Income is deposited wherever you indicated to your employer. This can be separated between savings accounts, retirement accounts, checking accounts, investment accounts, or even deposited directly to prepaid cards. As an American, I agree with all of the corrections in your comment except for this one. I'm willing to accept that your employment history is different than mine but I've never had an employer that supp…

That's odd. I've always had the option for partial direct deposit (redirect a fixed $ amount or redirect a fixed % from each check to different accounts). Even my college job at a café had that option (to be fair, the checks were from the state comptroller's office, so the same system used to pay all state employees).

My last employer even let me choose if I wanted monthly, bimonthly, or biweekly paychecks.

[Edit: I shouldn't say that it's odd. It just runs counter to my experiences is all.]

Re: Robinhood launches 3% checking account

#433

Post by danans » Thu, Dec 13, 2018, 9:05 PM UTC

russell_h wrote: post #241

danans wrote: post #70

Earlier quoted context omitted.

Apparently, SIPC doesn't provide blanket coverage[1]. So no coverage against, i.e. fire, flood, robbery or embezzlement [2]. The first 3 may not be relevant with digital bank that doesn't handle cash, but the last one might be. EDIT: I misread the second reference. apparently FDIC does not insure against theft or embezzlement, but according to the first link FDIC does provide blanket coverage unlike SPIC. it's still…

My understanding (which is limited, so someone please jump in if I'm wrong) is that SIPC does not protect against a decline in value of your assets. I'm wondering: First, whether Robin Hood is lending out deposits to margin traders. If not, what are they doing with the money? I don't think that they are, as the article implies, making > 3% on US treasuries. Second, if that investment loses money, are those losses pas…

> SIPC does not protect against a decline in value of your assets.

Neither does FDIC, right? Still doesn't explain what FDIC "blanket" coverage offers that SPIC doesnt

Re: Robinhood launches 3% checking account

#434

Post by jshaqaw » Thu, Dec 13, 2018, 9:08 PM UTC

FDIC insurance exists for a reason. It prevents runs on the bank. There will be a time of financial crisis in the future and anyone with a Robin Hood account will flee for an FDIC guaranteed account. The run on liquidity will probably destroy the institution.

Re: Robinhood launches 3% checking account

#435

Post by philip1209 » Thu, Dec 13, 2018, 9:08 PM UTC

kevindong wrote: post #341

philip1209 wrote: post #332

I just spent 3 months in London, and it's crazy how Monzo seems to have taken the market. Almost everybody seems to be paying with a Monzo card, regardless of age. Asking around, I consistently heard that Monzo's competitors like Revolut are going to be a future case study in scaling before great product/market fit. I don't know how many people have Revolut accounts, but nobody seems to be using their cards in public…

> My benchmark is Charles Schwab Bank, which offers free ATM fees on any ATM, anywhere. It's what many millennials that I know use. But, it's a bad product and not very user-friendly. Why do you say it's a bad product? I use Schwab as my main account and it works great for me.

I love Schwab's checking account product because it's highly functional. But, I don't think that it has mass-market appeal. It appeals to a rational buyer, not an emotional one.

The opportunity here for a startup bank is to replace credit card spending in the USA. The potential earnings are huge if you can get consumers to spend on a debit card instead of a credit card (because the rake is higher).

To make a checking account capture the spending market in the USA, it needs to feel premium and focused - like the Amex app. The spending analysis needs to be great, the card needs easy control in the mobile app, and it needs to inspire confidence. It also needs to feel like a trusted, approachable brand.

Schwab makes most of their money on investments. I don't foresee them trying to give mass-market appeal to their checking account, separate from the investment account.

A case study in this field is Marcus, a savings app from Goldman Sachs. If Schwab spun out their checking account into a separate sub-brand with branding that appeals to millennials and had a spending-focused mobile app, I could see them doing really well: https://www.marcus.com/us/en/savings

Re: Robinhood launches 3% checking account

#436

Post by kinnth » Thu, Dec 13, 2018, 9:13 PM UTC

Monzo in the UK is a great example of non-bricks and mortar bank. I know that UK financial startups always find it hard to break into America simply because banking laws are crazy over there. But I would expect a lot of the UK Fintech to think about trying to break america soon.

Re: Robinhood launches 3% checking account

#437

Post by kdot » Thu, Dec 13, 2018, 9:13 PM UTC

snowwrestler wrote: post #402

dunpeal wrote: post #384

Earlier quoted context omitted.

> literally every single bank would already be doing it. Your typical bank has far more than RobinHood's 300 employees, and far greater expenses in general. This is an example of a disruption.

What is your theory, that every single other financial institution has willingly taken on a bunch of expenses they don't need to? This comment just reinforces my feeling that Robinhood's business model is to extract money from credulous customers who think they are too cool for regular banks.

Most large banks have thousands of employees, tons of retail locations, massive fraud exposure, and overbuilt legacy infrastructure.

For example Chase has over 10 banks within blocks of each other in downtown Chicago.

Re: Robinhood launches 3% checking account

#438

Post by longerthoughts » Thu, Dec 13, 2018, 9:14 PM UTC

mturmon wrote: post #426

longerthoughts wrote: post #353

Earlier quoted context omitted.

Your point directly contradicts the conclusions of the paper you linked. The paper concludes that while there were deficiencies with the modelling method (as there are with any model), input manipulation was at greater fault than inherent failures of the model itself. "These results support the arguments of Donnelly & Embrechts[4] and Mackenzie & Spears[12], that Li and the Gaussian copula were not to blame for the C…

The paper is pointing at one aspect of the modeling (estimating the covariances of the copula), versus another aspect (the copula concept itself). That’s a detail that was very important to the author of the paper, but not to my point. My point is that mathematical models were indeed being used and followed in this case, and that the issue really was with overextension of the model, and not just generic volatility of…

Completely agree that the crisis wasn't caused by generic volatility, but any mathematical limitations pale in comparison to the human failure of manipulating ratings due to a conflict of interest caused by private rating agencies. That is what the paper you linked concludes, versus your initial claim:

>poor mathematical modeling of the statistical properties of collateralized debt obligations (CDOs) was the underlying cause of the bottom falling out of that market.

The model is hardly to blame when falsified inputs yield poor results.

Re: Robinhood launches 3% checking account

#439

Post by pascalxus » Thu, Dec 13, 2018, 9:16 PM UTC

mikeash wrote: post #218

patio11 wrote: post #115

For folks trying to understand this, some context which may be useful: Checking accounts are loss leaders virtually everywhere, the exception being smaller community banks. Their primary revenue stream was, once upon a time, net interest income, but these days due to the extremely low interest environment and alternate sources of funding the revenue stream is more weighted towards fees (primarily NSFs, although that…

Why would they expect this account to be used as a high-velocity, low-balance account rather than a park-your-savings account, given the rate? I agree that the high rate is reasonable in that scenario, but the high rate is also actively fighting to ensure that scenario doesn’t happen. I don’t see people here thinking that Robinhood is bad at math. They’re all asking, “what’s the catch?” Because it sure seems like the…

here the catch, I believe: 1. it's ensured by SIPC, not FDIC, so it's not as safe. 2. They're going to lower that 3% rate down whatever all the other banks are at (2%) in a couple of years, unless the interest rates catch up to their higher rate, which they are expected to do in about 2 to 3 years: at that time, 3% will be roughly the norm for the highest interest savings accounts.

I remember the days when Citibank would give out 4% interest about a decade ago. now of course, it's about 0%. It's just classic bait and switch.

Re: Robinhood launches 3% checking account

#440

Post by jVinc » Thu, Dec 13, 2018, 9:17 PM UTC

doctorpangloss wrote: post #344

asdff wrote: post #327

Earlier quoted context omitted.

> Their whole business is to encourage folks that should not be day trading to day trade Trading for most people used to be deliberately obtuse. $7.5 commission per trade is criminal for most people, so is charging $50 a month to get a weekly email with basic technical analysis, but that's literally been the bread and butter of retail investing for decades and no one bats an eye to how deliberately ridiculous it all…

> Trading for most people used to be deliberately obtuse. When Robinhood initiates options trading by asking you, "Do you think the stock is going to go up?" on a phone interface, they've decided that trading is now just for morons.

Why wouldn't trading be for morons? Should we also limit loans to people who have a specific minimum IQ or do we live in a free society?