Robinhood's new, attractive and expensive credit card | Hacker News Reader

Robinhood's new, attractive and expensive credit card

onepercentamonth.com

25 pointsminhduong24327 comments

> On top of that, Robinhood is on the hook for 5% APY on uninvested cash. Yes, the uninvested balance is cash that Robinhood can invest and profit from, but will they clear the 5% hurdle every time?

Just one example, of many, that shows this author doesn’t know what they’re talking about. At all.

Can you explain?

The fed funds rate / tbill rate is above 5% right now.

Exactly.

On the 3% Cash back CC, they talk about how they will lose money, and they absolutely won't.

The APR on balances > 30 days will almost certainly be in the high 20's like every other credit card. Banks don't look at the interchange fees fed to them separate from the rest of the CC business. 3% is easy to pay when most people hold balances on their CC's and they are charging 20+% and getting 2+% on interchange fees from Visa/MC/etc.

Probably though Robinhood isn't handling the CC themselves, and has contracted it out to some bank to handle for them, as banks are very good at that sort of thing and brokerages generally are not. Other than Schwab, which owns a bank, I'm not aware of any brokerage CC that isn't contracted out. Fidelity famously uses Elan.

The author of the post clearly doesn't understand how modern finance works.

If you scroll down the page of this product, you will see that the card is issued by Coastal Community Bank. It's common that a popular technology firm partners with a bank to issue credit cards.

Yes, APR is going to be 20%+ and even 30%+, but not all cardholders will revolve. Some, if not many, will be transactors and won't pay any interest at all. There is also cost of funds and losses. There is a reason why there is no other 3% cash back card on the market. The most popular set-and-forget card out there is 2% cash back.

On CCB running the card for Robinhood, that's very expected, my last paragraph was about them probably outsourcing it.

Yes, not all accounts will revolve and be charged interest, many will. credit card balances have been going up for decades: https://fred.stlouisfed.org/series/REVOLSL (This is ALL revolving credit, not only credit cards, but it's mostly credit cards). It's well over 1 trillion dollars now. Yes there are cost(s), but credit is a very strong and well run business now and is absolutely a profit center for banks. If they get too many freeloaders that don't carry balances to hit their income targets, they will add some fine print to curtail freeloader use-cases enough that they can hit their income targets. This has been going on for decades now.

I agree with you that RH may put a cap on rewards earnings or change the program later. We have seen issuers take away travel benefits before, but I haven't seen a lot, if any, cards that roll back rewards.

For me, because the RH CEO in an interview (https://www.youtube.com/watch?v=QT5OMUdaZtg) said he wanted the card to be profitable on a standalone basis, I just don't see it that way, but you can be right for all I know.

I got one part, at least it seems, wrong in my blog, that was my bad. I just want to say I did not forget about the interest income side of the card, I just don't think it will be profitable. Again I can be wrong. But thanks for the interaction.

https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

Unfortunately, it can't be used for business expenses. But that makes sense as they're losing money on the 3% cash back according to the article.

I wouldn't trust any benefits Robinhood is offering to be around for the long term. They started their interest earning cash account around the Fed Funds rate (was 2%), but now Fed Funds is at 5.25% and Robinhood is again slashing it from 1.5% currently to 0%. Only by paying a subscription do you get approximately the Fed Funds rate which no decent interest earning bank account is that bad.

Yea, I went with SoFi because they offered points for things like direct deposits and invites. But they scaled it back after a year or two. They even got me on a personal loan they said they'd give $1000 in free crypto for and never paid it out.

Is the outcome of their X1 purchase?

https://techcrunch.com/2023/06/22/robinhood-acquires-credit-...

Author doesn't see RH profiting by selling customer information they acquire.

I don't think you can simply "sell" customer information in the financial industry. It's a heavily regulated industry. RH can use information from the card to cross-sell its loans, if customers allow marketing communication. But I don't think they can just profit from allowing a 3rd-party access to that data. I never heard of a card issuer monetize their customer data that way. If you have an example, please do share.

There's nothing of substance in this article. Robinhood, for instance, can easily cap the 3% limit. Companies also always adjust their uninvested balance APY. If the fed drops the rate, so will RH's.

> Sure, the Robinhood Gold membership fee will act as a cushion, but at $5/month, it will only take cardholders around $2,000 to recoup their money. Not a high amount. On top of that, Robinhood is on the hook for 5% APY on uninvested cash. Yes, the uninvested balance is cash that Robinhood can invest and profit from, but will they clear the 5% hurdle every time? I am not sure. Oh, did I mention that they would give 1% back on uninvested balance, in addition to the 5% APY? And 3% IRA matching? Whatever plan they have but don’t share, unsurprisingly, must be really good to make the maths work.

I mean it can easily just be a ponzi, but Robinhood is in the business of selling data, Citadel being their top client

Having spending data to sell is a natural diversification or expansion, as Payment for Order Flow may get regulated away

but even without that, many banks do the expensive thing for a few years and then just change the terms on the account/card, they tend to keep the customers

Yeah, Ubers credit card had good cash back for a while and then they nerfed it.

It's part of the marketing budget spend.

Joined waitlist, thanks for this info.

Personally, I'm more interested in the ez creation of virtual and temp cards to use for certain subscriptions than anything else.

privacy.com?

I've been using privacy.com for years now for this purpose, it's great and I cannot imagine using my actual cards for anything online again.

I've been looking for a reason to use their spun off card creation api for something: https://www.lithic.com/

$50/year isn't really expensive though. Even leaving aside the ROI, cards like American Express start at like $500/year and go up from there.

By expensive I think the article means the losses it will generate, rather than the end cost to consumers.

720 euros/year for platinum but you get lot of benefit if you flying quite often. Lot of benefits around restaurants, insurance etc.

The vast majority of Amex's cards are free. You need to get to the top two or three cards to be spending that much.

Reading the article, I think the headline means expensive for Robinhood, not the consumer.

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