Here’s the first thing you should know about the new Robinhood credit card that promises 3 percent cash back on all purchases without a limit: Yesterday I asked Vlad Tenev, the company’s CEO, to guarantee that it will last for 18 months on this level would remain, he wouldn’t.
I hope it sticks. It’s incredibly generous when you consider these things. But cash back offers from major card issuers like Citibank are generally around 2 percent, and even at that level it’s difficult to make money. Charles Schwab abandoned his 2 percent card in 2010.
The Robinhood Gold Card is the company’s first branded credit card. So what does it think it knows that no one else knows, and what exactly does it hope to achieve?
There are several ways to make money with credit cards. The first consists of fees merchants pay to accept them. The second reason is the interest when people carry credit with them.
There are also annual fees, which can be several hundred dollars for the most generous cards. Robinhood’s card has no annual fee, although you’ll have to pay $5 per month or $50 per year to join the company’s gold program, which offers better interest rates and other perks.
High-spending system drivers take great pleasure in, for example, transferring $100,000 of their annual spending to a new card; have no credit with you; You earn $3,000 in cashback every year and declare yourself the winner over stupid companies.
But Mr. Tenev wants to attract more than his fair share of people who are relatively new to credit cards and intends to accept almost every Gold member who applies. If these customers borrow without completely defaulting on their loans, they could be profitable for the company. Time will tell if Robinhood has the underwriting skills to make this a success.
There’s at least one other way to make money with a card like Robinhood’s, and that’s if you want to sell other goods.
This 3 percent cashback must be transferred to a company brokerage account before you can transfer it to your checking account elsewhere, for example. People may simply invest the money instead of withdrawing it.
This pit stop in the brokerage account is not the only attempt to create tension. There’s a nice 5 percent return that Gold customers can earn on cash, and a few bonuses for people who transfer more money into the company. And with that money — and the traders who might use it — Robinhood can make more.
Mr. Tenev said his team had investigated numerous potential edge cases and did not expect an overwhelming number of reward hunters to take their profits from the company.
Some outsiders eyeing the cashback offer don’t see how the card can make money. That includes Joanne Bradford, who was an executive at SoFi when the company was considering credit card offerings and is now chief money officer at financial planning startup Domain Money. “As someone who has led and continues to lead the funnel for a company, you will try many different ways to acquire new customers,” she said.
So how quickly could Robinhood withdraw the 3 percent offer if it wants to try other ways to attract new customers?
The company doesn’t mince words. “Robinhood may make changes to the Rewards Program (including termination of the Rewards Program) or change the terms of this Agreement at any time,” the third sentence of its Rewards Rules states.
It doesn’t like you system thugs either. The rules go on to say that the company can block your card if you engage in “gambling” or if the company believes you “may attempt to do so.” There is a waiting list for the card and the company will be rolling out offers in the coming months.
Let’s go back to the promise I couldn’t get from Mr. Tenev. In 2015, I posed a similar challenge to a Fidelity manager because I was suspicious of the cash back card that only offered 2 percent. He assumed the reward stood and the card still exists to this day.
But Mr. Tenev didn’t want to make the promise. “I appreciate the measure,” he said, adding that it is not his intention to lower the cashback rate any time soon. “But I can’t really do without the conditions.”
In 2020, Robinhood froze trading on certain stocks during a period of extreme volatility. In 2021, the company paid what the Financial Industry Regulatory Authority said it had ever imposed for “significant harm suffered by millions of customers.”
Why should customers trust the company now? Mr. Tenev was not defensive.
“We went through these trials and tribulations and built up scar tissue,” he said. “Hopefully this will give customers some confidence. And we continue to bring products to market that have undeniable value that customers cannot ignore.”
In fact, that’s the last thing you should know about the new card. It has undeniable value. You shouldn’t ignore it.
But that 3 percent? Robinhood needs to prove it can work.
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2024-03-28 18:22:48
www.nytimes.com
