Home Business A Review of the Robinhood 3 Percent Cash Back Card

A Review of the Robinhood 3 Percent Cash Back Card

by SuperiorInvest

Here's the first thing you need to know about the new Robinhood credit card that promises 3 percent cash back on all purchases, with no limits: Yesterday, when I asked Vlad Tenev, the company's CEO, to guarantee that it would remain at that level for 18 months. , he wouldn't do it.

I hope it stays. He is incredibly generous in these things. Cash back offers from big card issuers like Citibank typically top out at around 2 percent, and it's hard to make money even at that level. Charles Schwab gave up its 2 percent card in 2010.

Robinhood Gold Card is the company's first credit card under its own brand. So what do you think you know that no one else knows and what exactly do you hope to achieve?

There are several ways to make money with credit cards. The first comes from the fees merchants pay to accept them. The second is interest when people carry a balance.

Then there are the annual fees, which can run into several hundred dollars for the most generous cards. Robinhood's card has no annual fee, although you must pay $5 per month or $50 per year to be part of the company's Gold program, which offers better interest rates and other benefits.

Big-spending system-busters really enjoy moving, say, $100,000 of their annual spending to a new card, carrying no balance, earning $3,000 in cash back each year, and declaring themselves victors over dumb companies.

But Tenev aims to attract more than its share of people who are relatively new to the world of credit cards and aims to approve almost all Gold members who apply. If those customers borrow, without defaulting on their loans entirely, they could be profitable for the company. Time will tell if Robinhood has the underwriting skills to make this work.

There is at least one other way to make money with a card like Robinhood's, and that's if you have other products to sell.

That 3 percent refund must be paid into a company brokerage account before it can be transferred, for example, to your checking account elsewhere. People may simply invest the cash instead of withdrawing it.

That stop on the brokerage account is not the only attempt to create friction. There's a nice 5 percent return that Gold customers can earn in cash and a couple of bonuses for people who transfer more money to the company. And that money, and traders could profit from it, is where Robinhood stands to make the most.

Tenev said his team had looked at many potential cases and did not expect to see an overwhelming number of bounty hunters withdrawing their profits from the company.

Some people outside the cash back offer don't see how the card can make money. They include Joanne Bradford, who was a senior executive at SoFi when she was considering credit card offers and is now chief financial officer at financial planning startup Domain Money. “Having been someone who led and manages a funnel for a company, she will try a lot of different ways to get new customers,” she said.

So how soon could Robinhood withdraw the 3 percent offer when it wants to try other ways to get new customers?

The company does not mince words. “Robinhood may make changes to the Rewards Program (including terminating the Rewards Program) or change the terms of this agreement at any time,” reads the third sentence of its rewards rules.

They don't like you either, those who bash the system. The rules go on to say that the company can cancel your card if you participate in “gaming” or if it believes you “may attempt to do so.” There is a waiting list for the card and the company will launch offers in the coming months.

Let's go back to that promise that I couldn't get from Mr. Tenev. In 2014, I posed a similar challenge to a Fidelity executive because he was suspicious of his cash-back card that offered just 2 percent. He accepted, the rewards stuck and the card exists to this day.

But Tenev did not want to make the promise. “I appreciate the exercise,” he said, adding that it was not his intention to reduce the cash-back rate soon. “But I really can't breach the terms and conditions.”

In 2020, Robinhood froze trading in certain stocks during a period of extreme volatility. In 2021, it paid what the Financial Industry Regulatory Authority described as the largest fine it had ever imposed for “significant harm suffered by millions of customers.”

Why should customers trust the company now? Mr. Tenev did not become defensive.

“We've been through those trials and tribulations and we've built up scar tissue,” he said. “Hopefully this will give customers some confidence. And we continue to launch products that have undeniable value that customers will not be able to ignore.”

In fact, that's the last thing you need to know about the new card. It has undeniable value. You shouldn't ignore it.

But that 3 percent? Robinhood will have to prove it can make it work.

Source Link

Related Posts