Robinhood intends to diversify beyond mere stock trading, and plans to roll out a new service enabling users to receive paychecks via direct deposit up to two days in advance. This new service will also compete with companies including PayPal, Wealthfront, Chime and some traditional banks, according to a Bloomberg report.
The service, called Early Direct Deposit, will be available within Robinhood’s existing direct-deposit feature and won’t have fees, Bloomberg reported. “Now you can get paid up to two days early,” a message inside the app will read. “Because eligibility depends on your employer, we’ll let you know if you can get paid early on your next pay cycle,” according to the report, which adds that developer Steve Moser discovered this new feature.
During its second quarter earnings call last month, CFO Jason Warnick said that “over time, as our various products achieve maturity, you should see continued diversification and less reliance on any one revenue stream, such as payment for order flow,” according to a Seeking Alpha transcript of the call. “Over the long run, the trend should be continued diversification as we add additional products,” Warnick added.
Warnick went on to state that Robinhood wants to be “the single money app.”
“That implies more products, more features and innovation as Vlad [Tenev] was talking about, not just on the existing products that we have, but certainly on new products. We want to be the single place that our customers go to for all things money. And that will lead naturally to diversification in our revenue streams over time,” he added.
A Robinhood spokesperson declined to comment.
Robinhood shares went up 6.3% to $47.12 after Bloomberg reported on the feature. Plus, the stock had climbed 17% since its July initial public offering through Tuesday’s close, according to Bloomberg, while PayPal shares dropped less than 1% to $286.70 on Wednesday in the wake of the news.
The Motley Fool, however, noted that if you decide to use this service, it will be more important than ever to engage in responsible trading when using the platform. The bulk of Robinhood’s revenue stream stems from crypto trading, which can be extremely volatile and risky. The Motley Fool went on to warn that if you do sign up for Robinhood’s cash management service to gain early paycheck access, “be sure you’re comfortable keeping your cash account separate from your investment account — and that you’re making informed choices about the level of risk you take with any investments that you happen to make.”
According to the second quarter earnings call, net revenues were $565 million in Q2, up 131% year-over-year. Transaction based revenues were $451 million in Q2, up 141% year-over-year, driven by the growth in the company’s user base and strong interest in crypto during the quarter. “In Q2, we saw the number of active crypto traders increased significantly versus the previous quarter. At the same time we saw decline in equity activity as our customers’ interest rotated from equities to crypto,” Warnick said on the call. “Crypto revenues increased to $233 million in Q2, up from just $5 million last year. Robinhood is now clearly on the map for crypto trading.”
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Last updated: September 3, 2021