Trading platform Robinhood (HOOD) will be launching its first credit card — the Robinhood Gold Card, a premium card exclusive to Robinhood Gold members.
Robinhood CEO Vlad Tenev sits down with Yahoo Finance Executive Editor Brian Sozzi to discuss the company's foray into the credit card space as it expands past being just an investment site:
"We care about... growing the ecosystem. When we look at customers that sign up for Gold, we see that they adopt our other products at a much higher rate. The average revenue that we generate as a business from these customers scales with the amount of value we're giving them."
Tenev goes on to detail Robinhood's vision for its customer experience as it helps users not only trade equities, but also invest and save for their retirement.
For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
BRIAN SOZZI: Consumer spending is holding strong and Robinhood is looking to cash in. The company announcing the launch of its first ever credit card, the Robinhood Gold Card. Vlad Tenev, Robinhood co-founder and CEO joins me now. Vlad, always great to get some time with you. This is a pretty big deal for your company. We've been tracking your company in the weeks ahead of this launch. Why are you getting into the credit card business?
VLAD TENEV: Well, simply put, our goal is to be the place where customers custody all of their assets and where all of their transactions go through. And if you look at how to grow wallet share and help our customers build wealth, their spending is one of the most important ways they use money. And the bulk of our customers are credit card primary.
Once you start using a credit card, you tend to not go back to other methods. So we knew that was a place where we wanted to be. And we felt like if you look at the credit card business, very high margins, very profitable. There's really an opportunity to cut out the fat and give more value into the pockets of our customers.
BRIAN SOZZI: What is it like now that you're going to go head to head with some really old companies? I mean, you have Amex, Visa, and a Mastercard. Do you worry about that you can't take market share from these companies?
VLAD TENEV: I mean, when we look at what we want-- what we wanted to do, we didn't want to just come out with a me too product. We wanted to differentiate on rewards. We wanted to differentiate on user experience, and of course, the design. And I think we've been able to do that in all three categories.
The rewards, I believe are the best in the industry nothing can compare-- the design and the user experience, the digital experience. I think we're very proud. The team is very proud of what we've built. We really have not just business people and technologists at Robinhood, but we have great artists too.
And I think we've made what I believe is the most iconic card on the market. And it resonated with customers. So during the event, which was at nighttime,
BRIAN SOZZI: It was very Steve Jobs-ish. I was watching it. You were on stage unveiling the product. It was something different for Robinhood, I think.
VLAD TENEV: Something different. And within the first few hours after the event, hundreds of thousands of people have signed up already to get the card. So the response has just been amazing.
BRIAN SOZZI: When does it officially launch?
VLAD TENEV: We're going to start rolling it out in a number of weeks to the outside world. I mean, some people already have it. But yeah, I think the--
BRIAN SOZZI: That's a lot of folks. So what is the--
VLAD TENEV: It's very soon.
BRIAN SOZZI: What's the criteria to get one of these cards. And do you bring that risk into your balance sheet? What are the financial mechanics behind it?
VLAD TENEV: Yeah. So the criteria is you just have to be a gold member. One of the things that's really special about this card is it's a premium card, so it's a card that to even get rewards and perks approaching this, you have to be a high net worth individual at other places. And most don't even offer anything like it. And we wanted to make it available to all gold customers. And gold is as little as $5 a month, right? So it's really intended to be a mass market product.
BRIAN SOZZI: Why no fee? I talked to the Amex team all the time. They're making bank. I mean, they charge these fees every year. People are willing to pay fees. Do you see yourself putting a fee on this at some point?
VLAD TENEV: Well, so you have to be a gold member.
BRIAN SOZZI: So it's what? $5 a month.
VLAD TENEV: Yes. And there's an annual plan as well. But I think adding additional fees is something I've generally been against because it makes it complex. So we want to make it as simple as possible. If you're a gold subscriber, you get that private client experience that you'd have to be a high net worth customer of a big institution to get. And we wanted it to be accessible to everyone.
BRIAN SOZZI: Is this-- how important was it to launch before the second half of this year? It looks like we might get some rate cuts theoretically. That should be good for consumers. And here's Robinhood with its first ever credit card. In year one, how big could this be financially for your company?
VLAD TENEV: I think that we're very long-term focused company. I think the goal is obviously-- the intention is for the business, the credit card business on a standalone business to be a profitable business for Robinhood. We think we'll get there. But the other thing we really care about is growing the ecosystem.
When we look at customers that sign up for gold, we see that they adopt our other products at a much higher rate. The average revenue that we generate as a business from these customers scales with the amount of value we're giving them. And once they're using the 5% APY on your cash, which is one of the highest interest rates out there, the retirement match, I mean, you're getting a ton of value.
And we see customers putting more and more of their wallet share, more of their money into Robinhood, and that growing over time. So I think it could be very significant. As we add more things to gold, the value proposition becomes so strong. And I think we will see people putting more and more of their finances onto the platform.
BRIAN SOZZI: You know, I was reading a good note from the Bernstein team this morning on the product launch. And I came away thinking, Robinhood is not really just a trading platform anymore. How do you want investors to view your company?
VLAD TENEV: Well, I think over the long run, I've been very clear that the goal is for all of your assets to be custody in Robinhood, all financial assets, investment, retirement. And every time you do a financial transaction, that should go through Robinhood. We should be able to help our customers with that.
And that space, the overall space is gigantic. I mean, even just one of these new product lines that we've launched, retirement, which we launched a little bit over a year ago. So in the first year, we got up to about $1.4 billion in assets under custody in retirement accounts. And then we just announced that yesterday, we crossed 4 billion.
So it took us about a year to get to 1 and 1/2 billion. And then the first three months of this year, went from 1 and 1/2 to 4 billion. So the growth has been really amazing, kind of on the backs of the 3% match that we're giving customers.
But you put that in context of the overall IRA industry, so self-directed retirement accounts in the US, have 14 trillion in assets, right? So it's a gigantic market. And we just-- I get excited by the fact that we have what I believe is the best product by far. And there's so much room to run with this, so much more assets we can serve for our customers.
BRIAN SOZZI: Just given the focus on retirement, and I'm hearing a more mature Robinhood from you, Vlad, and I've had to continue to hear this. Do you agree with Larry Fink that we are in a retirement crisis. And how do your companies like yourself evolve to address something like that?
VLAD TENEV: Yeah. I mean I agree. I think people really need to take the initiative to take care of their retirement on their own. We're kind of past the point where you join a company. You work there for 20 or 30 years or more. And you can count on the pension plan. People are working multiple jobs in some cases. They have multiple sources of income. They go from one job to the next.
And so when you're in that regime, it's even more important to have an individual retirement account and take control of your own finances. And we just didn't feel like there were great products that made that really easy for customers.
I think for a really long time, the retirement account was viewed as like this profit center, as a way to squeeze more economics from customers into the bottom lines of these big, bulge bracket brokerages. And so the way we kind of combat this and help solve the problem is by building these great products. And can your individual retirement account actually compete with an employer-sponsored plan?
And I think with things like the match getting the user experience really good, we're also now offering retirement benefits to gig economy workers and kind of stepping in to provide that safety net. And I think you will see that continue to resonate more and more customers, more and more independent contractors opting for our individual retirement account products.
