WSJ: Tech Using Brokered Deposits
Early this week, the Wall Street Journal wrote, "Rule Change Could Help Tech Firms Advance Into Banking." The piece explains, "Technology companies are moving into retail banking by offering financial products under their name. In almost every case, though, there is a partner bank behind the tech firm. Often that takes the form of a bank providing insured deposit accounts to the partner arrangement. That may be one thing that emerges from the discussions between Citigroup and Alphabet's Google, for example. It is also how fintech firms such as Betterment or Social Finance can offer deposit insurance for their offerings without being banks themselves. What exactly that means for the partner bank is complicated, however." The Journal adds, "Yes, it is a way for a bank to gather deposits and earn more fees. But not all deposits are created equal. The most economic form of deposits for a bank are 'core' deposits. These are deposits that regulators believe will mostly stick with a bank even in times of crisis. Brokered deposits, meanwhile, are considered a bigger flight risk. These are customer deposits that come into the bank via some third party and could leave en masse via that same party." In related "fin-tech" news, website The Verge writes, "Robinhood launches cash management feature a year after bungling its checking account launch." The article explains, "Robinhood has launched Cash Management, a new feature for its investing app that lets users park uninvested cash in a brokerage account where it can earn interest or be spent like cash using a special Robinhood-branded debit card.... This week’s launch follows Robinhood's attempt last year to launch no-fee checking and savings accounts and a 3 percent interest rate. The company had to take the feature back to the drawing board after the CEO of the Securities Investor Protection Corporation said he would not insure the accounts Robinhood planned to offer." It continues, "Robinhood says it moves money you put into your Cash Management account to its partner banks, which will pay the interest and provide FDIC insurance (up to a total of $1.25 million). The current Cash Management interest rate is 1.8 percent, and there are no account minimums, transfer fees, or foreign transaction fees."
