Robinhood (HOOD) is launching a Cash Card and banking on consumer spending trends to unlock its next growth opportunity.
For each transaction, Robinhood Cash Card customers can decide whether to round up their change to the nearest dollar when they make purchases and they can then choose an investment asset to direct their spare change to.
“The next generation has a high interest in investing, but it is out of reach for many because they’re caught up in the cycle of spending” Robinhood Chief Product Officer Aparna Chennapragada told Yahoo Finance. “And so we built this spending account and a cash card … to be able to turn spending into investing.”
As the economy continues to reopen following the depths of the COVID-19 pandemic, spending is anticipated to trend higher even amid multi-decade high inflation. An increase in spending among cardholders would then provide Robinhood more trading volume as consumers choose to use their change from purchases to invest in equities or cryptocurrency.
Robinhood takes direct aim at existing micro-investing category leaders such as Acorns and Stash — which are both unicorn private companies valued at more than $1 billion which have prioritized affordable market entry and investing by using loose change.
The Cash Card also leans into cryptocurrency adoption. Market orders on Robinhood can be placed for the equivalent of nickels and dimes, so spare change can be put into digital coins, a relatively passive entry point compared to saving to purchase bitcoin or ethereum.
“When we do the user research, we see a debit [card] primary [users], young, next generation of customers who are interested in investing and curious about crypto, but they’re not going to spend day and night memorizing hexadecimal incantations, and I think for them crypto is still inaccessible” said Chennapragada.
During 2021, crypto assets under custody on Robinhood increased 528% to $22.1 billion. Transactions revenue from cryptocurrency have proven to waiver on a sequential basis during more volatile periods.
The company plans to roll out the Cash Card product to a waitlist first, with a data review period to gauge interest, and also to determine if cardholders prefer a digital wallet card or a physical card.
Robinhood shares was up 2% at $13.32 Tuesday morning.
Bradley Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.
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