(Bloomberg) -- After a backlash around the marketing of its newest product, Robinhood Financial LLC has rebranded the service it had previously billed as Robinhood Checking & Savings.
Initially rolled out with comparisons to traditional bank accounts but offering a sky-high 3 percent interest rate, the company scrubbed the page from its website, deleted tweets about the launch and issued a blog post explaining the change. Robinhood is now calling it a “cash management” service. “We’re excited and humbled by the response to yesterday’s announcement of Robinhood’s cash management program launching in 2019,” founders Baiju Bhatt and Vlad Tenev wrote in a statement. “However, we realize the announcement may have caused some confusion.”
The founders said they’re “revamping” the product’s marketing materials and plan to “work closely with regulators.” There is currently no mention of checking or savings on the updated website. Instead, viewers now see a “cash management, coming soon” option. Robinhood didn’t immediately respond to requests comment.
Robinhood achieved a $5.6 billion valuation, thanks to a no-fee stock trading app popular with millennials. But in recent months, the company has drawn scrutiny over the sale of stock order data to high-frequency trading firms. Although the practice is common in the industry, critics said Robinhood wasn’t forthcoming about the practice. The startup has been looking to branch into other areas of finance and hoped to reinvent personal banking with a service called Checking & Savings.
After the product was rolled out on Thursday, questions quickly surfaced about how it would be insured and whether the money was protected. With a typical bank account, the Federal Deposit Insurance Corp. protects deposits up to a certain amount, with backing from the U.S. government. Robinhood said its service wouldn’t be insured by the FDIC but would be protected by the Securities Investor Protection Corp.
However, the SIPC said Robinhood hadn’t contacted the organization before the introduction. Stephen Harbeck, its president and chief executive officer, suggested the SIPC would not insure the product.
“I disagree with the statement that these funds are protected by SIPC,” Harbeck told Bloomberg earlier Friday. “Had they called us, I would have told them what I just told you in that I have serious concerns about this. This has gigantic ramifications for the banking industry.”
(Updates with company background in the fourth paragraph.)
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