Robinhood is deepening relationships with JPMorgan by using Bank to send funds ahead of the expected IPO

Avishek Das | LightRocket | Getty Images

Robinhood, the free trading app that helped spur retail investments during the pandemic, has switched to JPMorgan Chase to handle vital money transfers to customer accounts.

The startup emailed customers this week that it is now using JPMorgan, the largest US bank by assets, to process transactions for cash management accounts. Previously, the company had used Ohio-based Sutton Bank, a municipal lender with eight branches.

“This change is part of a larger effort to deliver a more consistent and reliable experience and will improve our ability to meet your cash management needs,” Robinhood said in the email.

The move shows how traditional banks compete with fintech players like Robinhood and enable the new guard, which has quickly attracted more than 13 million users interested in free trade and a clean user interface. JPMorgan CEO Jamie Dimon has repeatedly warned shareholders that fintech and big tech players are entering the territory of his industry.

“Many of these new competitors have done a great job alleviating customer vulnerabilities and making digital platforms extremely easy to use,” said Dimon in his annual investor letter this month. “From loans to payment systems to investments, they did a great job.”

While JPMorgan Robinhood is happy to offer financial plumbing services – and is pushing to offer additional payment services – the bank is also competing with the upstart.

Online brokers across the industry have ultimately taken Robinhood’s no-commission stance, and JPMorgan is offering free, unlimited trades through its own mobile app. Robinhood and JPMorgan declined to comment on this story.

JPMorgan’s wholesale payments business, operated by Takis Georgakopoulos, won the Robinhood business last year and recently started taking over accounts, according to one knowledgeable person. Last year, his company also acquired Coinbase and Gemini, two leading Bitcoin exchanges, as customers for payment processing.

The payment agreement is part of a network of connections between Robinhood and traditional lenders. Robinhood relies on banks such as JPMorgan, Goldman Sachs, and Morgan Stanley for massive commercial lines of credit to fund business activities.

The latest development is coming from investment banks, including JPMorgan Jockey, for lucrative roles in Robinhood’s upcoming IPO. Last month, Robinhood announced it had filed a confidential listing with the Securities and Exchange Commission for the end of the second quarter.

While Robinhood’s most recent fundraising put its valuation at $ 11.7 billion, Bloomberg’s private equity trading found it could be worth up to $ 40 billion if it went public.

The boom in retail investment initiated by Robinhood, coupled with $ trillion in government incentives, has seen new customers and brokerage increases this year.

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