Robinhood business website is launching a feature that allows its users to lend their shares in the hope of earning indirect, recurring revenue to lenders, the company announced today. Robinhood said the feature has now been released and is available to all customers by the end of the month.
The news comes shortly after a tough quarter in which the company fired 9 percent of its employees full-time. Robinhood makes up almost a third of its sales revenue, and that revenue has been steadily declining since last year as business activity slowed. The new loan model is an attempt by the company to diversify its revenue, as it will deduct any loan fees.
The company is already making money by lending stocks to customers who buy “margin”, and this new stock loan program is expected to generate 1 to 2 times the revenue from existing margin loan repayments, CFO Jason Warnick said. on Company revenue came in last week.
Clients do not have to carry any remaining balance at least in their account to participate, which tends to be normal with other exchanges allowing them to lend their shares. As long as the shares are fully paid by the client, Robinhood said it will be the same for customers with lenders to take out loans and that customers will be paid when their shares are successfully placed. Typically, the company explains, lenders are financial institutions that seek to cover shortcomings, short sales, or lead to bankruptcy.
Customers will be able to track the loans they have made and turn on and off the “stock loan” brand in their decision, according to Robinhood. They will be able to sell the shares they have borrowed and know the pros and cons “as usual,” the company said.
The announcement came as a result of a refusal stating that the mortgage loan was not suitable for all customers and that they could face the risk of Robinhood failing to meet its obligations and failing to repay its loan guarantees.
“The Securities Investment Protection Act may not protect against borrowed securities,” the disclosure reads.
To reassure customers, the company said it is working with an unnamed third party bank that will provide cash loans to include customer protection, although the guarantee could be the only measure of protection a customer has if they event.
The exchange also warns that shareholders may lose their right to vote as shareholders in their mortgage guarantee and will receive cash on these bonds instead of dividends, which can be dealt with. differently for tax purposes.
“We are pleased to break down another hurdle and democratize a product that has historically been reserved for the rich with high barriers to entry,” Steve Quirk, Robinhood’s chief executive officer at Robinhood, wrote in the announcement.