Bhatt, who co-founded Robinhood in 2013 with Vlad Tenev, said the yield is not a "teaser rate." Given the direction from the Federal Reserve, which is slowly raising interest rates, Bhatt said the 3 percent rate should be sustainable.
They are not necessarily going to make money on these checking and savings products right away. Robinhood is taking a page out of Amazon's playbook by shunning profits for growth.
"Amazon built an entire business around a strategy that makes that long-term investments in financial services," Bhatt said. "We fully intend to make money off of this but we do not need it to be profitable on day one."
The start-up will split revenue from debit card transactions in a partnership with Mastercard. It will also earn interest off customer assets it holds, which are invested in government-grade securities like U.S. Treasurys.
For stock trades, it generates revenue by taking a fraction of a cent per dollar from each trade order as well as collecting interest on customer deposits. Robinhood also makes money on a paid subscription service called Robinhood Gold, launched in September 2016.
Robinhood has faced criticism over its revenue model, especially considering its founding ethos, which some have categorized as "anti-Wall Street." According to a report from Bloomberg, the company makes almost half of its revenue from selling its customers' orders to high-frequency trading firms, or market makers, like Citadel Securities. The practice, known as payment for order flow, is not uncommon on Wall Street. Almost all retail brokerages employ it.
Robinhood issued a statement after the report, saying like the rest of the industry, it "participates in rebate programs which help customers get additional price improvement for their orders by creating competition amongst the exchanges and liquidity providers who fill the orders, often resulting in superior execution quality."
Robinhood also said in the statement it does not sell personally identifiable data of any kind to execution venues.
"Robinhood does not, has not, and will not sell customer information," the company said.