Robinhood said it's investing customer deposits in government-grade securities like U.S. treasuries, which yield 2.8 percent. That model is strikingly similar to what's known as a money market fund. Those investment vehicles also put money in short-term debt securities like U.S. Treasury bills and are widely regarded as safe investments with a higher yield.
Hawken said by offering something like a money-market fund and calling it a checking account was misleading, and more of an "apples to oranges" comparison.
"The product is far less of an outlier in the money market world versus banking products," Hawken said. "You're not really comparing apples to apples with those interest rates."
Robinhood's 3 percent interest rate for checking and savings would have been roughly 30 times the national average. The average yield for checking accounts is 0.08 percent yield on U.S. checking accounts and the 0.1 percent average on savings accounts, according to the latest data from Bankrate.com. Goldman Sachs' consumer banking arm, Marcus, is one of the highest-yielding banks in the savings products category with a 2.05 percent annual percentage yield. But plenty of other money market funds are actually in the same range 3 percent interest as Robinhood.
Unlike a money market fund though, Robinhood planned to offer customers immediate access to their money, JMP Securities' Devin Ryan said Robinhood's structure is more of a "hybrid."
"The company is going back to the drawing board to put their own spin on some type of higher yielding instrument that passes along the benefit of a checking account," said Ryan, a managing director and analyst at JMP. "It's still something different than the incumbent firms."
The challenge for Robinhood, he said is playing the role of disruptor in an old school, highly regulated industry.
"When you're in that position, everything you create isn't going to succeed on the first pass and that's okay," Ryan said. "They're going to have to evolve this product to have to pass the test of regulators."