Wealthfront is going after a key banking function: Storing people's cash.
The decade-old fintech company, which began as an automated financial advisor start-up, announced the launch of a cash account Thursday. The move allows Wealthfront to hold customers' money and return a 2.24 percent yield.
"We view the banking industry is the next piece in financial services for targeting innovation," Wealthfront founder Dan Carroll told CNBC in a phone interview. "The best financial decisions can ultimately be on autopilot, and this will be an enormous competitive advantage of us going forward."
The company is betting that its customers, 90 percent of whom are younger than 45, don't want human interaction in their banking experience. Carroll highlighted overdraft fees, "confusing services," or banks that "force you to go to a branch, or even worse, dial a call center."
Wealthfront, which manages $11.5 billion in customer assets, started out with free financial planning, investment management and lending through its portfolio line of credit. The cash account is meant to complement those planning and investing programs.
"It's the ideal way to address your short term goals like creating an emergency fund, saving for a car or even a home," Carroll said in a blog post Thursday.
The assets aren't actually held with Wealthfront. Instead, the company is working with FDIC-insured banks including East West Bank and New York Community Bank.
The company said it cleared the cash account idea with regulators ahead of the launch. The announcement comes two months after Robinhood's botched attempt to launch its own cash account, which it had marketed as a checking and savings account. The president of SIPC, which in charge of overseeing Robinhood as a brokerage, told CNBC at the time that the start-up's announcement caught him completely off guard.
Within a day, Robinhood's founders said they would re-launch and re-brand the no-fee accounts with no minimums, which "may have caused some confusion."
Fintechs are reaching further into Wall Street's territory, often at lower costs with a sleeker interface. As they age, start-ups are expanding the capabilities either through new product launches or acquisitions.
"Fintech firms are becoming more aggressive in expanding their lines of business beyond their initial use case," CB insights senior tech analyst Lindsay Davis said in the firm's outlook report. "In 2019, the battle for millennial deposits will become more aggressive as fintech account products hit the market."
Carroll said the firm will continue to take on the "old guard" of Wall Street and that banking is a "key initiative" for Wealthfront in 2019.
"Young people don't like what the banks are selling," Carroll said. "That leaves a future in financial services to be enacted through clicks, not conversations."
