Comment by dubcanada
2 years ago
I am a bit confused, Robinhood is not personally giving everyone 3% cashback, they are taking their profits from credit card fees and giving them to people as a form of cashback. Same as any other cashback credit card. 3% is unheard of but it is not weird for a new player in the market to shack things up by offering a deal for a bit to gain customers, and then dropping it to 2.5% -> 2% -> etc slowly once they have traction.
Given that merchant fees are typically lower than 3%, and that there's also scheme fees, cost of capital (in a post-ZIRP environment), operational, and fraud costs to be paid from that, (much) less than 3% actually ends up with the issuer (which they can then share with Robinhood as the program manager).
In fact, interchange fees are actually public, so you could even look them up and do the math:
https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
https://www.mastercard.us/content/dam/public/mastercardcom/n...