Right here’s the very first thing to know concerning the new Robinhood credit card that guarantees 3 p.c money again on all purchases, with out limits: Yesterday, after I requested Vlad Tenev, the corporate’s chief government, to ensure that it could keep at that stage for 18 months, he wouldn’t.

I hope it sticks. It’s extremely beneficiant as this stuff go. Money-back affords from massive card issuers like Citibank usually high out at about 2 p.c, and it’s arduous to generate profits even at that stage. Charles Schwab gave up on its 2 p.c card in 2010.

The Robinhood Gold Card is the corporate’s first bank card with its personal branding. So what does it suppose it is aware of that no person else does, and what precisely does it hope to perform?

There are a number of methods to generate profits with bank cards. The primary is from charges retailers pay to simply accept them. The second is from curiosity when folks carry a steadiness.

Then there are annual charges, which might be a number of hundred {dollars} for essentially the most beneficiant playing cards. Robinhood’s card has no annual charge, although you could pay $5 per month or $50 per year to be a part of the corporate’s gold program, which affords higher rates of interest and different perks.

Massive-spending system-beaters take nice enjoyment of shifting, say, $100,000 of their annual bills to a brand new card, not carrying a steadiness, incomes $3,000 in money again annually and declaring themselves victors over silly corporations.

However Mr. Tenev goals to attract greater than his fair proportion of people who find themselves comparatively new to bank cards and intends to approve practically each gold member who applies. If these prospects borrow, with out defaulting on their loans altogether, they might be worthwhile for the corporate. Time will inform whether or not Robinhood has the underwriting expertise to make this work.

There’s not less than one different solution to generate profits with a card like Robinhood’s, and that’s if in case you have different wares to hawk.

That 3 p.c money again should go into an organization brokerage account earlier than you may switch it to, say, your checking account elsewhere. Folks could make investments the money fairly than withdrawing it.

That pit cease within the brokerage account isn’t the one try at creating friction. There’s a pleasant 5 percent return that gold prospects can earn on money, and a couple of bonuses for individuals who transfer more cash to the corporate. And that cash — and the buying and selling folks may do with it — is the place Robinhood could make extra.

Mr. Tenev stated that his crew had examined loads of potential edge instances, and that they didn’t count on to see an amazing variety of rewards hounds pulling their winnings from the corporate.

Some outsiders eyeballing the cash-back provide don’t see how the cardboard generally is a moneymaker. They embrace Joanne Bradford, who was a senior government at SoFi when it was contemplating credit-card choices and is now the chief cash officer on the monetary planning start-up Domain Money. “Having been somebody who ran and runs a funnel for an organization, you’ll attempt plenty of other ways to get new prospects,” she stated.

So how quickly may Robinhood yank the three p.c provide when it desires to attempt different methods to get new prospects?

The corporate doesn’t mince phrases. “Robinhood could make modifications to the Rewards Program (together with termination of the Rewards Program) or change the phrases of this settlement at any time,” reads the third sentence of its rewards rules.

It’s not keen on you system-beaters, both. The foundations go on to say the corporate can cancel your card for those who have interaction in “gaming” or if it believes you “could try to take action.” There’s a wait listing for the cardboard, and the corporate will roll out affords within the coming months.

Let’s return to that promise that I didn’t extract from Mr. Tenev. In 2014, I put the same problem to a Constancy government as a result of I used to be suspicious of its cash-back card that supplied a mere 2 p.c. He accepted, the rewards remained and the cardboard exists to this day.

However Mr. Tenev wouldn’t make the pledge. “I respect the train,” he stated, including that it was not his intent to decrease the cash-back charge quickly. “However I can’t actually renege on the phrases and circumstances.”

In 2020, Robinhood froze buying and selling in sure shares throughout a interval of maximum volatility. In 2021, it paid what the Monetary Trade Regulatory Authority described as the biggest penalty it had ever levied for “important hurt suffered by thousands and thousands of shoppers.”

Why ought to prospects belief the corporate now? Mr. Tenev was not defensive.

“We’ve gone by way of these trials and tribulations and constructed up scar tissue,” he stated. “That may hopefully give prospects some confidence. And we’re persevering with to roll out merchandise which have plain worth that prospects received’t be capable to ignore.”

Certainly, that’s the very last thing you must know concerning the new card. It does have plain worth. You shouldn’t ignore it.

However that 3 p.c? Robinhood’s going to need to show that it will probably make it work.