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Robinhood agrees to acquire credit card startup X1

Jun 22, 2023
Illustration of a piggybank wearing a Robin Hood hat.

Illustration: Rae Cook/Axios

Robinhood Markets announced Thursday it had an agreement to acquire credit card startup X1 for $95 million in cash.

Why it matters: A poster child of this decade's stock-trading boom, Robinhood has been diversifying its offerings as revenue from that business line slows.

Details: The X1 acquisition marks Robinhood's entry into the credit card market, giving it revenue from interchange fees.

  • Robinhood in its press release said the deal was a step toward "deepening our relationship with existing customers."
  • X1’s co-founders Deepak Rao and Siddharth Batra will oversee the new business, with Rao as General Manager of Credit Cards.
  • Robinhood currently gets some interchange revenue from its debit cards, but to a lesser degree than what credit cards will add.

Context: Selling to investors on its zero-commission fees, Robinhood's revenue boomed during the pandemic. But as interest rates rose, the trend reversed.

  • Transaction-based revenue declined for the fifth straight quarter in Q1 2023. Earned when users trade equity, crypto, or options, trade revenue fell 5% to $207 million compared to the same quarter a year earlier.
  • It monthly active user figure meanwhile remains below its pandemic-era peak. That has helped push the company to improve its average revenue per customer and cross-sell to its existing base.
  • It's bulwarked its overall revenue slowdown with interest from deposits.
  • Meanwhile, executives in earnings calls have emphasized its ability to diversify further via subscription revenue from its Gold account, retirement accounts announced last year, and a debit card offering.

Between the lines: X1 derived the majority of its revenue from interchange as of late 2022, and fintechs that earn the majority of their revenue from interchange have fallen out of favor with investors amid rising interest rates.

  • Now, many are being pushed to either expand their business lines in the search for profitability, or combine with another player.

Of note: X1 has raised over $60 million in its lifetime from investors including Rogue Capital, Spark Capital, FPV Ventures, and Soma Capital, per Pitchbook data.

What we're watching: The third quarter of this year, when the deal is expected to close.

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