Revolut expands fractional stock trading while Robinhood launches high-yield cash accounts, both targeting Gen Z and millennial investors. Regulatory scrutiny grows as these platforms blend banking and investing services.
The race to dominate Gen Z’s finances intensified this week as Revolut unveiled fractional U.S. stock trading and Robinhood rolled out 4.5% APY cash accounts. With JPMorgan reporting 30% higher retention for embedded finance models, both platforms are aggressively blending banking and investment features – but face mounting regulatory challenges in Europe and the U.S.
The Fractional Frontier
Revolut made its boldest move yet into U.S. markets on June 25, 2024, launching fractional share trading for over 1,100 companies with zero commissions on trades under $1,000. “This removes the last psychological barriers for young investors,” noted fintech analyst Sarah Kerner at eMarketer. “When you can own $5 of Amazon instead of needing $3,000, it changes wealth-building behaviors.”
The feature arrives as Sensor Tower data shows Revolut’s daily active investing users grew 28% quarter-over-quarter, outpacing Robinhood’s 19% growth. Much of this stems from Revolut’s early adoption of crypto services – a key draw for Gen Z users.
Robinhood’s Banking Gambit
Not to be outdone, Robinhood unveiled 4.5% APY cash sweep accounts on June 28, 2024, leveraging FDIC-insured partner banks. “We’re seeing customers keep 40% more assets on platform when banking and investing are combined,” revealed Robinhood CFO Jason Warnick during the product launch.
JPMorgan’s June 2024 analysis confirms this trend: platforms offering both services achieve 2.3x higher average revenue per user than single-service fintechs. Robinhood’s move capitalizes on rising interest rates while addressing Gen Z’s preference for passive income tools over active trading.
Regulatory Headwinds
The expansion comes with growing pains. On July 1, 2024, the European Central Bank issued warnings to Revolut about “potentially misleading” deposit protection claims for EU customers. This follows similar MiCA regulation concerns in the crypto space.
Meanwhile, Robinhood faces scrutiny over its cash sweep mechanics. “There’s inherent tension when brokerages act as quasi-banks,” observed Georgetown law professor Lev Menand. “The 2010 Dodd-Frank reforms anticipated these hybrid models but didn’t fully resolve the oversight questions.”
Historical context shows this regulatory dance isn’t new. In 2018, Robinhood’s early checking account plans were scrapped after SEC pushback. Similarly, Revolut’s 2021 attempt to offer European banking services stalled for months over licensing issues. Today’s expansions represent more sophisticated attempts to navigate these boundaries.
The current battle echoes earlier platform wars – from PayPal’s 2014 separation from eBay to Square’s 2021 integration of banking services through Industrial Bank. Each generation of fintech leaders has pushed further into adjacent financial services, with regulation typically lagging 2-3 years behind innovation. As Revolut and Robinhood blur traditional sector lines, they’re writing the next chapter in this ongoing evolution.
