Robinhood Markets announced on Thursday its agreement to acquire credit card startup X1 for $95 million in cash, marking the company’s entry into the credit card market.
As a leading platform for zero-commission stock trading, Robinhood has been diversifying its offerings amid slowing revenue from its primary business.
The acquisition of X1 will enable Robinhood to generate additional income from interchange fees associated with credit cards.
In a press release, Robinhood stated that the deal represents a step toward “deepening our relationship with existing customers.” X1 co-founders Deepak Rao and Siddharth Batra will head the new business, with Rao serving as General Manager of Credit Cards.
While Robinhood currently earns some interchange revenue from its debit cards, the addition of credit cards is expected to significantly boost this income stream.
Robinhood’s transaction-based revenue has been declining for five consecutive quarters, dropping 5% to $207 million in Q1 2023 compared to the same period the previous year.
The company has been focusing on improving its average revenue per customer and cross-selling to its existing base to counteract this trend.
It has also sought to bolster its overall revenue through interest from deposits and by expanding its product offerings, such as its Gold account, retirement accounts, and debit card.
X1, which primarily earned revenue from interchange fees as of late 2022, raised over $60 million from investors including Rogue Capital, Spark Capital, FPV Ventures, and Soma Capital.
As fintechs relying heavily on interchange revenue have fallen out of favor with investors due to rising interest rates, many are now pursuing expansion or consolidation strategies in search of profitability.
The acquisition is expected to close in the third quarter of this year.
