On December 13, Robinhood announced on its blog plans to offer customers checking and savings accounts in first quarter 2019. The fintech startup advertised simple-to-understand cash accounts boasting a 3% interest rate paid out daily, no fees at tens of thousands of ATMs in the US, and a Sutton Bank-branded Mastercard (MA  ) debit card with four designs. Users who register for the waitlist can move up by clicking a card in the Robinhood app and inviting friends to register. The plan was meant to disrupt the traditional banking industry through a competitive offering, but the news resulted in huge controversy and backlash at Robinhood.

Robinhood was founded in 2014 by young techies who wanted to change the finance industry. They believed in lower costs and greater user benefits. The startup originated as a no-commission brokerage with an application allowing investors to trade American stocks cheaply. Then it added Robinhood Gold, a margin account for users who want leverage. Last year, the startup began to rollout commission-free options and cryptocurrency trading. The cash account announcement was the latest move meant to reform the practices of the financial sector. Currently, savings accounts at Ally (ALLY  ), Discover (DFS  ), American Express (AXP  ), and Goldman Sachs (GS  ) yield 2% or more.

However, current and potential users largely criticized the cash accounts plan. People questioned how Robinhood would be able to offer accounts yielding 30 times the national average without risk to the account holder. They focused on the fact that Robinhood claimed the accounts would be insured not by the Federal Deposit Insurance Corporation (FDIC), but the Securities Investor Protection Corporation (SIPC). People discussed that FDIC safeguards are stronger than SIPC ones. On Friday the SIPC chief executive stated that the group would likely not insure Robinhood's cash accounts and raised regulatory concerns. The main concern to Robinhood customers seems to be that the accounts would be not cash but money market accounts with risk of losing value in a financial crisis.

In the face of growing criticism, Robinhood decided to pause and rethink its plans. The firm apologized and acknowledged that its announcement caused confusion. Robinhood now plans to redesign its marketing plans and work closely with financial regulators in order to successfully launch accounts later in the future. The controversy shows that Robinhood's desire to disrupt finance resulted in a hasty move that requires careful research and cooperation to correct.

The author is a regular Robinhood user. The author does not hold any positions in any of the securities above.