Higher interest rates are fostering a fintech comeback story

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While rapidly rising interest rates in the United States have caused more than a few financial institutions to topple, a group of well-known fintech companies are posting signs of a comeback.

Both Coinbase and Robinhood reported better-than-anticipated revenue in the first quarter. This is welcome news for the backers and employees of both companies, which saw their shares skyrocket during COVID and tank after those pandemic tailwinds tapered away.


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No comeback story is built on a single factor, though; there’s always more at play. But the changing revenue mix at both Coinbase and Robinhood makes it clear that their ability to generate material amounts of revenue off cash balances (and the crypto equivalent) is changing the game in their favor.

Studying public company performance is a great way to better understand what’s happening in that segment of the market, so that’s what we’re doing today with Coinbase and Robinhood. As always, we’ll relate what we’ve learned back to startups. Consider today’s column a rejoinder to the persistent doom and gloom around fintech these days.

The power of costlier cash

As you know, when interest rates rise, money is more expensive to borrow, and vice versa. For banks and credit unions, then, interest-rate hikes are more than welcome. For perspective, consider that net interest income at Wells Fargo in the first quarter amounted to $13.3 billion, up 45% from a year earlier. That’s a lot of money the bank can spend, save or invest.

The situation is a little different for fintech startups that went public in recent years. They make money off cash, but are less focused on loans, meaning that they have a chance to make lots of net interest income.

Let’s observe how that plays out for Robinhood. In the first quarter, Robinhood’s transaction-based revenue — the revenue stream it rode to the public markets — came to $207 million, while net interest revenue came in slightly higher at $208 million.



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