In a strategic move to diversify its offerings, Robinhood, the renowned trading platform, has announced its acquisition of X1, an emerging startup specializing in no-fee credit cards. The deal, valued at a substantial $95 million in cash, signals Robinhood's commitment to broadening its product portfolio and strengthening customer relationships.
X1, a trailblazing company that introduced an innovative income-based credit card with enticing rewards, has secured a remarkable $62 million in venture-backed funding since its inception in 2020. The startup attracted investments from prominent backers, including Soma Capital, FPV, Craft Ventures, and Spark Capital. Notably, X1's most recent funding round in December resulted in an impressive 50% increase in its valuation, accompanying the successful raise of $15 million.
While the precise valuation of X1 remains undisclosed, the acquisition deal struck by Robinhood at $95 million appears to be an advantageous move. Comparing recent funding activities within the credit card industry, X1's significant fundraising efforts should have commanded a valuation in the range of hundreds of millions. However, the purchase price might reflect the prevailing trend of decreasing fintech valuations observed over the past six months.
For instance, Petal, a prominent credit card company, achieved a valuation of $800 million after securing $140 million in funding in 2022. Although Petal has been operating for a more extended period and attracted more substantial investments, a relevant comparison can be drawn to Yonder, a UK-based credit card startup. Yonder successfully raised $15.4 million in April, translating to a post-money valuation of $89 million when converted to U.S. dollars.
Robinhood's decision to acquire X1 stems from its strategic vision of expanding beyond its core trading business. With the cryptocurrency trading market experiencing a slowdown and overall trading business encountering declines in May, Robinhood aims to diversify its revenue streams and deepen its customer engagement.
The acquisition of X1 provides Robinhood with a new avenue for generating revenue through interchange fees, complementing its existing debit card offering. X1 gained early recognition for its disruptive underwriting model, which assesses customers based on income rather than conventional credit scores. Although similar models have since emerged, such as Tomo Credit's cash flow-based credit assessment, X1 remains at the forefront. X1's stainless steel Visa card stands out with its attractive features: no annual fees, no late payment or foreign transaction fees, and a rewards program based on "points." Moreover, X1 has developed cutting-edge software features that enhance the functionality of its credit card, creating an intelligent and user-friendly experience.
Deepak Rao and Siddharth Batra, the visionary co-founders of X1, will play integral roles in the new business within Robinhood. Rao assumes the position of General Manager of Credit Cards, leveraging his expertise to drive the growth and success of the credit card division.
The deal is expected to be finalized in the coming months, allowing Robinhood to solidify its position as an innovative player in the financial technology landscape. With the acquisition of X1, Robinhood demonstrates its commitment to meeting evolving customer needs while diversifying its offerings to create a more comprehensive and engaging user experience.
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