There are no lending products in fintech Aspiration’s near-term future thanks to the neobank’s new status as a broker-depositor.

“Part of why we switched to a broker-dealer structure instead of third-party bank sponsor was because we can add brokerage products to the offerings, we already offer some investment products,” Andrei Cherny, CEO and co-founder of Aspiration, told Bank Innovation. “We cannot use our deposits for lending products, but this was a strategic decision. At some point, we might want to offer lending services, but not right now.” 

Prior to this model, Radius Bank provided Aspiration a bank charter for its Aspiration Summit Checking Account offering. Last week, Aspiration revealed a new product called Aspiration Spend and Save, which will replace the checking account. Current customers are being automatically migrated to this new type of account. 

“Aspiration’s new model doesn’t need to rely on a third-party sponsorship bank for its Spend & Save account,” Cherny said. “This makes it the first U.S. neobank to become independent. Customers can now open accounts directly with Aspiration.”

Aspiration’s new structure is “indeed creative,” one source, a legal fintech consultant told Bank Innovation. On a cursory level, it might even resemble Robinhood‘s failed attempt at trying to offer checking accounts.

But unlike Robinhood, Aspiration has navigated around the “offering-deposits-without-a-banking-license issue” by using sweep accounts.

For decades, traditional depository institutions have used sweep accounts, in which depository institutions aggregate the funds into a licensed FI on a overnight basis, and pull back the funds the next morning.

Aspiration is doing exactly that, Cherny said. Its broker-dealer format allows Aspiration to sweep deposits on a daily basis into FDIC-insured institutions. The names of the banks maintaining its sweep accounts are only disclosed in “periodic” customer statements and may vary over time, according to a footnote on Aspiration’s website.

Further, the Spend & Save account can be categorized as a cash management offering that is in compliance with being an SEC-registered broker-dealer. It is also FINRA insured, Cherny said. 

And while the structure is not new for companies like SoFi or Charles Schwab, it is unique for a fintech that is positioning itself as a neobank. This could even pave way for other neobank wannabes to consider this as an option in place of a fintech charter or third-party bank sponsor.

For Cherny, not only was this route a strategic decision, but also an economic one.

“From a cost-benefit perspective,” Cherny explained, “the third-party bank you are leveraging a license from is going to impose its own fees, restrictions and requirements, and that could come in the way of innovation.”

It is also important to note that the minimum requirements for a broker-dealer are less cumbersome than a bank. Plus, the capital requirement for the broker-dealer is more flexible than a traditional bank charter or even a special purpose bank charter.

Aspiration currently has 1 million customers, according to Cherny.

The Aspiration Spend & Save account has a 2% ARP yield. A debit card accompanies the account with unlimited cash back and rewards for spending at certain merchants. The debit card, powered by Mastercard, is issued by Coastal Community Bank, according to a footnote on Aspiration’s website. As a broker-dealer, Aspiration can have a debit card because it functions as an investment access device.

Based in Silicon Valley, Aspiration has raised $110 Million in funding to date. It has tripled its staff to 40 people. 

Join us at Bank Innovation Ignite 2019, March 11-12, at the Hyatt Olive 8 in Seattle. Register here.