High interest rates are fueling fintech’s return story.

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

Both Coinbase and Robinhood reported better-than-expected revenue in the first quarter. This is welcome news for fans and employees of both companies, who saw their stocks soar during the Covid-19 pandemic, after the tailwinds of those pandemics subsided.

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Although the return story is not built on one thing, however; There is always more to the game. But the dynamic revenue mix at both Coinbase and Robinhood makes it clear that their ability to generate revenue from cash balances (and crypto equivalents) is turning the game against them.

Studying public company performance is a great way to better understand what’s happening in that market segment, so that’s what we’re doing today with Coinbase and Robinhood. As always, we’ll relate what we’ve learned to startups. Let’s take a look at today’s column for the ongoing doom and gloom surrounding fintech today.

Very expensive power

As you know, when interest rates rise, it is more expensive to borrow money and vice versa. For banks and credit unions, then, interest rate increases are welcome. For reference, Wells Fargo’s net interest income in the first quarter was $13.3 billion, up 45 percent from a year earlier. That’s it. a lot Money that the bank can spend, save or invest.

The situation is a little different for fintech startups that have gone public in recent years. They make money in cash, but they are focused on loans, which means they have the potential to earn more net interest income.

Let’s see how that plays out for Robinhood. In the first quarter, Robinhood’s transaction-based revenue — the revenue stream that goes into the public markets — reached $207 million, while net interest income was up slightly at $208 million.