Robinhood to let users lend out their shares in its attempt to diversify revenue

The company announced today that it is launching a feature that will allow users to lend out their stocks in order to earn passive, recurring income. The feature will be available to all customers by the end of the month.

The company laid off 9 percent of its full-time staff during the quarter. Since last year, trading activity has cooled and the revenue from transactions has fallen steadily. The new lending feature is an attempt by the company to increase its revenue by taking a cut of the fees from each loan.

The company already makes money by lending out shares to customers who buy them, and this new stock lending program is expected to bring in more revenue than the existing margin lending offering.

Customers don't have to carry a minimum balance in their account in order to lend out their shares at other exchanges. Customers will get paid once their shares are successfully placed if they have fully paid for the shares. The company explains that borrowers are financial institutions who want to cover deficits, short sales or failed deliveries.

Customers will be able to track the loans they have made and turn the feature on and off at their own discretion. They will be able to sell shares they have lent out and realize gains or losses, the company says.

The announcement said that stock lending is not appropriate for all customers and that they could face the risk of Robinhood failing to return the securities it has borrowed.

Provisions of the Securities Investor Protection Act may not protect you with respect to loans.

The company says it is partnering with a third-party bank that will give cash for the loans in order to assure customers that they will be protected in the event of default.

The lender of stock may lose the right to vote as shareholders with respect to their securities and may receive cash payments instead of dividends, which may be treated differently for tax purposes, according to the exchange.

The announcement states that the company is excited to break down yet another barrier and democratize a product that has been historically preserved for the wealthy with high barriers to entry.