Robinhood announced on Thursday that it was acquiring X1, a no-fee credit card startup, for $95 million in cash.

X1, which offers an income-based credit card with rewards, raised a total of $62 million in venture-backed funding from investors like Soma Capital, FPV, Craft Ventures and Spark Capital since its 2020 inception. The company announced its most recent raise of $15 million in December, when it also touted a 50% boost in its valuation.

On the one hand, while X1’s valuation is not known, it looks like Robinhood is getting a good deal with $95 million. If you take a look at recent raises by other credit card companies, you might say that X1 raising $62 million should yield a high valuation in the hundreds of millions. So, the purchase price may reflect the dip in fintech valuations we’ve seen in the past six months. 

For example, Petal raised $140 million in 2022 at an $800 million valuation. Granted, Petal has been around longer and raised more. A better example might be Yonder, a U.K.-based credit card startup that raised $15.4 million in April at an $89 million post-money valuation, converted in today’s U.S. dollar from the pound. 

On the other hand, Robinhood noted in its announcement that this move is “an important step in our journey toward broadening our product offerings and deepening our relationship with existing customers.” Not only has crypto trading slowed down, but its core trading business overall saw declines in May, most likely prompting that desire to diversify its business. 

Indeed, the acquisition of X1 gets Robinhood into the credit card business with the interchange fee revenue that comes with it. Robinhood currently earns interchange fees from its debit card. The startup first made headlines for its unique model, which allows it to underwrite customers based on their income rather than their credit scores. (Since then, other players have emerged with similar models — such as Tomo Credit, which offers credit based on cash flow rather than credit). X1 doesn’t charge an annual fee for its stainless steel Visa card, has no late or foreign transaction fees and rewards users with “points.” The company also claims that its card is “smart” in that it has built software features that work with the credit card.

X1 co-founders Deepak Rao and Siddharth Batra will oversee the new business for Robinhood, and Rao will serve as general manager of credit cards. 

Robinhood said it expects the deal to close in the third quarter of this year.

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