Robinhood Markets is a U.S based fintech company that offers brokerage services through its website and mobile application. The fintech company was founded in 2013 by two Stanford classmates, Vladimir Tenev and Baiju Bhatt. After graduating from Stanford, they moved to New York city and built two finance companies, selling their own trading software to hedge funds. There, they discovered that big Wall Street firms were paying fraction of a penny to trade stocks, while most customers were charged commission for every single trade. So, they decided to build a financial brokerage platform that would enable everyone access to financial markets.
Robinhood is a private company and has raised a total of $1.5B through 13 funding rounds. Its currently market evaluation is estimated at $20B, manages approx. $20B of assets, has 2031 employees generating a revenue of $270M in H1 2020.
Robinhood provides the free-of-charge brokerage services to consumers. Its products include: A) Stock and ETF trading B) Cryptocurrency trading C) Cash Management. Its primary customer base are millennials with an average customer age of 31, and half of its customers had never invested before. Robinhood targeted user base is 68M, and with an average portfolio size of $1000-5000/user, it is targeting to manage assets of $75B - $150B.
Robinhood’s is attracting its user through various innovative offers, user friendly intergace, and based on new technology.
• Commission free investing in stocks/ETFs • Providing margin balance of 100% through its Gold memberships • Providing Crypto trading (other traditional brokerage firms do not offer this) • Faster money transfer into the accounts • Easy to use application; it is designed to avoid overwhelming beginner investors with information • Use of behavioural triggers and rewards – such as Free stock for new accounts, push notifications when there is movement in account holder stock prices • By developing components like Clearing house, Robinhood was able to reduce or cut seven fees for its customers
Robinhood is based on 53 technology products. They include like Python 3, Django/DRF, React JS, Kafka, Airflow, NGINX, Bootstrap, Git, GitHub, Slack, Confluence, Google Analytics and other technologies. They have also invested up front in an automated system and reduce the long-tail cost.
Robinhood does not charge any trading fee when its customers execute any trades. However, it generates revenue through the following methods:
• Payment for order flow (PFOF) – This is the compensation and benefit a brokerage firm like Robinhood receives for directing customer orders to market makers for trade execution. The brokerage firm receives a small payment, usually fractions of a penny per share, as compensation for directing the order. Market makers are typically large firms that specialize in a set number of stocks and options, maintaining an inventory of shares or contracts and offering them both to buyers and sellers. Market makers are compensated based on the spread between the bid and ask prices. • Subscription model for Margin trading – Robinhood Gold package subscription of $5 allows customers to undertake margin trading, and the margin amount is charged at 2.5% APR. • Earn interests from customer cash and stocks, just like a bank collects interest on cash deposits
Robinhood is a US-based financial services company offering stock and crypto brokerage services to its customers. This domain is going through significant changes with
• Millennial customers participating in the investment via opening accounts with e-brokerage firms. • Commission free trading and $0 balance account opening features • Crypto currency trading and rise of crypto currencies • New promotional offers to attract new customers (receive 1 Apple share for opening an investing account) • Low interest rates • Convenience of trading via Online/Mobile App technologies • Wealth Management Robo trading platforms • Social Media (use of Reddit platforms for individual investors to undertake stock trading) • Mergers and Acquisitions
Robinhood is predominantly competing with legacy retail brokerages that have adopted Robinhood’s core value proposition of commission-free trades. When Robinhood launched in 2013, no other major brokerage firms offered zero-commission trading. The company remained an outlier in this regard until October 2019, when Charles Schwab, E-Trade, and TD Ameritrade all announced they would no longer levy commissions on ETF, options, and stock trading.
The following are the other major leaders in US brokerage industry. • Fidelity Investments • TD Ameritrade (Schwab acquired TD Ameritrade) • E-Trade (Morgan Stanley acquired E-Trade) • Charles Schwab
Robinhood has had a huge impact on US stock market and has been recognised as disruptor in CNBC’s 2020 Disruptor 50 list. It signed up 10 million users within 4 years of launch, and with 50% of its customers are new and never had any prior investments. The following are the key metrics that are used to measure the success of a business in this industry.
• Number of accounts: Robinhood had been averaging of 3.2M new user accounts every year. • Average Account size in each account: Robinhood average account size is between $1000 - $5000, while E-Trade average account size if $100,000, TD Ameritrade is $110,000, and Charles Schwab is $240,000. • Assets under management: Robinhood currently manages $20B of assets, when compared to E-Trade’s $600B, TD Ameritrade of $1.3R, and Charles Schwab of $3.8T. • Yearly Revenue: Robinhood has generated $271M in H1 2020, and thus forecasting annual revenue to be $500M - $750M/year. This is smaller than other competitors who charge hefty feeds.
Based on the above figures, Robinhood can still capture significant market share by investing in technology, product offerings, and improving its transparency.
If I were to advise Robinhood, I would suggest that the following products and services be explored to fuel its level of growth.
• Forex trading through Robo Advisors so investors can take advantage of currency fluctuations, and creating wealth based on advanced algorithms • Automated Trading (similar to Wealthfront, Acorns) of Stocks/ETF/Options based on customer’s risk and industry preferences. This will allow new investors to participate in the stock market while they learn and become experienced. This will also assist experienced investors but who are not able to actively participate due to their busy work and personal schedules. • Improve the access to company research so investors can review them prior to undertaking investments. This will establish Robinhood’s credibility and establish it as a responsible brand. A responsible corporate brand attracts more business. • Implement Learning capability so users can have better knowledge and experience. This will establish Robinhood’s credibility and establish it as a responsible brand. A responsible corporate brand attracts more business. • Expand into other geographies such as Australia, New Zealand, Singapore, China, India markets.
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