Robinhood is an American Fintech (Tech + Finance) company which has a mobile app and website and lets users trade in stocks, ETFs, Options and also crypto trading without any fees. Robinhood is in the news because of the tremendous traction it has received since its launch, more so recently. Also, for attracting millennials with no experience or knowledge about trading.
The app has seen a tremendous increase in users. From 1 million users in 2016 to 13 million in 2020.
Robinhood is not your typical discount or no-fee broker, it is Tech’s ability for gamification meets the field of finance. It’s about dopamine and addiction.
[Gamification – the application of typical elements of game playing (e.g. point scoring, competition with others, rules of play) to other areas of activity, typically as an online marketing technique to encourage engagement with a product or service]
[Dopamine – is a hormone which when released makes us feel pleasure. Dopamine makes us do the activity again and again]
Gamification:
Today the biggest addiction is our cellphones. Everything on it is designed to keep us hooked. The Big tech – likes of Facebook, Google etc have led the charge.
Robinhood makes stock trading into a game. It is so simple – it makes you take impulsive decisions. Confetti falls to celebrate transactions. Colourful candy crush interface. The screen turns green if you are in profit and red if you are in loss.
Trading on the app is free.
No wonder millennials are flocking to the app. There is an entire breed of first time traders referred to as Robinhood Traders. Most have no idea of the risk they are taking. They think its an easy way to earn money and spend time.
Business Model: Is the free trading really free.
Almost half of Robinhood’s revenue comes from a practice called ‘payments for order flow’.
It means instead of directing the trade to the exchange directly, the trades go through a financial firm which may decide whether to be the counterparty or not. In case if the firm decides not to be the counterparty then it goes to the exchange. The financial firm pays Robinhood for the order flow routed through it and it can skim off from the trades. While Some argue this helps make the market more efficient.
It’s a controversial practice but common among discount or no fee brokers like E*Trade, Charles Schwab, Ameritrade.
Other sources of revenue include a $5 monthly fee for optional membership to Robinhood Gold, which gives the client access to margin loans and investing tools; interest on uninvested cash; lending stocks purchased on margin; and fees on purchases using the company’s debit card.
So the trade that one does is not exactly free.
Just the way Mark Zuckerberg comes up with missionary statements like his goal is to create a connected world et al, Robinhood claims they want to give access to people to financial markets which they didn’t have before because of high commission charges. (The firm has been named Robinhood for a reason)
Mark wants you to be hooked on to his apps so that he can profit from your attention and data by selling advertisements, Robinhood wants to do that in a different way.
It’s for the people to decide what’s good for them.
“If you are not paying for the product, you’re the product“
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“If you are not paying for the product, you are the product” great statement in the e-commerce world.