Robinhood’s Identity Crisis: The Trading Platform’s Struggle to Find a Winning Strategy
Most people know Robinhood as a low-cost online brokerage service. Its 10.9 million monthly active users (MAUs) use the platform to buy and sell stocks, options, and cryptocurrencies. Their transaction-based revenues come from option and cryptocurrency trading, as stocks and ETFs have zero-commissions. In 2023, transaction-based revenues accounted for 42% of total revenues. So, come for the free stocks and ETFs and `order` crypto and trade with leverage through options.
The other way Robinhood makes money (after being exposed for selling order flow as its main business model) is net interest revenue, which totaled $929 million in 2023, half of the company’s total. Thanks to higher interest rates, Robinhood similar to several other businesses (Stablecoin issuers being the largest beneficiaries) earns interest income on their balance sheet assets. Only Robinhood Gold customers receive interest in line with the current short-term interest rates on their holdings. The remaining Robinhood users either receive no interest or much lower rates from the partner banks that Robinhood includes in its Brokerage Sweep service that users have to opt in.
Robinhood Monthly Active Users (MAU) decreased 4% year-over-year to 10.9 million (end of 2023 reporting) despite the 2023 bull market. In addition, Robinhood posted a 4% annual decline in transaction-based revenue from $ 814 million in 2022 to $735 million in 2023.
New services & Geographic expansion
Robinhood recently made media headlines with its new gold credit card and its expansion to the UK, although it is not the first time it has attempted a European expansion.
When I look at all the new services that Robinhood is launching it seems that they are soul searching for a sustainable business model and their moves are about cross-selling to their Gold members who pay $50 annually.
The Robinhood Gold membership provides the following:
- Higher interest on uninvested cash ( As of March 2024, the Robinhood Gold interest rate on cash sweep balances is 5%, compared to just 1.5% without a Gold membership.)
- Higher instant deposit limits
- 1% match on taxable deposits
- 3% match on IRA contributions
- Morningstar research access
- Level II market data
- Lower margin rates
- Eligibility for the new Robinhood Gold Card
The newly announced Robinhood card is a fancy accessory made of real gold weighing a staggering 36 grams and is only available to Robinhood Gold members. Media says that there is a waiting list. Gold members will be the only ones eligible to earn 5% cashback for travel bookings through the Robinhood travel portal and 3% cashback on other purchases. In addition, zero FX fees and the capability to add additional authorized users with their own card.
Robinhood launched a retirement offering in 2023 targeting gig-economy workers, offering a match of 1% of a customer’s contributions up to the allowed limit (in 2023, that’s a total of $6,500 for savers under age 50). Users need to keep the funds invested for five years to avoid a possible fee upon withdrawal. The 1% match is the going rate.
Last month, the Robinhood Markets co-founder and CEO Vlad Tenev said: “In the first year, we got up to about $1.4 billion in assets under custody in retirement accounts. And we just announced that yesterday we crossed $4 billion. So, it took us about a year to get to $1.5 billion and in the first three months of this year, went from $1.5 billion to $4 billion.”
What happened in Q1, 2024 that nearly tripled the assets of the Robinhood IRA service?
In February this year, Robinhood tripled the matching for rollovers: Robinhood is paying 3 percent bonuses for IRA rollovers. Is it enough? The offer (devil in the detail) only applies to its Robinhood Gold subscription-based service and includes the 5yr rollout (like for everyone else). Seems that the 3% is working to gather assets. But for how long can they pay this high Customer Acquisition cost? Yes the self-directed IRA market is huge in the US — $14 Trillion — but these are known tricks. In January, SoFi Accelerated Retirements With 2% Match On IRA Contributions.
Robinhood seems to be also closing some IRA preferential deals with corporates. They already offer 2% match (1% is standard) to TaskRabbit partners and Gopuff independent workers (a freelancer marketplace and an on-demand delivery marketplace, respectively). Similar to the deal that Betterment struck with Uber drivers.
It makes me wonder whether gig-economy workers are already a significant part of Robinhood`s monthly active users and this is all cross-selling. The card and the IRA above-market matching.
The third and latest Robinhood announcement is the media twist which is a rebrand of Robinhood`s financial newsletter Snacks. The new media subsidiary is Sherwood News and for now, it aims to monetize via ads and later with events. More evidence of soul-searching for a sustainable business model.
Robinhood acquired U.K.-based Chartr in December to boost Sherwood’s data visualization and newsletter products. I believe this media positioning is a really tough business to build as a profitable unit. As Axios says, several media giants have looked into combining news, and information with trading platforms but very few have been successful. Not even Bloomberg managed to pull this off.
Since 2015 when I started wearing Fintech glasses, I have seen dozens of startups focused on investment research, leveraging data and visualization. There are no decacorns to point to. We are not talking about alternative data and B2B powerful analytics. We are talking about consumer media.
For those that only know of Robinhood after it went public, in July 2021, they are now 11years old and they have made major headlines several times for the wrong reasons.
CNBC headlines:
In 2018, Robinhood announced it would launch checking and savings accounts with an eye-popping, industry-leading interest rate.
What fintech can learn from Robinhood’s ‘epic fail’ of launching checking accounts
In 2021, Robinhood to pay $70 million for outages and misleading customers, the largest-ever FINRA penalty
I am still stubbornly asking the question: Why was Robinhood built without an API-first mindset? I am sure leadership is well aware of the Bezos API manifesto. Especially for B2C businesses commoditizing their services, how else can you envision designing a moat and keeping your customers coming back? How else can you grow from just offering a delightful free service?
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