Robinhood Business Model and SWOT Analysis – How Does Robinhood Make Money

Overview

Robinhood Markets, Inc. is an American fintech company based in the U.S. It is an online discount broker providing commission-free trading and tools to keep your money in motion.

This entity was founded in 2013 and authorized by top-notched financial authorities, including the U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Securities Investor Protection Corporation (SIPC).

Company Profile

Company NameRobinhood Markets, Inc.
Websitehttps://robinhood.com/
Founded2013
FoundersBaiju Bhatt And Vlad Tenev
Key PeopleBaiju Bhatt – Co-Founder and Co-CEO, Vlad Tenev – Co-Founder and Co-CEO, Gretchen Howard – Chief Operating Officer, Anne Hoge – Chief Legal Officer, Christina Smedley – Chief Marketing & Communications Officer, Kelly Zigaitis – Chief Compliance Officer, Lucy Ijatomi – Chief of Staff Product Development, Marcelo Modica – Chief People Officer
HeadquarterSan Francisco Bay Area, Silicon Valley, West Coast
Company Revenue$436.3M per year
Key CompetitorsSoFi Invest, Webull, moomoo, Alpaca Trading

What is Robinhood? A Brief History

Robinhood is a digital broker-dealer that facilitates trading procedures by performing, allocating, and clearing all your transactions, account statements, and trade confirmations on its platform.

The story started at Stanford, where the young Baiju and Vlad met, and they were classmates and roommates at that time.

After graduating, the two best friends left for New York City and established two finance companies by selling their co-founded trading software to hedge funds.

The ugly truth is the gigantic Wall Street corporations charged most Americans commission for every single trade, but the trade stocks received less-to-none payment. Baiju and Vlad had the urge to revolutionize the system.

As a result, they traveled to California to build a financial firm that would give access to every person to enter the financial market despite different backgrounds.

How Does Robinhood Work and What Does It Offer?

This venture offers brokerage business to traders through their self-directed services, engaging complete and effective securities transactions virtually.

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More than brokerage provision, the enterprise included a Cash Management service to assist clients in receiving more interest income via uninvested funds.

Besides, it imparts investment tools and educational resources to let participants make informed decisions about securities investment.

What’s more, their platform does not set the minimum price for you to enter the market, and at the same time, it is not going to inspect your account type or personal investments.

The enterprise allows users to buy and sell securities with their own decision and in their own right as the business does not manipulate the investment approaches regarding securities or account type recommendations you are unfamiliar with.

Robinhood Business Model

This fintech corporation offers web and mobile financial services applications that allow users to trade in a huge pool of stocks while letting users invest in certain cryptocurrencies depending on their actual geography.

Under constant recognition, this organization incorporates trustworthy stocks into their business, such as the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ), Exchange Traded Funds (ETFs), American Depositary Receipts (ADRs), and other prominent stocks in the markets.

Robinhood Unique Selling Propositions

Robinhood Markets Inc. thrives upon its valuable and efficient service to customers. Therefore, they embrace their mission as follows.

Safety First

The entity safeguards the customers’ privacy and security in the most trusted way. The information should be shared under the strict control of regulated parties only. This character makes the platform a reliable source for their customers.

Participation is Power

Let alone personal wealth or official status,  the institution gives the same financial system for everyone to access. No wonder they offer even interest rates, no minimum accounts, and a product design compatible with the least balance accounts.

Radical Customer Focus

Communicating with the customers enriches the company’s product development they retain these days. They will never stop looking for direct feedback from their customers on making their product better every day.

First-Principles Thinking:

This fintech’s business platform is a combination of art and science. Particularly, the industry has profound gratitude for the presence of mathematics to develop hypotheses and design experiments for their work process.

How Does Robinhood Make Money?

The enterprise makes money by receiving rebates from market makers and trading venues, gold membership fees, stock loans income, interest on uninvested cash, cash management, interchange fees, and other miscellaneous revenue streams.

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When you transact stocks, ETFs, and other alternatives via their brokerage account, your commands are executed by market makers, and they offer rebates to brokerages.

This broker-dealer equipped a directing system to benefit the market makers which the industry has a good partnership to maximize the order flow based on the amount of price development acquired.

Indeed, this advanced order router delivers your order to a market maker that’s potentially going to offer you the best trading execution according to historical performance.

Likewise, Robinhood Crypto obtains numerous rebates from trading venues as this enterprise has comprehensive business rapports with many cryptocurrencies trading venues, letting users assemble advantageous rates.

Speaking of Robinhood Gold, it is a premium investing tool preparing users for the privilege of access to NASDAQ Level II Market Data, Morningstar research reports, superior instant deposits, and margin investing where users can borrow funds from the brokerage platform. Users are obliquely to pay $5 as a monthly subscription fee for their package.

For a reason being, the entity accumulates revenue from a wide-ranging service industry, involving various business provisions and fees that emerged on the Robinhood Financial Fee Schedule as other income.

Robinhood SWOT Analysis

Strengths

Compared to 70+ online brokers, Robinhood is considered one of the top stock trading platforms, and it is also the leading app for stock trading in 2021 in an insightful analysis. Here are the principal patterns to describe its strength:

Fee

This corporation provides commission-free U.S. stock trading exclusive of withdrawal and inactivity fees.

● Account Opening

The account opening is fully digital, user-friendly, and seamless. Users can complete the requirement within a day only.

● Web Trading Platform

The firm presents a secure, accessible, and ingenious web trading platform.

Weaknesses

Robinhood, on the downside, comes with flaws that everyone should never overlook. You can mostly trade within the U.S. market stocks only. On the other hand, customer support is pathetic; you can only contact them via email. Also, the broker stipulates educational items but it is less likely to be implemented in the real trading world.

● Product And Markets

The company executes stocks, ETFs, other options, and cryptos. Additionally, assets are regulated within certain types of assets, primarily to U.S. markets. For instance, this broker-dealer constrained trading up to 50 individual stocks in January 2021.

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● Customer Services

The firm has customer support that brings relevant information, but it is accessible through email only. There is no phone or live chat support to line up for users’ emergencies, which could be slow.

● Education

Having educational resources regarding trades and investment information is such a reward for beginners to absorb the knowledge. However, it would be better if their platform could contribute further educational tools, such as a demo account or tutorial videos.

Opportunities

The central courtesy of Robinhood is its tempting commission-free function, and it is the best offer that everyone could ever ask for.

Available for most U.S. stock markets, no withdrawal or inactivity fee is needed; they all are the most competitive advantage that makes this trading platform surpass their competitors.

Clients can perform the trade on an all-in-one platform where web and mobile apps are perfectly designed for a digital, quick, and easy user experience.

Robinhood is certified by dominant financial authorities, making it a safe option for people to trust. The firm’s investment accounts are protected by SIPC up to $500,000 for cash and securities and, or $250,000 exclusively for cash per account.

When the SIPC coverage is well-spent, it imposes extra settlement up to $1.5 million for cash and $10 million for securities per customer.

Most importantly, the business’s app has two-factor authentication alerted via text message and third-party authentication apps for better security prevention. At the same time, it encrypts its users’ sensitive details and passwords attentively.

Threats

The entity has encountered vigorous competition among other discount brokerages in the marketplace. Counting from banks, asset management firms, crypto exchanges, and specifically well-established fintech companies, they all are the major players in the industry that this corporation needs to keep pace with the movement.

Besides the competition, in a testimonial reported by SEC, the company didn’t make a transparent statement for its customers to understand how they implement their order flow payment strategy. This misleading act could confuse the customers as they could actually achieve more trade prices but didn’t know about it.

In July 2021, FINRA fined Robinhood $70M for triggering damage to customers for the absence of due diligence; in other words, service interruption when customers seek alternative trading deals.

Another lawsuit that happened in December 2020 was this brokerage service provider had been fined $65 million for misinforming customers about how the corporation makes money from their clients’ trading performance.

According to Bloomberg News, the company has more than 13 million customer accounts, and in October 2020, hackers interrupted almost 2,000 accounts and took advantage of customer funds.

The stockbroker declared hackers obtained the access by breaking users’ email accounts, an allegation that some of the victims accepted, and others refused. That’s why the firm informed users to use two-factor authentication to decrease the threats.

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