We knew it was coming, however stock-trading platform Robinhood is lastly open for enterprise in the U.Okay. — its first international market since debuting in the U.S. greater than a decade in the past.
Robinhood is granting early entry to the app beginning at this time for individuals who be a part of the waitlist, with issues step by step opening up to everybody throughout the U.Okay. a while in early 2024.
The Menlo Park, California-based firm started its U.Okay. launch prep almost 5 years in the past beginning with a neighborhood hiring spree, ultimately launching a waitlist for customers in late 2019 earlier than abruptly pulling the plug in mid-2020. The firm by no means actually gave a full clarification for the resolution, merely noting that “a lot has changed these past few months” and that it wished to deal with its U.S. enterprise.
In fact, the firm was dealing with mounting stress at residence, together with allegations that it was deceptive clients and utilizing cynical gamification methods to entice inexperienced customers to make dangerous trades. The firm has additionally been hit with a number of multimillion-dollar fines over system outages and different misdemeanours.
And tragically, 20-year-old scholar Alex Kearns died by suicide after seemingly misinterpreting a detrimental stability of $730,000 in his Robinhood account, with the firm ultimately settling a personal lawsuit introduced by his household.
Despite all this, Robinhood grew to become a publicly-traded entity in mid-2021. The firm now claims 23 million customers domestically, although a lot of this progress was spurred by early-lockdown boredom as individuals hunkered down at residence, rising from 11.7 million month-to-month customers in December 2020 to greater than 21 million six months later. Remember meme shares? Yup, Robinhood was a significant protagonist in that entire affair.
So what does this all imply for Robinhood now, because it takes a second shot at international enlargement?
“We’ve certainly learned from our previous launch attempt, and as a business we’ve grown and matured to a level where we’re 23 million customers, $87 billion in assets, and a listed business,” Jordan Sinclair, Robinhood’s U.Okay. president, defined to Ztoog. “We’ve also built technology that allows us to scale internationally.”
Robinhood app Image Credits: Robinhood
However, a lot has modified elsewhere since Robinhood’s final launch try. A lot of native gamers have gained steam for starters, notably Richard Branson-backed Lightyear which began out by permitting U.Okay. customers to commerce U.S. shares earlier than increasing to help European customers and shares. And then there may be Freetrade, the place Sinclair beforehand served as European managing director earlier than becoming a member of Robinhood this summer time. Freetrade helps U.Okay.-based merchants investing in U.S. and European shares, and it’s gearing up to broaden into Europe shortly.
It’s these youthful upstarts that Robinhood will almost definitely be up in opposition to at first, relatively than dusty outdated legacy monetary providers corporations resembling Hargreaves Lansdown.
“Robinhood’s appeal in the U.S. was to a younger tech-savvy audience looking to access the shares market,” David Brear, CEO at fintech consultancy 11FS and co-host of the Fintech Insider Podcast, advised Ztoog. “It’s likely they’ll appeal to a similar audience in the U.K. who have previously found the price and access barrier to the stock market too high. I can see them going head-to-head with Freetrade in terms of target market to start, and then moving on to target a more investment savvy audience such as Hargreaves Lansdown users, with bigger investment wallets.”
Robinhood, for its half, has been making noises about getting into the U.Okay. for a lot of this yr. At its Q3 earnings this month, the firm confirmed it might launch brokerage operations in the U.Okay. imminently, with crypto buying and selling to comply with for European Union (EU) markets. The first of those pledges has now come to fruition, with U.Okay. customers ready to commerce 1000’s of U.S. shares, together with these of all the main corporations resembling Apple, Amazon, Microsoft, and Meta.
Users can place trades throughout customary market hours, which is 9.30am Eastern Time (ET) till 4pm, which interprets into 2.30pm-9pm UK time. Outside these hours, Robinhood’s 24 Hour Market permits customers to place so-called restrict orders on 150 completely different shares 24 hours a day 5 days per week, operating from 1am (UK time) on Monday via 1am on Saturday.
Additionally, the firm additionally helps American Depository Receipts (ADRs), which permits clients to spend money on some international corporations that don’t commerce on U.S. inventory exchanges.
Lessons discovered
Despite the minor neobroker increase since Robinhood’s aborted launch three years in the past, Sinclair believes his firm is in a robust place to capitalize on what remains to be a comparatively nascent market, and might lean on the expertise it has amassed from the U.S. over the previous decade.
“I’d say the U.K. is a great opportunity, the market actually really hasn’t been disrupted yet,” Sinclair stated. “It still looks and feels the same way it did, with traditional brokers dominating with high fees — and that hasn’t changed. So I’d say the opportunity still exists. We have the benefit of a 10-year-old platform in the U.S. that has developed and matured — we’ve added a lot of products and features, we’ve learned from 23 million customers.”
While the firm has confronted scrutiny over the way it targets inexperienced merchants in the U.S., Robinhood is taking these classes into its U.Okay. foray with in-app guides, ideas, tutorials, information, and market information, designed to arm fledgling merchants with the instruments to make investments properly — or, at the least, not blow their whole financial savings — with out having to context-switch between a number of info sources.
“This is all about putting it in one place for a customer, so they can facilitate all of that research and all that information before they make trades and to guide their investment strategy going forward,” Sinclair stated.
Robinhood training: Image Credits: Robinhood
What’s clear from all that is that Robinhood is making an attempt to begin on the right-footing after missteps in its home-market — for example, the firm is introducing 24/7 chat, e mail, and cellphone help in the U.Okay. from the get go. But regardless of these latest efforts to enhance its picture domestically, the firm would possibly nonetheless be struggling to get better from latest controversies, in accordance to Brear.
“Robinhood saw tremendous growth in the U.S. during the peak of Covid when everyone was spending a lot more time indoors and online,” Brear stated. “They benefited from a wave in hype around the product and the brand which then suffered significantly after the suicide of a 20-year-old customer, and it hasn’t quite recovered since. Much has been written about Robinhood’s responsibility to educate their customers about their product and safely engaging their money in the stock market, and even though they’ve invested in more customer education in the product and through content, their reputation probably hasn’t quite recovered since.”
Two years after going public, although, the most blatant means for Robinhood to develop is thru getting into new markets, and as one in every of the world’s main monetary facilities, the U.Okay. makes quite a lot of sense for its first transfer.
“The U.K. is a super appealing market for fintechs for a bunch of reasons — a strong and collaborative regulator, a significant affluent fintech-engaged population, lots of talent, and a whole landscape of other fintechs and banks available as potential partners or suppliers,” Brear stated.
Show me the cash
Robinhood guarantees commission-free trades and no international alternate (FOREX) charges, whereas there are not any account minimums both (i.e. customers don’t have to deposit x quantity to use the service). This all sounds nice, however it begs one easy query: how will Robinhood generate profits?
In the U.S., the Securities and Exchange Commission (SEC) criticised Robinhood for deceptive clients over the way it makes cash. Indeed, whereas Robinhood is commission-free, it basically accepts the buyer’s commerce and sells it on to bigger buying and selling corporations which executes the commerce on behalf of the buyer — this can be a course of often called “payment for order flow” (PFOF). Thus, critics argue, Robinhood clients obtain inferior costs for his or her trades, making the “free-trading” mantra little greater than a advertising phantasm — the investor themselves basically turn into the product.
All of this, although, is moot for Robinhood’s entry to the U.Okay. Indeed, PFOF has successfully been banned there since 2012, whereas the European Union (EU) can be introducing a ban on the follow which is about to are available in by 2026. Elsewhere, Canada has additionally banned PFOF, as has Singapore, whereas Australia is transferring in that path.
The SEC had beforehand indicated that it would think about a PFOF ban, although it has retreated from that stance for now. But it’s clear that the world regulatory panorama is more and more taking a dim view of PFOF, main Robinhood to pursue completely different income streams.
Last yr, Robinhood launched a brand new program that enables customers to “lend” out their shares to different customers, with Robinhood taking a lower of the spoils, whereas it additionally launched a brand new retirement product. Long earlier than all that, the firm rolled out a subscription-based Robinhood Gold product with premium options, whereas it had additionally been transferring additional into crypto territory, although it lately restricted a few of the crypto it helps due to regulatory scrutiny in the U.S.
It’s price noting that these strikes are additionally designed to appease Wall Street. Since going public greater than two years in the past, the firm’s market cap has fallen from a near-$60 billion peak in 2021 to just a little over $7 billion at this time. Trading quantity can be down total on the Robinhood platform, whereas information emerged this month that Google’s mother or father Alphabet had ditched its remaining stake in the firm, having initially invested when it was nonetheless a personal startup.
All this factors to an organization that has not been faring notably effectively, making income diversification and its impending U.Okay. launch all the extra very important to its future. While there isn’t a apparent moneymaking mannequin in place for Robinhood’s U.Okay. launch, Sinclair stated that it plans to “add products over time,” which could embrace introducing present merchandise resembling Robinhood Retirement and Robinhood Gold to the market.
“We’re gonna build a diversified revenue stream, there’s products on our roadmap that we’ll deliver, and local products is an important component for us,” Sinclair stated. “What we’ve delivered in the U.S. really shows how diversified we can be.”
What can be notable right here is that whereas Robinhood is just bringing its stock-trading product to the U.Okay., the firm is about to launch crypto buying and selling in the European Union (EU). This is due to new EU guidelines coming into power subsequent yr targeted on so-called “stablecoins” which can be pegged to official currencies, bringing a clearer authorized framework for crypto corporations to work inside.
No such laws but exists in the U.Okay., although there are indicators it would fall into step with the EU sooner or later.
“For the U.K., we’re focused on launching brokerage, that’s our priority and we’re gonna get that right and then look to expand internationally with our brokerage business over time,” Sinclair stated. “Our crypto business will be in the EU, and in time we’ll consider it in the U.K. — but for now, our focus is on brokerage.”
On an analogous observe, Robinhood’s U.Okay. launch is notable insofar because it the platform solely helps U.S.-listed shares — this does truly make sense for the most half, as it should enchantment to a brand new technology of retail merchants, ones well-versed in the fortunes of Apple, Amazon, Meta, Tesla, Spotify, et al.
However, Sinclair says it should look to open issues up to further shares in the future.
“It’s absolutely on our plan — U.K. equities is something we hear from customers, that’s important to them,” Sinclair stated. “We’re starting with U.S. stocks, as it leverages our platform and our technology in the U.S. But absolutely — U.K. is on our roadmap.”