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FinTech Case Study: RobinHood

Author: Brigilda Lleshi

Overview and Origin

This case study will discuss the overview and origin of the somewhat controversial FinTech brokerage platform, RobinHood Markets. Founded in Menlo Park, California, U.S.A., in 2013, by two New York City high-frequency trading developers, Vladimir Tenev and Baiju Bhatt, the "RobinHood" that is recognized by most millenials and younger plays on the medieval story of the legendary Robinhood, the outlaw who would take from the rich and give to the poor. Today's version of RobinHood has a similar mission-- RobinHood claims to provide a platform in financial markets for everyone, not just the wealthy.

RobinhoodCartoon

Business Activities

The only requirements to trade on RobinHood Markets are to be a U.S. citizen who is over the age of 18 years. Most financial institutions, who offer similar platforms, like Vanguard and Fidelity, have high barriers to market entry for more "volatile" stocks and currencies, like cryptocurrency, by having options commissions, fractional investing share for ETFs, and other limitations. Alternatively and conveniently, RobinHood has no such restrictions, which is how it lives up to its claims of being a platform for all traders, regardless of financial market literacy. With its clear attempt to market trading to younger generations as it hosts over 23 million users, averaging 31 years of age, RobinHood facilitates hassle-free investment options for budding traders by offering "no commissions fees" on trades.

No Fees? Show Me the Money! (Is There Money?)

According to its Fourth Quarter and Full Year 2023 Report Results (see below) [1], RobinHood reported that "[transaction]-based revenues increased 8% [YTY] to $200 million, primarily driven by cryptocurrencies revenue of $43 million, up 10%," followed by $25 million in equities and options of $121 million. The transaction-based revenues are generated through RobinHood's use of market makers-- this tactic gives the popular platform an edge on competing with the stock market. In turn, market makers offer rebates to RobinHood. "Similarly, [RobinHood] Crypto" receives volume rebates from trading revenues." [2]

Financials

Other ways in which the company makes money are:

  1. Subscriber Fees (RobinHood Gold)
  2. Stock Loans (Margin Trading)
  3. Cash Management Fees
  4. Cash Income
  5. Transfer Fees

It should be noted, however, there have been many concerns over the company's profitability.

Industry Impact

RobinHood has piqued the interest of younger investors, which has pushed the "non-traditional" investor into wanting to learn more about stocks, cryptocurrency, ETFs, etc. Despite the concern that traditional brokerages have about reckless investing due to little to no market literacy, RobinHood has shown that the only way for younger investors to learn is to remove the rules and barriers and to simply attempt and learn from those mistakes. Historically, younger investors are less risk averse compared to their older counterparts, which only feeds the rapidly booming crypto market that has been spearheaded by RobinHood. Additonally, the platform has educational resources to get the budding investor started on diversifying their portfolio. The voracious appetite of today's investor to trendset and learn is exactly why RobinHood is here to stay.

Recommendations

Before cryptocurrency became the hottest buzzword in finance, ForEx was every day-trader's dream (arguably, still is). Therefore, the main idea I would recommend for RobinHood is implementing the option to trade ForEx, as it seems like the next obvious step for a young investor who seeks riskier trades, like cryptocurrency.

References

  1. https://investors.robinhood.com/news/news-details/2024/Robinhood-Reports-Fourth-Quarter-and-Full-Year-2023-Results/default.aspx
  2. https://seekingalpha.com/article/4447377-how-does-robinhood-make-money

Brigette Lleshi's Projects

kryptojobs2go_application icon kryptojobs2go_application

Integration of the Ethereum blockchain network into application. Purpose is to enable the customers to instantly pay their hired fintech professionals with cryptocurrency.

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