Robinhood is a mobile application based stock broker. Because the brokerage is completely technology based, their model contains almost none of the traditional overhead of brokerage firms. Many of the functions of a traditional brokerage firm are fully automated, which substantially reduces Robinhood’s cost structure. This dynamic allows them to offer unlimited free trades for listed and OTC stocks. The application has not yet been released to the public, but they are allowing people to sign up for priority access on their website (robinhood.com). Robinhood seems to be adopting a revenue model that includes the “freemium” dynamic as well as gaining revenue from partnerships and as remuneration for providing trade volume in certain markets.
I was drawn to this company because I appreciate certain aspects of democratizing access to equity markets and because this ideal provided much of the drive for creating Robinhood. By offering commission free trades and allowing users to set up accounts with no minimum account balance, Robinhood creates a low-cost, easy to use method for participating in equity markets. While creating high-frequency trading platforms for Wall Street financial institutions, the co-founders noted that there were essentially no fees for high-volume traders. A desire to bring this same dynamic to the general population compelled the co-founders to being conceptualizing Robinhood. Additionally, I believe this application has incredible market potential. If the company is able to seamlessly provide secure brokerage services with minimal cost, individual traders across demographics will be drawn to it.
A few obstacles will have to be overcome including users’ comfort level with giving sensitive personal information to a mobile application. In order to comply securities regulations, Robinhood is required to gather personal information including employment and social security data. If the company can prove that user information is safe and secure and calm user anxiety of transmitting such information through their mobile devices, Robinhood has the potential to be very successful.