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Robin Hood

Introduction

Fintech which stands for financial technology, is a concept involving companies utilizing

technological platforms as their primary commercial service provider to innovate products and

transact financial services efficiently. According to Skan, Dickerson, and Masood, when it comes

to financial transactions, the traditional banking system has played a significant role, but the

digital world is gradually changing this fact as a result of increased technological development.

Financial technology companies are rapidly transforming the various financial markets that have

been disrupted in the recent past

Financial technology companies (Fintech) have led to the creation of different business

models together with increased customer needs by affecting various economic aspects such as

payment services, financial regulation, and the banking industry (Salmony). There has been an

increase in new financial services in the market, filling the various gaps created in the financial

market.

Financial technology companies have come up with new innovative solutions that have

been able to provide customers with high transaction speeds, ease of use, and a wide range of

service providers. Financial technology companies are a concept of the 21st century where start-
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up companies are striving to diverge traditional financial transaction forms into modern methods

that are more effective by utilizing high-tech devices such as loans, mobile payments,

fundraising, money transfers, and management of assets.

Some of the technology in use by Fintech companies include; mobile banking, peer to

peer payment technology, Block-chain, peer to peer lending, and digital wallets. These

technologies are utilized to accrue improved benefits and efficiency in financial transactions

together with reducing costs to customers.

Salmony, in his article, writes that there are two different categories of financial

technology companies; collaborative Fintech companies and competitive Fintech companies.

Competitive Financial technology companies are those companies that create direct obstacles

and challenge organizations offering financial services. Competitive financial technology

companies have created a successful niche for themselves by providing benefits and new

experiences to customers by the use of technological products instead of targeting for high

profits.

Collaborative Financial technology companies, however, have been the driving force

towards the evolution of financial institutions and consider the currently existing financial

institutions as possible customers. Cooperative Fintech companies aid financial institutions in

innovating their products and services as well as transforming traditional business models of

financial institutions to a more sustainable future development.

Apart from the above collaborative financial technology companies also aid financial

institutions in optimizing their enterprise, simplifying procedures, minimization of costs together

with day to day business services by the use of high-tech products and innovation. Financial
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technology has consecutively grown incredibly and accomplished many tremendous

achievements in recent years, surprising the financial markets globally.

Robinhood

Founded by two graduates from Stanford University, Vladimir Tenev, and Baiju Bhatt in

2013, Robinhood is a financial technology company that is currently valued above $5.6 billion

with over 4 million users and has transacted over $150 billion. This financial technology firm is

based in the United States with its headquarters in Menlo Park, California.

The main feature of the firm is a smartphone mobile application called Robinhood that

enables customers to invest in companies that trade publicly and exchange-traded funds that have

been listed in the United States stock exchange without having to pay any commission.

Robinhood financial technology firm makes its profit from the interest that has accrued from

margin lending and cash balances of customers.

The name of the company ‘Robinhood’ is as a result of the firm’s mission of giving

everybody access to financial markets and not only the rich. After its unexpected launch on

Hacker News, a news website dealing mainly with technological advancements, the firm already

had a customer waiting list of over 150,000 people. By the end of 2014, the financial technology

firm had a waiting list of over 500,000 subscribers, which is only one year after being launched.

According to Skan and Masood of all the subscribers to the Robinhood mobile

application, Millenials were the majority by 2015, making up 80% of all the subscribers with the

average age of customers being 26 years. Of all Robinhood customers, 50% of the users who

have traded using the mobile application do it daily, while 905 of them utilize the mobile app

every week. Robinhood reached a record 3 million users by early 2018

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The financial technology firm had already made a whopping $539 million in terms of

venture capital by the year2018 after being valued at $5.6 billion and increase from $1.3 billion

the previous year(Investopedia).In the year 2019, the founders Vladimir Tenev and Baiju Bhatt

announced they were planning to take the company public.

Robinhood Products

Trading in Crypto-currency

Crypto-currency is a kind of digital currency that can be used to make financial

transactions such as payments and transfer of money between two or more users through

technology. An excellent example of cryptocurrency is bitcoin which was born in 2009 and

allowed users to trade it for goods and services with clients who accept cryptocurrencies as a

mode of payment

The financial technology firm announced Commission-Free trading in crypto-currency in

January 2018, and on the first day after announcing the company already had a waitlist of over

one million users. Users in California, Missouri, Massachusetts, and Montana were the first to

enjoy this feature by trading in Ethereum and Bitcoins in February of 2018, with the company

expanding the services to Mexico and Wisconsin by May of the same year. One year after the

launch of the above function, trading in crypto-currency through Robinhood had reached around

46 states in the USA.

Stock and ETF trading

Exchange-traded funds and trading in stocks were the first services being offered by

Robinhood at its launch. Over $30 billion in trades had already been executed by the year 2017,

and in August of the same year, users were being offered free stock whenever they referred to
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new users. Robinhood’s free commission trading resulted in other brokerage firms such as TD

Ameritrade getting rid of trading fees.

Banking

Robinhood’s spokesman announced that the firm had intentions of obtaining a banking

license in 2018, this feat was accomplished in December of the same year when the firm

announced users could open checking and savings accounts and debit cards were being issued by

Sutton bank in Ohio which became available in early 2019(Salmony). It was announced that the

savings account would have an annual interest rate of 3.0% which was higher compared to the

2.36% being offered by licensed banks and also that SIPC would insure the reports, this all

changed later in the year after SIPC denied the insurance claims with FDIC together with other

partner banks taking up the insurance at an annual interest rate of 2.05%which was further

lowered to 1.8% per annum.

Pros and Cons

Robinhood, as a financial technology firm, offers users the chance of trading in stocks in

the United States without paying any commission or withdrawal fees. The mobile application by

the firm has a fully digital user-friendly interface giving users the ability to open accounts faster

without any hiccups. One of the cons is that services by Robinhood are only available in the

United States, and Australia and its customer care services are only available through email.

Even though the firm offers free trading in US stocks, the commission for trading on

stocks not from the United States stock market is pretty high. Robinhood only allows users from

the United States and Australia to open accounts, but there are plans by the firm to expand its

services to other continents(Foxman). The standard Robinhood account does not require a
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minimum balance, but this changes when a user upgrades to the Robinhood Gold account, where

the minimum deposit is $2000.

While opening an account with Robinhood, one automatically opens an official statement

which can be upgraded to the Gold account or downgraded to a cash account. The Robinhood

Gold and standard accounts have a limitation of only three weekly day trades unless one has

$25000 and above in the account, while in the cash account, such restrictions are not there, and

users can make as many day trades as they want without a minimum account balance.

Depositing and withdrawing money from Robinhood accounts is quite easy and user-

friendly but they can only be made through bank transfers. If a user makes an instant deposit,

payment is instantly credited to his/her account, but if one does not do this, it can take up to 5

business days for the deposit to reflect in the account (Foxman). Even though the instant deposit

is immediately reflected it has its limitations. For the Robinhood standard account, the maximum

immediate deposit is $1000, while for the Gold account, it is $50000 with any amount above the

limit being deposited after five business days.

Withdrawing money from Robinhood accounts takes three business days, the accounts

have a withdrawal limit of $50,000 daily and cash deposited and not used in trading can only be

withdrawn after five business days. Withdrawals can also only be made to accounts registered

with the user’s name(Foxman). Transferring of stocks through Robinhood in and out of user

accounts is possible through the mobile platform, an incoming stock transfer is free while there is

a cost of $75 for any transaction involving an outgoing stock transfer.

After the mobile Robinhood platform, the firm introduced a web-based trading platform,

the major issue with the web-based platform is that it is available only in English. Even though it
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is in English, the platform has a great design, and user interface plus is easy to use but cannot be

customized to user specifications.

In terms of safety and privacy of user data, users have to log in using their email

addresses and password, and the web application has an option of a two-step authentication

process. This is all good, but early in the year, the firm announced that its user’s passwords were

being stored in the readable, clear-text form in their internal systems. The firm, however, stated

that there was no evidence of any breach of user information and data.

Opportunities and Threats

 Technology is changing from day to day ane society is becoming “mobile-first.” Robin

hood provides a zero-commission investment opportunity to individuals facilitated by a

mobile up. This is in line with the new world and allows the company to grow.

 Many people are interested in becoming investors but are hindered by the old mindset

despite having the necessary resources. The company is working towards changing

people’s mindsets and if it succeeds they will create a new age of investors for their

company; this is an expansion opportunity

 RobinHood is highly dependent on its investors for growth.If the investors cut them off,

they are bound to fail as they do not have a clearly defined revenue model.

 As much as Robinhood’s competitors are considered to be slow and old, they are well-

funded for the competition. To avoid this Robinhood should be innovative.

Controversies

Even though the Financial technology firm has had a great run since it was launched it

has been faced with various issues such as a glitch in November 2019 that allowed users with
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Gold accounts unlimited access to the borrowing of funds to purchase stock. The glitch was

finally fixed, and affected accounts suspended. In another instance, there was a report from

Bloomberg News in 2018 that the firm got almost 50% of its revenue from order flow payments

(Bloomberg). This fact was confirmed by the firm on its website and ended it later in the year

after developing an in-house clearing agency.

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Works Cited

Skan, J., Dickerson, J., & Masood, S. 2015. The future of fintech and banking: Digitally

disrupted or reimagined? Tech. rept. Accenture. Available: http://www.accenture.com/us-

en/Pages/insight-futurefintech-banking.aspx. Accessed 14 November 2016.

Salmony, M., 2014. Access to accounts: Why banks should embrace an open future. Journal of

payments strategy & systems, Vol. 8, Issue 2, 169–170.

Investopedia. Cryptocurrency. Available:

http://www.investopedia.com/terms/c/cryptocurrency.asp. Accessed 10 October 2016.

Foxman, Simone (October 16, 2018). "Robinhood Gets Almost Half Its Revenue in

Controversial Bargain With High-Speed Traders". Bloomberg. Retrieved 18 January 2019

Truong, Thi. "How the FinTech industry is changing the world." (2016).