Good things, bad things, and controversies

This illustrated photo shows a person checking a 3-month GameStop stock chart on his smartphone in Los Angeles on February 17, 2021. Before the virtual hearing about GameStop stock, the Reddit, Citadel, Robinhood, and Melvin Capital logos are displayed in the background.

Chris Delmas | AFP | Getty Images

Technology-driven business turmoil rarely powers good and evil. Robin Hood is a good example of the rocky destructive power between the absolutes.

The turmoil in the securities industry illustrates how technology can transform the gatekeeper industry into a more open platform, forcing established giants to innovate and expand. As a result, Robin Hood topped the CNBC Disruptor 50 list this year, pressured Wall Street and investment giants to reduce transaction costs (often to zero) and integrate to withstand accelerating digital threats. I put it on.

And this year, the company and its CEO Vladimir Tenev were at the center of the stock market and cultural phenomena. In January, at Reddit’s WallStreetBets forum, a conversation about squeezing hedge fund investors helped irrationally acquire shares in GameStop and AMC Entertainment. The deal took place primarily in Robin Hood — and it wasn’t the only volatile deal in which Robin Hood was at the center of action. Between January and February, the platform reported the addition of 6 million cryptocurrency accounts.

The debate over “democratizing public finances for everyone”

The Reddit uprising became the first investor to discover that millions of Americans stayed home during a pandemic, many underwent stimulus checks, and Robin Hood had easy access to retail transactions. It lasted for only one year. Tenev told CNBC at the end of last year that he saw deposits equal to or multiples of the stimulus check amount. Retail transactions increased to 23% of total transaction volume by the end of December 2020, up from 13% in the previous year.

Robin Hood sticks to one message in growth and turmoil, telling CNBC and others that “our mission is to democratize everyone’s finances.”

Vladimir Tenev, CEO and co-founder of Robinhood Markets, virtually spoke at a laptop computer hearing in Tiskilwa, Illinois, USA on Thursday, February 18, 2021.

Daniel Acker | Bloomberg | Getty Images

Robin Hood has had some positive and profound impact on the market. The company has removed trading barriers by making investments mobile-first with no fees. The investment has been simplified, more accessible and personal.

Robin Hood states that the tool has reached a more diverse group of investors. Quoting data from a December survey of more than 98,000 Americans, 16% of our customers come from the Hispanic community, compared to Schwab, E-Trade, Fidelity, TD Ameritrade, Vanguard, and others. It is 7% for existing securities companies. 9% are African-American, compared to 3% of other brokers. And it is attracting young investors. According to the company, Generation Y and Generation Z make up 70% of users.

But claiming that the investment is “not scary” and “easy to understand” could be frowned upon by many critics, from the Securities and Exchange Commission to Capitol Hill and the billionaire investor Warren Buffett. There is. In the recent market, it is on the “casino side”.

2021 CNBC Disruptor 50 Details

The company has been criticized for gamifying the serious business of investing in jeopardy of personal life savings. According to critics, the app was designed more like a video game than an investment tool, and until recently it was blowing a virtual festive confetti on the screens of new user accounts.

In 2020, Massachusetts regulators filed a complaint against the company on the grounds of “aggressive tactics to attract inexperienced investors.”

The company settled the SEC investigation last December for $ 65 million. This is because they misunderstood how investors are making money without admitting fraud.

When free trade is a product

Robin Hood’s ability to offer free transactions on the platform is made possible by the practice of brokers receiving payments from dealers to route transactions, a practice that continues to be criticized after the SEC settlement known as order flow payments. This is a practice used by many electronic brokers, but it has never been as scrutinized as Robin Hood’s rise.

Internet giants like Facebook and Google have been plagued by criticism for years that their free services rely on users being “products.”

In the case of Robin Hood, free trade is a product, which raises concerns about conflicts of interest and motivates brokers to drive as many trades as possible.

The new SEC President, Gary Gensler, is watching. “Props, leaderboards, these new tools on how to act to get individuals to trade more … There are a few conflicts of interest. Apps that say zero commissions make money on your trades .. Someone Jensler said in a recent CNBC interview that order flow payments are blocked in the UK and Canada.

At some point in the Reddit WallStreetBets phenomenon, Robin Hood reduced the trading capacity of its clients, as opposed to having too many transactions, which caused another controversy for the company. Robin Hood banned investors from trading the most disputed stocks like GameStop and AMC and acted unfairly against ordinary investors, including a rare adjustment of issues from Alexandria Ocasio Cortez and Ted Cruz. I elicited criticism of that. And it has launched some of the app’s most enthusiastic new investors towards the competitors of the brokerage firm.

Tenev later explained that Robin Hood was forced to delay the deal because he did not have enough cash to hedge the risk. To keep the company running, the company urgently raised $ 1 billion from investors, followed by another $ 2.4 billion. In other words, Robin Hood may have gone out of business at the peak of popularity and notoriety. It was investor confidence in the business model and potential that the company and its users traded on another day.

Robin Hood is also facing multiple class action proceedings related to the suspension of trading that occurred during the volatile market conditions in March 2020, with some traders on Robin Hood’s platform during the major movements of the stock index. Locked out from.

We live at the crossroads of capitalism, democracy and innovation. And I think it’s a very interesting place.

Robinhood CEO Vladimir Tenev

The path to growth that Robin Hood has experienced is not always straight or benign. The former No. 1 CNBC Disruptor 50 company has created a business model that has widespread consequences for the economy and people’s lives. Airbnb and Uber in particular have grown into as many controversial giants as praise. And Facebook, the company that ignited the original idea on the CNBC Disruptor 50 list, was still at the center of multiple cultural and political tug of war, most of the relatively short-lived beings (Facebook gathered people). Or torn)? Do you support or undermine democracy? Such). Everyone has benefited from laws and regulations that did not anticipate or respond to disruptive innovation, resulting in a long battle with politicians and regulators.

For Robin Hood, last year’s story is not without tragedy. A 20-year-old kid who thought he was borrowing hundreds of thousands of dollars for a dangerous bet died of suicide after failing to contact customer support. His family complained. The company has promised to hire hundreds of registered finance personnel to respond quickly to customer questions.

The core model of fee-free trading remains here, and Robin Hood continues to expand repeatedly. The stocks, ETFs, options and cryptocurrencies that users are investing in are part of a new world where portfolios are checked on iOS or Android devices. You don’t have to open the app.

In the first quarter of 2021, 9.5 million customers traded crypto with Robin Hood Cryptography, compared to 1.7 million in the fourth quarter of 2020.

During the early historic market volatility of the pandemic, Robin Hood added a market volatility page to the Help Center, and the company fully expanded its regular investment and access to partial stocks.

One thing is certain: Robin Hood’s appeal to a new generation of investors has forced traditional Wall Street banks, asset managers and brokerage firms to draw attention. Goldman Sachs has invested in Marcus, a retail division, and Fidelity has launched a “youth account” that allows teens to trade and store on the platform at no charge. E-Trade was acquired by Morgan Stanley and TD Ameritrade was acquired by Charles Schwab. Even Vanguard, synonymous with long-term buy-and-hold investments, now offers commission-free trading of many commodities.

According to Robin Hood, it has 13 million users and its mission is to “unleash a new generation of sources of wealth.” This number has not been updated since 2020. Recent industry estimates are close to 20 million users, but the company hasn’t confirmed that it could include unfunded accounts.

Regulators remain vigilant about where their influence on the millions of new investors introduced to the market will end. SEC Chairman Gensler told CNBC that it would be good for individual investors to have access to the capital markets.

No one really asks, “Is it too easy to buy and deliver a flat screen TV with just one click?” But people are now asking, “Isn’t it so easy and frictionless for people to invest in the market?” Tenev claimed in an interview with CNBC late last year.

“Our belief is that the lower the barriers to entry, the better the competition and the more people can invest money at a younger age, the better the economy and the kinder the society. I live at the crossroads of capitalism, democracy and innovation. ” “And I think it’s a very interesting place.”

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Good things, bad things, and controversies

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