The valuation of the Robinhood Markets, a platform combining traditional and crypto exchange patterns, has raised to $5 billion during this year. It is expected to compete with traditional stock gigants in the nearest future and get millennials involved in investing money with easy to understand application and tutorials. Taking a chance to speak with the company’s representative I imagined myself as a beginning investor and started my “introductory meeting” to understand if if it’s my thing.
Nadia Asoyan, financial director of the Robinhood company, and I had a small coffee break during the Future in the City conference. At the beginning, I asked Nadia what she considers to be the main differences, that separate Robinhood from other exchanges.
Our main distinction from other exchanges is the absence of transaction commission. It’s rare for most platforms, especially on the USA market, where Coinbase has always been a leader. Coinbase not only takes a rather big commission on transactions, but it also makes additional money on spread. We have neither of those.
I asked if Coinbase was a direct competitor of Robinhood. Nadia explained that if we only remembered about crypto related services on the platform, it would be an affirmative answer, but if we look at this business as a whole, the situation with rivals would be different.
NA: Inasmuch as most of our business is connected to traditional investments such as stocks and options, I do not even consider Coinbase as a competitor. Our major rivals are traditional big stock exchanges and brokers, who we hope will soon stop charging their users commission. In just three years of Robinhood being a part of the USA market we can already see all players having reduced commissions, yet nobody has abandoned it, except us.
That begs the question where does the company get their money from if they don’t charge their users any “commission”. Nadia didn’t seem surprised by this question, as she was quick with a sincere reply.
NA: Traditionally we have several business models. We raise funding from:
- The percentage of uninvested money. If at some point money on a platform is uncommitted, we earn interest;
- Premium services. It is more related to traditional investments. For example, we provide an opportunity to trade when all the stocks are closed;
- Loans. We take 5% of the total borrowed amount.
Nadia returned to the question about core advantages (main differences) saying that the key features of the stock and crypto exchange rolled into one are business positioning without any commision along with the fast and simple user experience. The latter is connected to the Robinhood mobile application.
Nadia briefly showed me how it works: less than 30 seconds and you are ready to invest (can’t pretend I wasn’t shocked). It looks like a simulation game, only real money are at stake. Being contradicted by the impression I asked about the customer profile and the possible reasons choosing Robinhood over other crypto exchanges.
NA: Inside the company we divide our users by four categories.
- Users that want to earn money here and now. They are likely to buy today and sell the same day if the price is increasing. It is important to not have commission for this category;
- We also have long-term investors. What matters for them is the quantity and quality of cryptocurrencies and altcoins we provide;
- There are nervous lockers, those who come to our platform without any knowledge. We make sure to supply them with more information and provide a survey upon onboarding. According to the law, as an exchange we cannot make any recommendations. Nevertheless, we try to make an onboarding experience easier for our users;
- Investors of the “medium category”. They trade less than the first category, but don’t make long term investments like the second group either. These users are interested in combining both factors when choosing our platform.
Nadia’s speech at the Future in the City conference is about to begin. I manage to squeeze the last question about the future of Robinhood. With a smile on her face, Nadia refused to share further plans in accordance to the company politics.
NA: But, like we always say, in the future we want to be able to provide all the services our users can get from big banks or big exchanges.
Having said that we bid farewell. Nadia started her presentation on stage and I remained wondering which investor category I could belong to.