January 29, 2021
When the investment app Robinhood was first founded in 2013, it didn’t have the traditional “Uber for X” pitch that usually accompanied buzzy new apps coming out of Silicon Valley. In fact, its value proposition was so simple even a child could understand it. Instead of paying fees to stock brokerages like Fidelity or Charles Schwab for each stock trade, users could buy and sell shares of their favorite companies for free. Robinhood earns money on each trade by passing on its users’ orders to stock clearing houses to execute. Those clearing houses pay Robinhood a fee on each transaction. It also earns interest off of cash left idle in users’ accounts, and other premium subscription services.
Founders Baiju Bhatt and Vladimir Tenev’s bet has paid off handsomely. Two years after starting the company, the duo launched the app in 2015. Since then, Robinhood reached unicorn status in 2017 and has grown to 13 million users. In its fight to democratize access to financial markets, Robinhood soon went from underdog to industry leader: in 2019, other brokerage firms (Schwab and TD Ameritrade) followed its lead and eliminated their commission fees, too.
“Robinhood completely changed the game,” said an early investor and board member under condition of anonymity. “It forced everyone to go to zero commission and allowed anybody — irrespective of income — to be able to participate in the markets.” Robinhood claims that its service lowers the financial barrier to entry to the stock market, while demystifying a seemingly byzantine and opaque financial system with a slick, easy-to-use user interface.