https://techcrunch.com/2019/10/08/robinhood-cash-management/ “This time it actually has insurance. Zero-fee stock trading app Robinhood is launching Cash Management, a new feature that earns users 2.05% APY interest on uninvested money in their account with the ability to spend it through a special Mastercard debit card. The waitlist opens today in the US with the first users to be admitted soon. “If you have $5000 in your account while you’re thinking about what to invest in, you’d have an extra $105 at the end of the year” thanks to Robinhood Cash Management’s interest, co-CEO Baiju Bhatt tells me. ... To help it avoid further regulatory missteps, Robinhood yesterday addedformer SEC commissioner Dan Gallagher as its first independent board member. He joins the startup’s recently hired COO, CFO, Chief Compliance Officer, VP of risk & compliance, and VP of legal & regulatory to bring more supervision to Robinhood. “ (continued at the link above)
So what. That's how a business sometimes operates. Gillette - Lose money on the razor, make it on the razor blade.
People were saying the same thing about Amazon during all the years Amazon was losing money. Now they all wish they bought AMZN years ago. As for brokers' profitability, soon all of them may be losing money on every account if Robinhood will continue doing what Amazon was doing and eliminating competition, now with Robinhood also going after bankers. (I may refer back to this post couple years from now)
BTW, people were saying negative things about Robinhood for the last few years, but now it is still in business while all the other brokers are crying and eliminating commissions to stay in business. So Robinhood has already proved their point, while some people are still not seeing the message and repeating the same mantra while being proven wrong
Get back to us after the next market crash and financial panic, when brokers' infrastructure and processes, and the experience of their leadership and risk-management teams, are tested to the max. Not to mention, when the tap gets turned off on the currently unlimited supply of VC cash to fund "disruptive" growth-at-any-cost business models without any hope of turning a profit. Personally I have no idea whether RH will be a viable business or not. For full-time professional traders with large accounts, it's clearly not suitable as a primary broker. I'd rather pay 10x the commission I do now for a broker with guaranteed ironclad processes, risk controls, insurance etc. vs. zero comms and a broker that might vaporize my trading capital in the next crisis. That said, it's certainly a good sign that RH has recently hired a slate of experienced finance-industry professionals to run things - albeit mostly with a legal or compliance background, rather than one in trading or investing.
Just FYI, they do not offer trading on margin (except for small margin when you pay them some monthly fee), so they should be pretty safe from account blow-ups. Though I agree that no one can know whether Robinhood will be a viable business. I just understand their path of taking over brokers, banks, and wanting to be one-stop-shop for all financial needs of regular people. I just understand their vision and goal to become "Amazon of finance" and be the only game in town. This may have both positive and negative results, especially for pro traders. I do prefer for IB to thrive, continue charging commissions and allowing me to control order routing. While I'm not sure if any other brokers going out of business will be a good thing.