Robinhood, one of the hottest Silicon Valley startups, has been in the sights of FinTech enthusiasts for a while now. Built on Plaid’s infrastructure, Robinhood is a trading app that allows young investors to try out investing skills with as little as a few dollars. The company charges for the ability to buy stocks on “margin” or credit and also makes money by collecting interest on users’ cash balances. Robinhood was listed among the top US FinTech startups of 2015 and various other rankings.
Founded in 2013 by Vladimir Tenev and Baiju Prafulkumar Bhatt, Robinhood went live last March with 800,000 people who signed up for the wait list. Since the launch, the Robinhood team went from 14 to 50 and is growing in an attempt to democratize access to the stock market.
The total funding for the company reached $66 million from a group of notable investors including New Enterprise Associates (NEA), Index Ventures, Ribbit Capital and Social Leverage. Other companies backing Robinhood are Google Ventures and Andreessen Horowitz. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for cash claims).
Robinhood’s success didn’t start and end on powerful investors pumping funds into the startup. There is much more to the success of the app than significant investments. Bright entrepreneurs looking for examples and success secrets should be learning the Robinhood approach.
In addition to rapid growth, Robinhood was recently honored to receive the Apple Design Award and recognition from Google. In the case of the Apple Design Award, Robinhood is the first finance company to ever win the award.
Vladimir Tenev, Robinhood’s Founder, shared with the LTP team the story of Robinhood’s launch and how the app was able to turn an outdated, cumbersome investing experience into simplified, elegant and enjoyable one.
After graduating from Stanford, Vladimir and his future Co-founder Baiju Bhatt decided to move to New York to build trading platforms for some of the largest financial institutions in the world. While selling the trading software to hedge funds, they realized that institutional investors could access markets for far cheaper than the public. Advances in technology had reduced the cost of trading to almost nothing, yet investors were still being charged up to $10 per trade. That insight was the moment when Robinhood was born.
Vlad and Baiju went back to California to build a company that would make financial services accessible to everyone by allowing people to trade stocks without paying the standard arbitrary commissions, which are commonplace in the industry, and also set up an account with no account minimum.
While the experience of the founders with trading software and hedge funds did play a vital role in Robinhood’s development and the idea itself, there was more to that what allowed Robinhood to break the first financial services app into the Apple Design Awards and get to the top of Google Play.
When creating and designing Robinhood, the important things that founders kept in mind were not only around going away from arbitrary commissions, but also drastically enhance the way people view and interact with their investments. The team has rethought the entire investing experience—from the moment a user signs up for an account to the moment he/she places the first trade.
Vlad shared with the LTP team some examples of the elements that made Robinhood a benchmark of the trading app.
First, as Robinhood stated, signup takes only four minutes. To open up a brokerage account, customers must submit an application to be reviewed by Robinhood. After submission, one of two things happens. In the best case, account application is verified and approved quickly and the user receives an email and notification within an hour of submission. However, when something needs to be verified or checked by a Robinhood representative, it may cause the account approval process to take up to five business days.
Second, the app background changes from white to black to quickly signify market hours. This thoughtful design feature visually eases the understanding and feeling of trading time to users.
Third, the app doesn’t contain any jargons in text. It is important to keep the language clean and professional as there can’t be any ambiguity when it comes to risking personal funds at trading.
Last, the app sends personalized alerts and breaking news tailored to a user’s portfolio and watch list. Personalization is everything when it comes to financial apps as users with different strategies and funds need a precision in knowledge regarding their traded stocks.
It all boils down to visual instead of text and to personalization. Trading has always been in the hands of middlemen juggling with clients’ funds due to special knowledge. With Robinhood, special knowledge is democratized and trading is no longer from the other planet for the majority of people.
Vladimir also shared with us some of the Robinhood’s milestones. Despite having launched in March last year, the app has already transacted more than $2 billion through the platform making Robinhood the fastest-growing brokerage ever.
Recently, Robinhood released a new feature in the app, Cards, to create a more personalized trading experience, and also announced integrations with StockTwits, Openfolio, Quantopian, and Rubicoin to make Robinhood more accessible to even more investors. In 2016, Robinhood will be focusing on adding new features and services such as margin trading and a Web platform. The team is also exploring international expansion and is looking forward to sharing Robinhood abroad.
In the near future, the team also plans to expand the accounts types with margin accounts and other account types (joint, custodial and IRA account types). A margin account will allow traders to leverage their buying power by borrowing money to purchase securities. To buy on margin, the user has to pay for at least 50% of the value and then borrow the rest. Robinhood will charge interest for the right to borrow money and use the purchased securities as collateral. Margin trading is not yet available to the public as Robinhood is testing it in beta. As soon as Robinhood will begin to offer margin accounts, the team will share details.