Financial technology start-up Robinhood is gearing up to launch its commission-free stock trading app in the U.K.
The Menlo Park, California-based firm said Wednesday that it was opening a waiting list for people to sign up ahead of a full launch planned for next year. The company received broker authorization from the Financial Conduct Authority over the summer to launch its services in the country.
“We’re bringing the best of years of product development in the U.S. to U.K. customers,” Wander Rutgers, president of Robinhood’s U.K. business, told CNBC in an interview. “Users can sign up for early access starting on Wednesday. We will aim to launch the product by early 2020, so expect to see customers having it in their hands in Q1 of next year.”
The U.K. is home to a flourishing fintech sector, with companies like Monzo, Revolut and Starling gaining traction over the last few years thanks to their app-based checking accounts that don’t charge fees. Revolut recently announced it would start taking on the online brokerage space with its own zero-fee share trading service.
One factor that has led to the rising popularity of the so-called challenger banks has been their word-of-mouth approach to picking up users, where people start referring their friends and family to the financial upstarts’ apps. Vlad Tenev, co-founder and co-CEO of Robinhood, called this tactic the “secret sauce” behind the group’s growth in the U.S.
“I think ultimately we recognize the U.K is going to be a tough market,” he told CNBC. “It’s a challenging market, not just because of the competitive landscape, but also the customers have discerning tastes, they’re quite sophisticated and there’s a long history of financial products here.”
Robinhood will also find itself competing with incumbent online brokers like Hargreaves Lansdown — which charges up to £11.95 per order — and upstart broker Freetrade. But Rutgers said he doesn’t believe the U.K. is a “country of investors” yet, adding he hopes the company will be able to help millennials who often shy away from investing because they think it’s “complex” or “expensive.”
Once Robinhood rolls out its services in full, the company says it won’t charge any foreign exchange fees — users will be able to convert pounds to dollars at the mid-market rate — and U.K. customers will be able to start investing with as little as £1. Customers will be able to trade over 3,500 U.S. stocks including Nike and Amazon and 1,000 international shares including Burberry and Barclays.
Since it was founded in 2013, Robinhood has gained significant traction with 6 million users signed up to its platform in the U.S. The company derives its name from the English legendary hero Robin Hood, claiming it wants to “democratize” financial services.
But its rapid growth hasn’t been without a few issues along the way. The start-up had to backtrack on its plans to launch checking and savings accounts due to a regulatory snag, instead switching focus to a cash management account which it launched last month. The recently launched cash account offers a competitive interest rate of 2.05%.
More recently, Robinhood suffered a glitch that enabled users to get access to what was being referred to at the time as “infinite leverage.” The bug effectively allowed people to cheat the app’s margin trading tool — which lets users borrow money to make trades — giving them access to what was essentially free money. Tenev said it was exploited by a “fairly limited number of customers,” and the incident was fixed “relatively quickly.”
How the company makes money has also been a source of controversy, as the investing platform gets a large chunk of its revenues from order rebates. Also known as “payment for order flow,” this entails selling trades to high frequency trading firms, a common practice on Wall Street. Other than this, the firm also makes money from its subscription service, Robinhood Gold, and interest on customer cash.
Nevertheless, Robinhood has become a force to be reckoned with in finance, notching a huge $7.6 billion valuation following a $323 million funding round announced in July. Asked whether the start-up was considering an initial public offering, Tenev said it certainly envisions becoming a public company eventually but had “no specific details to share” at the moment.
Author: Ryan Brown