Robinhood Is the Facebook of Fintech and I’m OK with It
We can't trust Facebook or Robinhood, but does it really matter?
This Robinhood, GameStop and Reddit drama has all the right pieces to make a hit movie. There are billions at stake. It’s Wall Street vs the commoners (Trading Places with Eddie Murphy, anyone?) Robinhood a hero one day, zero the next day including calls for imprisonment and a CEO who obviously wasn’t media trained to go on CNBC.
And that’s just last week!
It’s a wild story. A story that seems a little bit too familiar than everyone’s favorite social networking site, Facebook.
There is already a book deal confirmed for this whole Gamestop Drama. The title is appropriately named the “Anti-Social Network,” which is named after “Social Network” made after Facebook.
This book deal triggered something for me I don’t think we really talk about much.
Robinhood is the Facebook of Fintech.
There are many similarities between the two.
Robinhood has provided access to financial investing tools for everyday users in the same way that Facebook made it easy for us to connect with our friends and family.
Facebook has enabled many positive things for the world, but that easy connection to the world has also introduced many things such as impacting the elections, fake news and riots. Robinhood while offering investing for all, also introduces many negative things such as uneducated investors losing more money than they could possibly imagine, in some cases leading to suicide.
Both are free to use and make money by selling your data. Advertisers pay Facebook to sell to you (using Facebook’s data), and Robinhood sells its user’s order flow to hedge funds.
Both do first, ask later. Robinhood once unveiled plans for a checking account without talking to regulators first.
Robinhood’s mission is “investing for everyone” and Facebook’s mission is/was to connect the world. They are both large and make a significant global impact.
Facebook is known for skirting/ignoring the rules a bit, and getting sued for it. Robinhood is not even public and has been the target of many lawsuits, even prior to this GameStop ordeal.
Facebook’s known for the “move fast and break things” early motto. Robinhood, only 7 years old at this point, has already experienced a lot of downtime during crucial time, and even had an infinite money cheat code problem.
Facebook led the social media revolution and this has led to Instagram, WhatsApp, Snapchat, Twitter and TikTok. Robinhood will undoubtedly lead to bigger financial tools that make it easier for the public to invest in situations where only the rich and elite had access to.
And, let me set the story straight. Just like Facebook has survived their multiple ongoing controversies, lawsuits, and public uproar, Robinhood will also be OK. The dust will settle with the GameStop issue, it will eventually IPO and thrive, and we’ll all reminisce about the good ol’ days of 2021. Yes, the brand has been tarnished, but I don’t see it being destroyed by these events. It will thrive. A quick aside, most of the other retail brokers sell their order flow as well. So pay attention as they lean into this story.
They will be just fine. But the question is bigger than if they will survive. The real question is “Can Robinhood be trusted?”
Can Robinhood be trusted and does it matter?
Both Robinhood and Facebook have demonstrated that they can’t be trusted.
Facebook ranks last in digital trust among consumers. Yes, dead last. You would think this would have led to a big user exodus, but based on the data, it’s almost as if it didn’t impact it one bit. As of January 27, 2021 they are at 195 million daily active users, still by far, the world's biggest social network.
And you would think after Robinhood’s disaster of a week, it would lead to more people closing their accounts. Wrong.
They had their best downloads week, ever. 700k new accounts > 11k cancelled accounts. The next day they had 1M downloads. They had more downloads in one day than they had in all of December.
Robinhood proved last week that you can’t be free and deliver trust. The key question is can a fintech company be successful when it doesn’t deliver trust?
The “if it’s free, it’s for me” problem
Since these apps are free there is a large segment of the population that simply doesn’t care. The world is bifurcating into products and services that you pay for and expect trust, e.g. Apple, and products that are free and there is no expectation, Facebook, Android, etc.
We’ve all heard the “if the product is free, you are the customer” plenty of times now, but the question is, does anyone truly care? Is “free” just too powerful to overcome the endless criticism on Twitter, Reddit and news broadcasts?
Facebook continues to profit off their users in big ways, while still not charging them a single penny.
And even though Robinhood sells order flow data to Hedge Funds who then, in turn, use this data to compete (at a large advantage) with the same exact customers that Robinhood serves, the same question remains: Does it matter?
Free is just too powerful to overcome.
We will see many new fintech apps that are free, will continue to skirt financial rules, pay the legal price, and continue to grow.
If I’m just graduating from law school, then I’m going to specialize as a Fintech Lawyer, because these lawsuits will continue to grow, and startups will continue to fight them tooth and nail. It’s a no-brainer decision.
I’m OK with Robinhood being the Facebook of Fintech. In fact, I think it’s a good thing.
There are a lot of issues with Facebook. I won’t deny that. And I don’t think Robinhood isn’t going to be done with controversy. They are being watched at every single move. Would the world be a better place if the negative effects of social media were eliminated or mitigated? Of course, but as they say, that horse is out of the barn.
Unlike Facebook, Robinhood didn’t create a new market. It’s entering a Financial Services market that’s been around for hundreds of years. So, while Facebook has entered “uncharted territory” with their social networking, Robinhood is approaching a highly regulated market and is being watched by everyone, not just the regulators.
In the end, Robinhood will introduce more good than bad because it will force the industry to create products and services that meet the needs of small investors. In some ways, the Gamestop controversy has educated more people how the stock market works in 24 hours than any financial education literacy site or training has done in their lifetime, combined.
Let Robinhood do its thing and let the regulators do their thing.
It’s going to break some things along the way, and that’s a good thing. Robinhood will push innovation across the sector to bring power back to the players, even if all the big players all profit on the backend.
I’m all for it.
And just in case you’re curious. Here is a brief timeline of Robinhood since their founding.
2013
Robinhood Closes $3 Million in Seed Funding for First Zero-Commission Mobile-Focused Stock Brokerage
2018
Stock trading app Robinhood to launch bitcoin, ethereum trading in five states
2019
Robinhood hackers reportedly gained access to 'almost 2,000' trading accounts
2020
Robinhood stock-trading app faces regulatory heat in Massachusetts
2021