It’s been a long time coming for investment app Robinhood’s entry to the UK.
The Silicon Valley-HQed company, which publicly listed at a $32bn valuation in 2021, after raising from names like a16z, Index Ventures and Sequoia, is today launching its third attempted foray into the country. And Robinhood isn’t the only US company battling for a foothold in the European market — rival US trading app Public launched in the UK last year but is preparing to cancel its operations there.
Different trading regulations and customer behaviour as well as a maturing set of homegrown startups in the space make Europe a tricky market to conquer for incomers from across the pond.
“It’s quite a crowded market. An awful lot of people have already signed up to these [European] firms,” says Michael Reid, market intelligence manager at UK fund research house Fundscape.
These include the UK’s Freetrade and continental offerings such as Trade Republic, Scalable Capital and Bux — all of which have been downloaded more than half a million times on the Google Play app store, according to SplitMetrics figures.
“If you ask an average person on the street, it [Robinhood] is not an immediately recognised brand as a trading app,” adds Reid.
So can Robinhood make a success of it, where it and others have tried before?
The Robinhood story
The startup’s UK adventures had a false start in 2020 when it dramatically scrapped its plans to enter the market — giving up a 250k waitlist-strong launch it had built — saying it had decided to focus on its domestic market. Then, last year, it cancelled plans to acquire UK-based crypto platform Ziglu which would have seen it establish a footprint on this side of the Atlantic.
But then at the tail end of 2023, the trading app announced it was having another crack, launching a new waitlist for its traditional stock brokerage operations for UK customers. Shortly after that it also launched its crypto offering across EU markets. To announce this latest UK launch it’s placing a statue of the English folklore hero of its namesake — who famously stole from the rich and gave to the poor — in London’s financial district, a shot across the bow to the traditional financial institutions it aims to undercut.
“There’s some real systemic issues we can fix — a lot of customers still look at the traditional brokers here who have a significant share [of the market],” says Robinhood UK president Jordan Sinclair, citing the £11.95 fee levied on trades by Hargreaves Lansdown, the UK’s most used investment platform with a total client number of 1.8m.
At the general launch, Robinhood users will be able to trade US stocks without being levied by fees. Traders will also be able to execute orders at any time of day on a given weekday, a feature that Freetrade is yet to offer.
Different rules
Margin trading, the practice of borrowing money against your holdings to make investments, was trumpeted as another feature of the investment platform when Sifted initially spoke to Sinclair.
Yesterday, however, a Robinhood spokesperson told Sifted that this instrument was to be "paused" while they continue discussions with regulators.
At the time, Sinclair said that this product was to be a part of a diversified revenue plan to build profitable operations in the UK where it can’t rely on the controversial trading mechanism “payment for order flow.” This is a practice where middlemen in the stock market, known as market makers, pay a commission for customer orders sent to them by brokers such as Robinhood. The mechanism enabled Robinhood to forgo trading fees for its US customers and was pivotal in its rise as a trading platform.
“Obviously we don’t do payment for order flow in the UK (where the practice is banned),” he says. “It’s actually roughly 5% of income in the US so it’s not a meaningful revenue driver for us — how we make our money now is across multiple products.”
Sinclair says Robinhood’s other UK product plans will likely emulate those already in place in its US branch, including pensions and subscription products.
The wealthtech wars
Going up against Europe’s wealthtechs on their home turf is unlikely to be easy, as Robinhood’s US rival Public appears to have already learnt. Less than a year after launching in the UK, it will pull operations in May, a company spokesperson confirmed.
Public notably launched with a similar offering to Robinhood in that it stuck with US stocks.
One man who knows more about this market than most is Wander Rutgers, chief operating officer of Tallinn-founded, London HQed investment app Lightyear, who previously headed up Robinhood’s UK operations amid its proposed 2020 launch.
He says that when Lightyear launched in the UK with only US equities in 2021, one of its main learnings was that European retail investors want localised offerings.
“Europe is not like the US where you have 50 states that have more in common than they are different,” he says. “In Europe, even if you don’t consider currency, investing is something that is so innately local.”
Rutgers adds that European investors not only want local stocks and ETFs but also the ability to invest in their local currency and through instruments that shield investments from certain taxes known as tax wrappers. In the UK, these are commonly known as ISAs (Individual Savings Accounts) while jurisdictions like Sweden offer ISKs, investeringssparkonto or investment savings accounts.
Freetrade’s CEO Adam Dodds reiterates that if you look at a typical UK investor, their portfolio is likely to be skewed to UK funds and companies. Alongside the UK, Freetrade also operates in Sweden where it’s learnt that offering Swedish equities through tax wrappers is also a necessity.
“If you’re thinking about your customer and what they want, it’s firstly access to the financial system in the country they live in,” he says. “That’s the starting point.”
Robinhood’s Sinclair says that its ultimate intention is to solve local problems for customers and non-US stocks and UK tax wrappers are on the horizon. At launch, however, assets will be held by its clearing broker in the US and its interest product will be protected under the US’s FDIC insurance, not the UK Financial Services Compensation Scheme. Currently, Robinhood’s UK outfit is not allowed to hold and control client money, per its FCA page.
Robinhood's UK entity deals with the customer directly — maintaining the site and app along with handling of instructions to trade — while its regulated US-based entity, Robinhood Securities LLC, is responsible for the trading, custody and protection of UK customer assets, clarified a company spokesperson.
2020 no more
While there are some signs of a retail investment revival in the UK, the trading app’s European launch also comes at a difficult time for the wider British economy.
In the lull after the post-pandemic trading boom, all the wealthtechs Sifted has mentioned aside from the newly launched Lightyear experienced a drop in Android app downloads per SplitMetrics data. For instance, Bux experienced an 86% growth decline while Freetrade dropped by 43% compared to the previous year. Only newcomer Lightyear experienced an uptick in app download growth, at a measly 9%.
“It’s quite a hard market in the UK for investing, says Fundscape’s Reid. “2023 has been really hard, we dipped into recession and people are paying more in tax — you’ve got less money to invest.”
Also contending with less venture funding sloshing around the fintech sector, Freetrade and the Amsterdam-based Bux have both resorted to layoffs in the past two years. In a sign that the wealthtech sector may be consolidating, in December last year Bux was acquired by Dutch banking giant ABN AMRO.
Robinhood’s Sinclair claims that UK customers of Robinhood, which was founded in 2013, are comforted by its already established market presence in the US of 23m customers.
Changing attitudes
A major roadblock for all wealthtechs on this side of the Atlantic, however, is UK and European attitudes towards investing in shares.
While chancellor Jeremy Hunt may have recently touted additional ways of investing tax-free to bolster retail investors in the recent budget, British households invest only 11% of their financial assets in stocks, compared to 36% in America.
Freetrade’s Dodds says that many of its users bought their first-ever share on his platform and there’s a while to go until we see investment attitudes change, with many Britons preferring to invest in cash savings accounts, particularly in the current high-interest environment.
“Currently, there’s a real popularity of cash products,” says Fundscape’s Reid. “People are choosing lower risk opportunities, and you can get quite good rates in the UK.”
Still, Robinhood’s presence in the UK wealthtech market shows that there is a lot of appetite for, and opportunity in, changing those investment tendencies, says Lightyear's Rutgers.
“The UK is not the 51st state of the United States — we know to win it will take a bunch,” he says. “It’s nice that our vision is shared.”
