Stock trading platform Robinhood, famed for its central role in the pandemic meme stock craze, is launching its commission-free trading app in the UK today.
This is the US-based fintech’s third attempt to expand into a new market; it first planned a launch into Australia in 2015 that never happened; and also scrapped a plan to launch in the UK in 2020.
Robinhood’s UK customers will initially be able to trade 6,000 US-listed stocks and ADRs (American depositary receipts, which allow foreign companies to list on US exchanges) — including Tesla, Amazon and Apple stock.
The trading app, which has 23m customers in the US, is also attempting to lure in UK customers with: no FX fees on trading; a 24-hour service that lets customers trade outside of market hours; and no account minimums.
It’s also targeting the mass market: the entry level of investable assets for Robinhood UK customers will be $1, and the company says they’ll earn 5% AER on cash that’s held in the app before investing.
Robinhood will be greeted with a much more mature market than in 2020 when it first attempted to launch in the UK. It’ll be up against several competitors — including eToro, Capital.com, US rival Public (which also recently launched in the UK) and UK-based Freetrade.
But Jordan Sinclair, who Robinhood hired as its new UK CEO in July this year from Freetrade, tells Sifted that its products are built around “specific pain points” it’s identified in UK customer research and the fintech's bullish on its brand recognition beyond its home market.
Rethinking revenue streams
A key roadblock standing in the way of Robinhood’s monetisation in the UK is the fact that the trading mechanism at the core of its US business model was banned by UK regulators in 2012.
Industry insiders call this controversial trading mechanism “payment for order flow” (PFOF), and it’s what enabled it to lure in customers with commission-free trading: instead of charging fees to consumers, it takes rebates for forwarding customer orders to large market makers like Citadel Securities.
In the UK, it plans to charge customers an “implicit third-party fee” of 0.03% on FX conversions for their UK bank account deposits to US dollars to trade the US stocks it offers.
Sinclair doesn’t specifically comment on how else Robinhood is planning on plugging this UK revenue gap where PFOF is banned, but says there are “several products on our roadmap going forward that will help us to develop diversified revenue streams”.
Two products Sinclair does tell Sifted that the platform intends to launch in the UK “over time” are ISAs and personal pensions. He also says Robinhood is considering subscription tiers in future.
“There are other products that we provide in the US that we will look to do in a tailored local manner, like margin investing and securities lending, but these are things we’ll consider over time and do in a thoughtful, compliant manner.”
Robinhood is entering the UK market at a time when local regulators are cracking down on consumer-facing financial services in a sweeping set of new regulations called the consumer duty. A prioritisation of better consumer outcomes is central to these new rules: something Sinclair says the fintech has “front and centre” of its mind as it develops the way it communicates with its UK customers about the products it offers.
Sinclair says the platform will look to launch in other European markets over time, but declines to comment on which markets will be first. Sinclair also declines to comment on whether the fintech is eyeing up any struggling European rivals as potential acquisitions for faster access to these markets.
