# Robinhood: Mobile First, Margins Later - [Business Breakdowns, EP.233] Business Breakdowns · 2025-10-31 · 60 min · https://joincolossus.com/episode/robinhood-mobile…st-margins-later/ ## Transcript Matt Reustle All right, Arthur, we have a topical name today in Robinhood. It's a name that's topical from a stock perspective and from what they represent to the market. I'm excited to cover it with you. To kick us off, maybe you can level-set the conversation with the simplest explanation of what Robinhood is. I think we all have an idea in our head, but how would you describe it to basically lay a foundation for the rest of the conversation? Arthur Olson Thanks, Matt, for having me on. Robinhood is a really interesting business. The core of the business and the way to understand it is that it is a digital broker. That means that it exists to allow its customers to buy, sell, and hold different securities. The breadth of those securities and even the account types have expanded over time as the company, I think, has improved and matured. But think about that broadly as equities, options, and crypto. What is striking about Robinhood is just how much customers love the product. It has very much been a product-led growth story and has scaled incredibly quickly. Today, it has 26 million funded accounts, making it the 3rd-largest brokerage firm in the US based on accounts, behind Fidelity and Schwab. It has achieved that in just over a decade, so basically 1/5 of the time that it took Schwab to achieve a similar number. Our view is that Robinhood is really the broker of the future, of the next generation, and it has significant technological and demographic tailwinds. We see it as the logical industry share taker in brokerage and associated financial services over the next 20 to 30 years. Matt Reustle You laid out a lot there, and normally I would get to some of the key people involved later in the conversation, but I think Vlad is key to the Robinhood story. Can we get into his journey to founding the business? I know he had somewhat of a trading background, but what went into the origin story of a digital brokerage, which didn't feel entirely new to me? We had digital brokerages in the past, so it wasn't entirely a new concept. But anything that you could tap into there in terms of the origin story, particularly Vlad, would be interesting to hear. ### The Robinhood Origin Story Arthur Olson We could probably spend a whole hour just talking about this. Even Vlad's childhood is fascinating. His family immigrates from Bulgaria, and he's left behind for a year or two when he's in kindergarten. He develops this rock-hard determination and grit that you see pop up at multiple times throughout both Robinhood's founding and its trajectory of growth as a public company. I don't think it's really well understood. They've had to do a lot of really hard things. Being a tech company innovating in financial services, which is heavily regulated, is difficult. But if we fast-forward to when he and his co-founder, Baiju Bhatt, meet, they're both at Stanford as undergraduates studying mathematics and physics, and both are gifted. They have the misfortune of graduating, I believe, in 2009, so the employment market is really bad. Baiju succeeds in getting a job at a high-frequency trading firm. Vlad tries to do the same, basically as an options trader, but is not successful, so he goes back to Stanford to pursue a PhD in mathematics. Within the first year, he becomes very disillusioned with what he sees in academia. There's this real, pure, and noble desire to rethink and come up with first-principles solutions to problems, and a desire to touch a lot of people with those solutions. He talks about looking up to famous mathematicians like Gauss and studying their works, and being very impressed by the idea of multiple generations working and basically learning from the insights of that one person. He wanted to do something similarly. The punchline is that he wasn't getting that fulfillment in academia. So Baiju calls him up and says, "Hey, listen, my fund is doing well, but actually the technology is really old, and I think we could start our own firm, basically mimic what they're doing, use some modern technology, and be successful." They take a risk, or whatever you want to call it, and start their own high-frequency trading firm. They move to New York. I think, by both guys' admission, it's pretty much a failure. They very quickly, within the first year, pivot not to trading themselves but to selling the software that they've been building to bigger hedge funds and banks. But both of them ultimately find that somewhat unfulfilling as well. So within a year, they start thinking about Robinhood. They hit it at a very interesting time. You have 3 secular trends that are happening. First of all, you have the rise of electronic trading. You also have the rise of mobile. ### The Mobile First Advantage This is about 2013, when they're coming up with the product. The iPhone is still new, and it sounds crazy to us today, but the thought of trading stocks or even paying bills on your phone was crazy at the time. So they were very early to see that mobile would be the next compute iteration and where our lives would be mediated. I think the third thing that really made the business possible, in contrast to others that had tried commission-free trading in the past and hadn't been successful, was, part 1, that those others didn't have a really compelling app. But also, there was this ripe environment post-GFC where you had Occupy Wall Street. There was a huge erosion in trust in these legacy financial services companies, and that brand equity was kind of at an all-time low. It created space for these new challenger brands, with Robinhood being one of them, along with several others. That was the context. Their specific insight was that, when they were running the high-frequency trading firm, they saw that we were trading, and firms like us were trading every day, thousands of times a day, millions in aggregate, and we weren't paying anything—or, effectively, we weren't being charged the $10-per-trade commission that the retail investor was being charged. That doesn't really make a lot of sense: that the smallest investor should be charged the highest amount. Really, this is rent-seeking behavior that should be disrupted. The business model that facilitated that is known as payment for order flow. The broker receives a small rebate from a market maker in exchange for the right to execute that trade. Market makers like retail order flow because it's seen as non-toxic. It's uncorrelated, so they pay a small rebate. This is a business model that goes back to the '80s. When Robinhood was coming along, Schwab, for instance, made a significant amount of money on payment for order flow. It was just that they double-dipped: they got the rebate, and then they charged the $10 commission. Robinhood's core conceit was that they surveyed the field and saw that traditional brokerages at the time made about 30% of their revenue from commissions. The thinking was, "Okay, what if we can start with a clean sheet of paper and build a modern brokerage using modern technology? We run it more efficiently. We don't have a brick-and-mortar network or old workflows held over from the '80s. We have a smaller head count and can basically harvest those expense savings in order to offset sacrificing this 30% of revenue from commissions. We'll make up the difference through the volume of new customers that we acquire using that value proposition, while also using these traditional brokerage revenue lines of net interest income, income on cash balances, margin lending, and subscriptions." The other really important half of this was having a really compelling product experience. That was one of the big insights as well: We need to make this product way less complex. Even if you look at the legacy broker apps today, they still very clearly are ports from web-based platforms. They’re grid-based, with a lot of dropdown menus, very clunky, and you can force your way through them, but if you’re a digital-native customer who grew up in the era of the smartphone, you’re going to naturally gravitate to the Robinhood app. Matt Reustle As a fellow 2009 grad, I have admiration for anyone from that vintage. It was a particular moment in time to be seeing everything going on in the financial system and to look for ways to maybe improve it or democratize it, or whatever we want to call it. If I were to play back everything you mentioned, it really does feel like that mobile-first approach stands out. It’s hard to stack-rank what was most important for any business because there are so many different things that go into it. Is it fair to say that, in and of itself, was a major driver of their ability to get customer adoption? Not to downplay anything else by any means, but could you boil it down to the mobile-first approach, with everything else being the difference-maker? Arthur Olson I think you’re 100% right. Of the 2, both are necessary to innovate, and this is key to understanding why Robinhood won and continues to win. Pretty much on every product, they break down the economic side and then the product-experience side, and they say, “We want to deliver a step-change improvement on both sides.” Both are necessary, but to your point, the harder of those 2 is making a killer product that people love. It’s fascinating: Mobile was super important, seeing that early. One of the things they were really lauded for, which is true, is making the investing process less intimidating, and a lot of that is just a clean UI. Even the app today leads with big, high-contrast colors and charts. It doesn’t overwhelm you with a lot of data right off the jump. You can click through to get all the information you need, but it’s ultimately very digestible for someone that doesn’t live and breathe financial markets. So I think you’re absolutely right: Taking down the intimidation factor was really important. One of the things Robinhood has been a master of is building a great product, but also cultivating a brand identity. A huge, almost existential, insurmountable hurdle for most teams was the dynamic that, when Robinhood was starting, you had to get a FINRA broker-dealer license before you could start marketing and acquiring customers. To get that license, you need to have capital. You need to show the regulator you’ve got capital for at least a year. To get that capital, you need VC funding, but what VC in the world is going to put money behind a project that has failed for other startups when you basically have no customers yet because you haven’t been able to market? It’s a super, super hard thing to bust through, this chicken-or-egg issue, and it really is a testament to Vlad’s will. This is a guy that has just an iron will. They worked through, I think, 75 or 100 no’s from different VCs before they finally got 3 yeses, and they were very innovative. They used a very innovative waitlist technique to build buzz. They had over 1 million pre-signups before the product even went live. This is a skill set of the company that continues today. It’s exactly your point: Build a great, beautiful product that people love to interact with, but also wrap a brand around that that generates enthusiasm, where customers really identify with the product. Those 2 things, in concert with upending the economics of the industry, are exactly what broke the threshold. Matt Reustle It goes without saying, the name Robinhood itself holds a lot of meaning in that regard as well. So many of those things that you mentioned are commonplace today in terms of waitlists and whatnot, but you have to go back similarly to mobile and remember all of this was not well-known in the moment. I can speak to my current Fidelity account, where the mobile experience is still a nightmare and still clearly reading off the web. There is still something there, and when you have incumbents competing against startups, you can really take advantage of that and make the most of it. ### The Payment For Order Flow Model I want to get into the business model, which you’ve tapped into a little bit there: If they’re not making money from commissions, where are they making money? Maybe we just start out with payment for order flow. Is it possible to walk through an example? If I were to buy 100 shares of Apple, or you can make up the numbers, how do the dollars exchange hands in a payment-for-order-flow-type situation? Arthur Olson The way it works is, if I buy $100 of Apple, that order gets executed, and it gets routed either to a market maker or to an exchange. The market maker—we’ll use a name like Citadel that people know—is massive in scale. I just saw this stat the other day: I think Citadel trades or is responsible for over 20% of total U.S. market trading on a daily basis. The concept is that the market maker, like I mentioned earlier, values retail order flow. Their business model is buying and then reselling and turning over their book very, very rapidly, and their goal is to make an infinitesimally small profit. We’re talking tenths of cents per share, but when you magnify that and multiply it across so many trades, obviously, in aggregate, that is very meaningful. Matt Reustle 20% of the volume—that’s a big number. Arthur Olson Exactly. It’s massive. So it’s this dynamic where retail is getting filled at a good price, and yet the market makers are able to make a significant profit. This was a point of a lot of contention and controversy about 3 years ago. Gary Gensler made it very much a mission to go after payment for order flow. I’ve looked into it, and I think the reality of the matter is, you look at a lot of the studies and academic literature, and it’s kind of a push. Half would say it can very, very slightly impact execution quality negatively. Half would say it has no impact. What’s interesting and really unequivocal is that it is a way better deal for Robinhood’s specific customers. Payment for order flow is much more efficient for small-dollar trades. If you think about the old model, you were paying, let’s call it, roughly $10 in commission to buy and then $10 to sell. Robinhood’s average account today is $10,000. Back in 2021, even, it was like $5,000. So these are very small accounts. If you’re making a $100 trade and you’re paying $20 in transaction fees, you’ve got to earn a 20% return just to break even. Then if you take it a step higher and say, “Let’s say it’s a $1,000 trade,” now it’s a 2% hurdle, so 200 basis points of your return is chewed up in transaction fees. When you look at payment for order flow, generally speaking, I think the academic research would show that the effect on liquid names is about 1 to 2 basis points. In that $1,000 trade example, you’re talking about 200 basis points of transaction cost lowered to 1 to 2 basis points with payment for order flow. If you think about the point of equivalency—it’s more a rule of thumb, and it’s actually different for every stock, even depending on the volatility that day—there are a lot of different moving parts. But around a $50,000 or $100,000 trade is the point of equivalency, where trades larger than that are actually more expensive for the customer using payment for order flow, and trades under that are going to be cheaper. Obviously, Robinhood is overwhelmingly under that. Matt Reustle It makes a lot of sense, particularly with that piece of the market. There’s this discussion of increasing the TAM of any type of market, and theoretically, anyone with a logical brain might see that $20 commission they’re going to have to pay on a $100 trade and know this is a bad situation. The payment-for-order-flow model with zero commissions is going to be net better, and that might bring in new customers on top of everything else that they’re offering. I’m curious: Is there still double-dipping in terms of payment for order flow with commission trades? I know pretty much everybody has free commissions now, so maybe it’s not as relevant, but how dominant is that across the brokerage market? Arthur Olson That is the power. Really, the industry has voted with its feet. I know everybody uses payment for order flow, with the exception of Interactive Brokers, and part of that is because they’ve got a different customer base: small hedge funds and prop traders. The whole market has moved to payment for order flow, and in that way, commission-free trading is no longer a competitive advantage on a relative basis for Robinhood. If you go back in history, Robinhood was founded in 2013. They hit the market in 2015. Within 5 years, they had flipped the entire industry. In 2019, Schwab made the decision, “We’re going commission-free.” Literally within weeks, every other player in the space made the same decision. This ultimately crippled, for instance, TD Ameritrade and E*TRADE. Both of those ultimately got subsumed by Schwab in the 1 case and Morgan Stanley in the other. But it was a point in time where many people said, “Okay, Robinhood is dead. Their whole differentiation is commission-free trading. The bar is now leveled.” What we saw is that they went on over the next year and a half to 5X their customer base. The whole industry has moved to this model, but those who thought that it would kill Robinhood misunderstood what the real competitive advantage is here. Innovating on economics was 1, but the other is the mobile experience and also the brand. The product velocity that Robinhood has been demonstrating over the last 3 years, since 2022, is incredibly impressive. It’s just a stroke of genius. I don’t know if our listeners have watched some of their product summits. I highly suggest the most recent one, the Active Trader Summit. It’s just a master class in sales and brand building: going to your customers, showing them all the new product that you’ve built for them, and then saying, “What else do you guys want us to build for you?” That’s not something Schwab, Fidelity, or any of those guys are doing—showing that kind of attention to the customer. This is in Vlad’s DNA. This is what the VC investor said: “We’ve never seen a CEO that’s more in touch with his customer than Vlad Tenev.” The initial flywheel, or the initial wedge, a decent chunk of that was payment for order flow, but now that is standard across the board. ### Robinhood’s Customers Are Investors Matt Reustle On the customer base, you mentioned the average size of an account, and that’s gone up meaningfully. Is there any way to capture the quality of the account versus Interactive Brokers, which has many institutional or institutional-like investors sitting on its platform, and then you start to move into the high-net-worth segment? What does the quality of the Robinhood customer base look like? Arthur Olson This was probably the biggest unlock, and it was when I knew we had a real differentiated view. I think it’s fair to say the perception of Robinhood, frankly, as a company, but also of its customer base, is not that great to the average person. Both of those perceptions are basically misleading. People expect Robinhood customers to be day traders, to be unsophisticated, bad investors, effectively. There are roughly 250 trading days in the year. I think most people that I talked to at the time assumed Robinhood customers were trading at least once a day, maybe twice a day, so their number of trades per year would be 200, 300, or 400. The real number is 40. They’re placing 40 trades a year, four a month, basically one a week. It’s not the picture of this hyperactive day trader that you would think. Schwab’s average self-directed customer trades 40 times a year. It’s very, very similar. Then, if you look a level deeper, you say, “Okay, what’s the mix of those trades? Maybe it’s all just crazy options and crypto.” Again, I think that’s the perception. When you look at it, no: 2/3 are vanilla equity, about 1/4 are options, and about 1/10 are crypto. If you look at equity, it overwhelmingly skews to large-cap, high-quality companies. Lastly, if you think about outcomes, we know roughly 85% of day traders ultimately fail. So, if that was Robinhood’s base, you would expect to see, 1, a lot of churn, and 2, the average account balance would be flat or probably down. The reality is we see the opposite. Churn for the last 2 years—almost 3 years at this point—has been about 5%. We’re talking about 95% retention, and that’s before any net new adds. So we’re talking about enterprise SaaS levels of retention. By the way, those numbers are 2 to 3 points higher than Schwab’s. Average account size has grown 5x from the lows 3 years ago, and even from that crypto-meme-stock era, it’s still double that level. The takeaway that we ultimately had is that, functionally, Robinhood users are really no different from a Schwab user or a Fidelity user in terms of their risk appetite. There’s a generational thing we see in terms of younger people starting to invest earlier, and they also are a little bit more active. So we would expect them to be a little bit more active over time, but that’s not a bad thing. The core difference is just that these people are much younger. The average customer is 35 years old, as opposed to 55 or 60 years old, which is the average for Schwab. It sets up this really, really interesting dynamic where you realize that we believe Robinhood is going to hold onto these customers over the course of their entire lives. It’s this unbelievable opportunity where you’ve got all these demographic tailwinds. We really expect the average account balance, which is about $10,000 today, to grow 10x to 20x over the next decade or 2. Very few companies—I mean, almost none that I’ve ever come across—have line of sight on that duration of growth. The punchline is that the customers are very similar to Schwab, Fidelity, and E-Trade, just much younger. That’s been a secular trend, really, over the last decade. For boomers and even Gen X to a certain degree, investing was kind of a midlife process. You start investing in your mid-thirties or forties, and for millennials and Gen Z, we see it starting in their teens and early twenties. Robinhood has effectively already captured that base, and it’s just waiting to monetize that over the next 20-plus years. Matt Reustle It’s definitely interesting to hear the demographics relative to Schwab and some of those numbers, particularly on the churn, or lack thereof. When you go back into that time period of the sell-off, there’s this natural question that pops up. The last 3 years have had this extensive bull market, and that might continue on. No need for us to make a call on that part, but how sensitive was that? Less so from a stock perspective, because I know the narrative is going to capture more here, but from a business perspective, was it more sensitive in that era? ### Robinhood Rebuilds For Active Traders Arthur Olson That’s a good question, and it gets to a point Vlad has talked about: basically, 2022, he considers it the refounding of Robinhood. The background is that in January 2021, you had the crescendo of the meme-stock hysteria. Robinhood was forced by the central clearinghouse to effectively pull the buy button on those stocks because of an egregious capital call that was given in the middle of the night, basically demanding $3.5 billion. That was 10x any capital call Robinhood had received up until that point. They'd only raised seven hundred billion since inception. That’s a whole story that’s just fascinating. Basically, they get through that moment in time. They raise some capital in case that happens again. They get through it, but they’re just dragged through the mud. In the media, it’s the only issue that could unify AOC and Ted Cruz: excoriating Robinhood over these abuses and collusion. Long story short, all of that was proven not to be true. The reason they had to pull the buy button was simply that they were complying with the regulators. You then fast-forward to 2022, and you’re coming right off of that controversy into inflation ripping, interest rates going up, growth stocks melting down, and investors pulling money out of those stocks and putting them into yield assets. Robinhood’s volume declined by 40%, almost 50%, and it was another existential moment for the business. Would it have gone bankrupt? Were we topping out? Could we continue to grow through this? Vlad’s insight was that the business he founded catered to the first-time investor, and that was a very powerful unlock: democratizing finance. But the next unlock, and what would make their business much more resilient through a cycle, was focusing on the active trader. These are more sophisticated traders, people who are using option strategies and multi-leg option strategies that can benefit in a bull market. They can also make money in a bear market. They can also make money in a sideways market. Their transaction density is higher. That was his insight, and he realized, “Okay, basically, we built the product for effectively newbies, and we’ve by accident acquired some active traders just because our fee structure is so much better and the product is a little bit better. But we’re really not doing a good job serving these customers.” This kicked off 2 years of intense product development. It kind of looks like Robinhood is working because meme stocks are working or the market is ripping, but really understanding what happened, the seeds were sown 2 years ago. The key focus points were, 1, recognizing the limits of being a mobile-only experience. If we want true traders—sophisticated investors—we need to have a desktop-based platform that has rich charting. That’s called Robinhood Legend. It launched last year, but had been in the works since 2022. Number 2, we need to improve the latency and speed across a lot of the products. We need to improve the options experience. We need to expand into other asset classes that sophisticated traders care about: futures, tax benefits, also index options. What you’ve seen is really this massive increase in product velocity. If you go back from 2015 to 2021, Robinhood was putting up 1 big new product a year. Over the last 3 years, they’ve been putting out 5 big new products a year, as well as a lot of iterative improvements on existing ones. Actually, that undersells it. There have been more improvements than that. Reputation and brand follow product. Robinhood’s product has improved massively. You would not be wrong, I think, in 2021 to say, “Hey, Robinhood, I might want to use it, but there’s a whole list of things they just don’t do that I need to have my brokerage do.” They have been chipping away at that list. They’re almost at complete product parity with Fidelity and Schwab, and in a lot of ways they’re pulling ahead. So I think it’s the improvement in product, and we’re seeing that in the increasing reputation, particularly in NPS. They were scoring really badly with their active traders. Active traders now rate them higher than any other cohort within the company. NPS has improved forty percent, forty points since twenty twenty-two, and overall customer NPS has improved thirty points as well. The business really has changed. The last part of this that I would point to is that the business mix has broadened quite a bit. So if you go back to 2021, transaction revenue was almost 80% of revenue. I think it was around 75%. If you look at that today, it's about 55%. What has grown in its place? Obviously, transactions continue to grow, but cash sweep—earning interest on your client's unused cash—is growing, and that's just going to continue as Robinhood grows its account balances from $10,000 to $100,000 to $200,000. They're also spinning up the margin-lending business, making that bigger and getting more competitive on margin rates. I think in 2021 they had 3 businesses doing nine figures, so $100 million revenue businesses. Today, that's 9. The business has diversified over time, so it should be more resilient regardless of the market cycle, and then there's also the interest-rate dynamic today versus 2021. The last point I would make is that Vlad is a fantastic CEO and is the heart and soul of that organization. He's the one who has driven the vision. He's also really smart in terms of bringing in industry talent. That was one legitimate shot you could take at Robinhood pre-2022: it's a light offering, they're moving really fast, but you're in a regulated financial industry. You're going to make mistakes, and that's going to be costly. He recognized that and brought in a whole host of financial-services industry veterans. I would call out just one quickly, a guy named Steve Quirk. He's a big personality, featured at a lot of the events, and he's just a really cool guy. He architected TD Ameritrade's expansion into active trading and architected its acquisition of thinkorswim. So they brought him in and said, “Hey, you know the playbook. Let's execute it here.” That was in 2022 as well. The product has gotten better, the leadership team has gotten better, and the business is more diversified than it was in 2021. Matt Reustle The best way to go after a strategy is to hire somebody who's already done it and executed on it before. I can certainly admire that. If I take what you just mentioned there, I think there's a lot of public scrutiny or questioning over some of the product rollouts, whether it's options or anything that would typically have risk associated with it to the average retail client. It sounds like this is very much for the active-trader base, which, in theory, understands the risks and dynamics of these products and the hedging mechanisms, rather than being long all these naked exposures. That itself is offsetting potential risk associated with customers going into it who aren't as aware. Arthur Olson I think that's fair. You look at the customer outcome. We talked about account balances roughly 5x-ing over the last 3 years. Let's make it a hard comp. Let's look at the peak in 2021. We're still 2x that level, and if you decompose the growth, it's really, really healthy. It's half net new deposits and half organic appreciation of the assets in the account. What that shows you is that investors are making good decisions. Again, these are not day traders who are blowing themselves up. If they were, you just wouldn't be able to get the kind of asset growth that they're showing. On the other side, the really healthy net new deposits show that Robinhood is becoming a higher-mindshare platform that customers want to add assets to and make a bigger part of their financial life. The proof is in the pudding in terms of their customers doing well. There's a great book, an autobiography Charles Schwab wrote called Invested. It came out in 2019, and it was fascinating to me. He disrupted the industry. In 1975, they deregulated commissions, and it birthed this whole industry of discount brokerage. Schwab was the most successful. To see the smear job and attacks that the legacy players aimed at Schwab is very similar to the narratives that were promulgated around Robinhood a couple of years ago. It was about gamification and the idea that you need to take this almost paternalistic view that the customer can't be trusted to have choice. We need to make that choice for them. A lot of those same arguments were made against Schwab, and he talks about it a lot. I think, in a lot of cases, that's covering up for either the legacy players wanting to protect a rent-seeking monopoly in one way or another, or simply a lack of, or an inability to, innovate. A lot of these legacy players—we just know this—are on ancient tech stacks and have grown through acquisition. So you've just got this nightmare of trying to integrate on the back end. One great example is crypto. Robinhood introduced crypto, actually being able to buy a token itself, in 2018. Fidelity was obviously slower, but in 2022, I think they launched it for institutional clients, and then in 2023 for individual clients. Schwab still hasn't. It's coming in 2026. You could say, “Well, maybe that is a paternalistic view.” I also think there's probably something technologically on the back end that's an issue. The success points for the customers speak for themselves. In general, it is better to empower customers with choice and variety and let them make decisions. Matt Reustle It's always difficult to take a legacy incumbent's arguments against a new entrant. An outsider saying it would have more validation. You always have to think with a bit of skepticism toward that, and we see it across industries. Arthur Olson There's a perception that Robinhood is always pushing the envelope in terms of the riskiest things. It's actually not the case. Look at crypto: they were early to offer it, but they only offer the 10 most liquid, biggest names. If you look at Coinbase, they're offering 250. Obviously, that is their business, but Robinhood could have done the same and purposely held back because of regulatory uncertainty. I think one of the risks here is making sure that you don't put irresponsible products in front of your customers. Prediction markets are really the only one where I have even a tiny bit of a question. I think there might be a little bit of risk. Matt Reustle How so? I'm very curious. Arthur Olson It's more reputational. Prediction markets are super interesting: the idea of being able to express a view about a real-world event, and then, even more interesting, the idea of being able to harvest that data. I think this market's going to get way bigger. The thing I didn't see coming, and that I don't necessarily love, is that sports betting has become this lightning-in-a-bottle use case. Robinhood obviously makes that available on the app. I don't see anything wrong with that. The way I think about it is that it's going to be a very small percentage of revenue, even if it's very successful. We're talking about definitely sub-5%. Where I think it's valuable is, again, providing choice to customers, with each of those different assets becoming a different on-ramp. It really is a customer-acquisition tool. One of the interesting things that I didn't even realize was that the whole meme-stock hysteria was motivated by what I don't think were great investing decisions. Buying GameStop, or whatever the crazy valuation was, was not a good choice in the long run, but customers came to Robinhood to do that, and 80% of the customers who came on during that year are still with the company and, by all indications, have become real investors. Investing, as we know, is very much a process of learning, experimenting, and playing. You kind of have to have some of that, but the key is to keep them on the platform and get them focused on equities and options, which are the real wealth builders. Matt Reustle It's definitely going to remain a topic of interest. You could slice it in so many different ways, but it's interesting to hear some of the details in terms of what they've rolled out, how they've rolled it out, and your perception of where there is risk and where there's a very reasonable approach as it relates to sports betting. I've always been a free-markets person. There is some lack of friction associated with that, which makes me a little bit uneasy, but nonetheless, it's not for me to decide. If we go back now to what the business looks like from a revenue-stream perspective, I think you mentioned payment for order flow and interest-income sweep. Are there any other big buckets today, or potential big buckets in the future, that can materially change the profile of the business and really make the size of the business a material earnings driver? Arthur Olson We expect both sides—transaction revenue and net interest income—to scale with account growth. Robinhood is doing so many things at once that you have to pick what matters most. But we have followed the fintech world for quite some time, and we think Robinhood's banking offering, rolling out at the end of this year and really ramping up next year, is going to be very successful. Specifically, we think a high-yield savings equivalent and a linked credit card have the potential to basically double ARPU for customers who attach to them. ARPU today is about $150. If you look at some comps, I think SoFi is a good comp in terms of both the strategy and the way they've executed. Robinhood is going to look like that, but they have even better cards. You can back into a $125–$150 ARPU from that banking and credit-card business. The reason we feel that they are advantaged is primarily around the engagement data. There's a war for eyeballs. We all know that. There's a consolidation of attention around a couple of apps. Realistically, particularly with younger generations, if multiple financial services can be accomplished in one app, I think that's where the world is going to move, assuming product parity and a strong brand. Again, we think Robinhood is the beneficiary there. But if you look amongst users, Robinhood customers spend about 2 hours in the app per month. That’s about twice as much time as Schwab customers and about 4 times as much time as Fidelity customers. But what’s really interesting is that it’s 5 to 10 times as much time as other financial services apps: the legacy banking apps, the peer-to-peer payment players like Venmo and Cash App, the buy now, pay later players, and neobanks like Chime. We think that is very powerful. Banking is something that every consumer fintech at some point says, “We want to go after that. We want to try to get deposits.” So we usually have our kind of on-ramp initial product—the ones I just laid out: P2P money transfer, buy now, pay later, or some other form of lending—and then some that are just trying to come straight out of the box as a neobank. And then you have brokerage. We believe brokerage is very advantaged here, one, because of that engagement point. Second, its core business of brokerage is very profitable: a $150 ARPU. If you look at somebody like Cash App, which we’ve invested in through Block in the past, it really came out of the gate very strong. One of the core problems was that peer-to-peer money transfer is a loss leader. You don’t actually make money on it; you actually lose money on it. So you’re fighting the more your customer uses your product, the deeper your hole is. Brokerage doesn’t have that issue. One of the really important things is setting up incentives and having a war chest to fund incentives to get customers to make the right choices. The big holy grail is getting direct deposit, so customers deposit their checks on a monthly recurring basis into your account. SoFi has actually been pretty successful. They didn’t have great cards, and it’s a real credit to Anthony Noto and that team for executing as well as they have. We see Robinhood in a position to be very generous with incentives. They’ve already done this on their IRA product, which has been growing like a weed, and they are giving a 3% match on your annual contribution. That’s way better than anybody else in the industry, and it actually goes back to our original frame of Robinhood disrupting based on economics and then on product. That’s the economics piece, in terms of being very generous on the IRA match. But then also, I think they’re the only retirement account that has ever received a design award. They did receive that award. We see the same framework coming in and making them successful in banking. It brings us to this question, too, of the Gold subscription, which is another thing that smooths out the revenue profile of the business. Gold subscribers in the most recent quarter grew about 75% year over year, compared to total accounts growing 10%. It’s very powerful, and we see the Amazon Prime model of packing a ton of value behind a very cheap, very affordable subscription as a means of consolidating—in Amazon’s case, spend; in Robinhood’s case, consolidating your financial life. You have more assets on the platform to take advantage of the benefits of Gold. It’s $5 a month, so we’re talking about the price of a cup of coffee. You get industry-leading yield on your bank balances, so think about it like a high-yield savings account. You get industry-leading cash back on the credit card, so 3% across-the-board rewards. You get free market data and better margin rates. They just continue to add value here, and that’s where I think the banking offerings are going to slot in behind Gold. Today, 13% of users are Gold customers. Spotify, I think, has around 40% of their users on the paid tier. Our view is that Gold gets to 50% penetration over time, and think about that as kind of a proxy for the savings and banking stack. Again, this is over a decade-long time horizon, but these products work better together. When you’ve got your savings right next to your brokerage, you’re also spending out of the same account, and you can track your expenses. Particularly if you let your mind run a little bit into a couple of years, they’re already demoing this: the AI functionality of having a co-pilot for your money. The insights that you get out of that scale exponentially the more assets and the more activity you’re doing on the platform. So we think all of that augurs very well for Robinhood. If you think about those revenue streams, we’re talking primarily about net interest income on cash balances, so pseudo-recurring, not transactional, and then also interchange on the card, which again is pseudo-recurring. Both of those things smooth out, at the margin, the revenue profile of the business. Matt Reustle I didn’t fully appreciate the Gold subscription being that one-stop-shop aspiration, particularly with the banking side of things. It all gets back to your point earlier about having that mind share and then share of financial transactions, which, as you evolve a business to get away from the cyclicality of that trading business or investment business, makes a lot of logical sense. And it’s nice that you have a high-margin trading business to fund that, as an alternative to some of the others that you mentioned there. ### Scale Drives The Upside On the cost side of the equation, I can come up with an idea of this being software-esque, just in the sense that you’re going to have the fixed cost, but the incremental margins in theory should be impressive. But how would you capture the cost structure, and is there anything unique about that profile? Arthur Olson You’re 100% right. This is one of the great attributes of brokerage, certainly for the scaled incumbents. Robinhood isn’t an incumbent, but they’re certainly scaled. It’s very high fixed cost and very low variable cost. Robinhood has disclosed that their cost structure is 85% fixed and 15% variable. The industry is actually very consolidated. Three players control 80% of the market based on accounts: Fidelity, Schwab, and Robinhood. And if you looked at the assets—not accounts—it’s even more concentrated. So it’s an industry that lends itself to scale and scale advantages, and a lot of that is exactly this cost structure that we’re talking about. It costs a lot to be regulatorily compliant, to do KYC, and to do all of these things that you need to do, but the cost to facilitate 1 million accounts is not that much different from 10 million. To your point about what’s different, that advantage isn’t being expressed today, but I think the long-term steady-state margins for Robinhood are significantly higher than for Schwab. Robinhood really was born in the cloud on AWS, and that has 2 principal benefits. Its competitors are mainframe-based and have been very, very acquisitive, and there’s a lot of tech debt associated with that. Even with all that tech debt and maintaining all those disparate databases, they’ve still got 50% margins. So we expect steady-state Robinhood margins to look more like Interactive Brokers. Interactive Brokers is around 70%, and their model is different, so we kind of get there for different reasons, but a lot of it is efficiency on the cost side. Vlad has talked about a movement to real-time settlement on blockchain rails via tokenization, with those transactions being one-tenth the cost of traditional transactions for Robinhood. We’ll see how that pans out from a regulatory perspective, but if that’s true, that probably gets us even over 70%. This is a business that scales really attractively. Today, the principal benefit is that they’re on AWS, so it’s cheaper. They also can spin up products much faster. What we’re seeing is them reinvest their structural cost advantage into top-line growth objectives today. But at some point in the future, that will become less important, and we’ll see margin scale. Just for context for our listeners, today EBITDA margins are in the low 50s, and incremental EBITDA margin over the last 4 quarters has been, I think, 81%. So it’s really impressive. Matt Reustle An impressive incremental margin relative to the industrials that I used to cover. Arthur Olson Exactly. And remember, we’re talking about $10,000 account balances. When you think about just how much bigger this business gets from an asset perspective, it’s really impressive. Obviously, revenue doesn’t scale one-to-one with assets. You do see a deterioration in the ROCA return on client assets, so we model that moderating over time, but it’s still really, really impressive revenue growth coming in at very, very high incremental margins. Matt Reustle If you did your best isolation of the most important things you track from a growth perspective, what stands out? Arthur Olson Principally, we’re looking at account growth over time, so net deposits are very important. We’re also looking at a nonfinancial metric: product velocity and uptake of those incremental products. The one risk that we see—or just generic risks that you see with a company like Robinhood that is this dynamic and this ambitious—is a loss of focus. The way to frame this in my mind is that the upside is kind of on rails. I know that maybe sounds crazy, but if you really look at how much customers love this company and how they’re improving the product, it’s just so clear that in a year or 2 they’re going to be so far out in front of their competitors. One thing we haven’t talked about—and again, it’s in the early phase—is the idea of AI being a platform shift in this industry. This is again where being born in the cloud is going to be a huge advantage. You’ve got a sound data strategy, and you can access that data. We believe that in the next year or 2, Robinhood is going to start spinning up this financial co-pilot that Schwab or Fidelity is just not going to be able to offer. So I would say look for those kinds of products and continued progress there, particularly on the AI Cortex side. Arthur Olson They demoed at the last product day an AI scripting and screening tools, which we think are gonna be very impactful for the active investor. In general, we're looking for account growth, and then we're also looking for product velocity and a retaining of key focus. Matt Reustle The latter being oftentimes more difficult to track, but equally important because it’s a symbolic measurement of the go-forward. On the account side of the equation, I actually don’t know whether Robinhood has a global user base or if it’s mostly domestic U.S., and what that represents for them as a business. Is that a material opportunity just from a growth perspective? Arthur Olson It’s a great point, and I probably should have mentioned that’s one area where I think we are extremely conservative in modeling. So we basically model effectively no contribution. To answer your question, yes, it’s all U.S. They technically have operations in the U.K., but it’s very, very small at this point. Historically, the history of brokerage would tell you that it’s pretty hard to break into other countries. One, because of the cost of dealing with all the local regulatory regimes. Two, by definition, all these countries are going to have fewer inhabitants than the U.S., with smaller markets. And then three, you just see that the percentage of those smaller populations that invest in stocks is way smaller. So it becomes a smaller TAM, potentially at a higher cost. I think that’s why Vlad is so focused on using tokenization in these markets as a way to bring down the cost and therefore make expansion into these countries much more efficient than past brokerages that failed in that attempt. In our modeling, we’re probably conservative on the account growth, but we have accounts going from 26 million to 40 million. So you’re talking about an addition of only about 1.5 million accounts per year, about half of that coming from share take, half of that coming from net new to the industry. That’s a 4% or 5% CAGR, so pretty slow. The majority of our growth is driven by asset growth in existing accounts, and then monetization of these peripheral financial services. But I encourage any of our listeners who want to dig into the international opportunity to do so. This is a perfect example: Robinhood is doing so many things, you almost have to pick your bets in terms of what you think matters. Vlad, if you hear him talk, thinks international is a huge opportunity, so I’m probably wrong on this. But it’s just even more upside. I don’t think you need to believe you get much contribution, if anything, for this to be a base-case outcome. Matt Reustle It’s difficult with this type of velocity, as you mentioned. One point you just made on that 1.5 million—half coming from taking share, half coming from net-new accounts—has share-taking, or share grab, been a piece of the story in recent years? Do they report that? Is there any way to measure whether that is actually something that you’re seeing happening? Arthur Olson When we think about share take, it really matters what age demographic we’re looking at, and it’s good to decompose. If you look at Robinhood’s share among baby boomers and certainly the Silent Generation, we’re talking about 1% share. When you get to Gen X, Robinhood’s share increases to about 20%; to over 50% with millennials; and to over 65% with Gen Z. If you look at Robinhood, 75% of their customers are under 45, and that ratio is flipped for all of these legacy guys. What’s really interesting, too, is that we’ve got the largest intergenerational wealth transfer on record that’s going to be playing out over the next 15 years, where basically $80 trillion is going to be passing from baby boomers to their children. The baby boomers are the majority on the legacy brokerages, and all of their children who are receiving those funds are on Robinhood. They’ve got 20% share of accounts. Robinhood under-owns today, with only 2% of assets. But we expect that, of the $80 trillion transfer—and, again, if you really cut it down, $40 trillion is investable—you can haircut that again for self-directed versus assisted. But we assume Robinhood gets 40% incremental share, and that alone gets Robinhood from about $300 billion in assets today to $4 trillion over the next decade. So, just massive growth. Matt Reustle That 20% versus 2% is a meaningful opportunity. To start to close things down on the risk side of the equation, I think there are some fairly obvious ones, but the one that I wanted to focus on was the regulatory dynamics. Vlad has spent plenty of time with the regulators, from everything in the GameStop moment to rolling new things out. Where would you say they stand just in terms of their regulatory reputation and that relationship? It feels very important to me, particularly as the velocity of what they’re rolling out is so high and they’re doing so many different things. Do you have any sense of that? Arthur Olson Their regulatory team is very strong. Dan Gallagher runs their compliance and regulatory affairs. He was a former SEC chair and has become very much a thought leader. Vlad is even becoming a thought leader, particularly in the area of tokenization. The Trump administration, writ large, is very supportive of tokenization and crypto. Surprisingly, the EU has been as well. Again, this is all very early days, but trialing tokenization of equities is actually starting for Robinhood in the U.K. and the EU, as opposed to the U.S. It’s certainly something to track, and Robinhood is going to continue to be at the forefront. Their reputation with regulators is good. Dan actually came on, I believe, in 2020 or 2021. He wasn’t in that 2022 hiring phase, but I think his influence has grown. Robinhood has grown up as a company. Vlad has grown up with the company. I think the regulators recognize that as well. Matt Reustle That’s quite a time to join and see all of the action. He’s lived through some wars, to say the least. Is there anything else that stands out to you as a major risk or thing that you would most focus on in terms of risk to the business or the stock? Arthur Olson Generically, with a company this ambitious trying to do this many things, the risk is focus. If you want to be a financial analyst, you could say capital allocation. Robinhood and Vlad have proven themselves in this regard, so it’s not something that keeps me up at night. Those are the problems you want. With Amazon, you’re going to have a Fire Phone every now and then. You want a company that’s pushing the envelope, trying new things, and it’s just such a stark contrast. If you compare what Robinhood is doing to anybody else in the brokerage space, there’s really no comparison. I’m a fan of Coinbase in general, but if you compare the two, Robinhood is the only founder-led brokerage left. Schwab and Fidelity—we’re talking about 3 to 4 generations. They’re kind of managers at this point. But Brian Armstrong is a founder, and if you look at the product velocity out of Coinbase, it just doesn’t compare to Robinhood. It does hammer home that, yes, this is founder-led. But even among founders, I think Vlad is very, very impressive. He has a mathematical mind and is also a genius of branding—a renaissance man, if you will. I expect him to continue to deliver as he’s built out that bench of talent around him. Matt Reustle It would feel like a logical acquisition target for some incumbents across the financial services space, not just brokerages, although from a valuation perspective, it would be challenging. Where does that stand just in terms of your perspective on their willingness to ever entertain an acquisition offer or something along those lines? Arthur Olson I don’t think there’s any desire. I don’t know why they would. I’ve never seen a company that has such an expansive view of itself, and in the best possible way. It’s not delusion. They’re executing against it. They’ve earned the right. I would encourage any of our listeners who are interested to watch the Investor Day from late 2024, last year. They outlined these 3 growth arcs: win the active trader over the next 1 to 2 years, use that to fund winning wallet share with millennials and Gen Z. This goes to our banking discussion and the growth of Gold. Looking out past that, they are for sure going to disrupt the low end of the wealth management industry. There’s just no question about it. My conviction in that has grown a lot just in the last couple of weeks as I’ve done more work there. That’s another revenue stream that’s going to come down the pike. They’re using AI, and then they made an acquisition of a company called TradePMR that does custody for RIAs. I think it’s actually going to look very much like TurboTax and TurboTax Live—the evolution of going from DIY tax, with Robinhood basically being DIY investing, to a hybrid model where you’re still doing most of it yourself, but you have an AI helping guide you. Then, if you’ve got a tough question or you want some real advice, there’s a little button up top, and we’re going to connect you to an actual RIA. With all of those aspirations in front of them, I don’t see any chance of them taking an acquisition offer. Matt Reustle Something told me that was the answer based on the ambitions. Worth mentioning. Arthur Olson One other risk: the reality is the stock is up 7x over the last year. Stocks can get ahead of businesses. I don’t want to make a call on valuation or what makes sense, and every investor has a different time horizon, but I would just note that stocks can get ahead of businesses in the short run. Matt Reustle It’s always good to have that disclaimer in there. This has been fascinating. I’ve learned a lot more about Robinhood. Despite there being so much out there about them, it’s deepened my appreciation and understanding of exactly what they’re doing. We close out the conversation with just the lessons that you might be able to take away and apply elsewhere. Is there anything that stands out as a lesson or lessons from Robinhood that you could apply as an investor elsewhere? Arthur Olson The big lesson for me is that product wins. This was an industry that was very sleepy, very comfortable, and very profitable. All the VCs said, “Robinhood, you’re going to fail.” Everybody that came before them that attempted something like this did fail. What they didn’t factor in is Robinhood’s attention to detail and focus on product. Customers ultimately recognize that. At our firm, we break up the investable universe into generational winners, which is what Robinhood would be. You’ve got stalwarts, which are these stable, steady-Eddie companies, and then you’ve got opportunistic situations where maybe it’s a turnaround. That is the risk of the stalwart bucket: saying, “This is a really profitable monopoly, and they’re crushing it,” which is what I’m sure people were saying about Schwab and Fidelity at one point, and then you have a Robinhood that just comes up and steals the entire next generation out from under you. I think that is something that investors need to be aware of: not to write off a small competitor if the product is very strong. One thing that impressed me as I’ve really gone deep on Robinhood is the extreme attention to detail within that company. You pick up the app, and for those that haven’t used it, this sounds like a squishy competitive advantage of it just feeling good, very much akin to Apple. If you talk to people that have worked there, it’s a known thing: you’ll have PMs and engineers that come from other fintech companies, and it’s literally like a 6-month adjustment period where they have to level up their game and realize that it’s not just about pushing out a product that works. The product has to be beautiful. It has to feel great. A big part of that is that a large contingent of Robinhood customers are also users and power users. Pretty much any product that they launch first gets beta-tested within the firm for a couple weeks, and they really rip it to shreds. It is that sanding down. It is that nitty-gritty detail and the push for polish that ultimately, kind of to your very original point, means it’s not just the economic model; it’s really the product and it being mobile-first. That is true, and it’s as true today as it was then. That attention to detail and that total empathy with the customer is really what has made Robinhood successful and will continue to make them successful in the future. Having an eye for that in a management team and a culture is super powerful. Matt Reustle It’s an incredible disruption story and one that we will continue to watch, with the ambitions still being quite large. So thank you, Arthur. This has been a pleasure. Arthur Olson Thank you.