Fintech

Robinhood made stock-trading an app sensation. Parkside Securities wants to take the action global.

Buying U.S. equities is expensive for retail traders overseas. That requires rethinking the infrastructure, CEO Barry Schneider says.

Robinhood made stock-trading an app sensation. Parkside Securities wants to take the action global.

Cross-border stock trading is still too expensive, Parkside's CEO says.

Photo: Bill Oxford/Unsplash

Before Robinhood became the go-to place for commission-free investing — and the focus of Congressional hearings — Barry Schneider was trying to open up equity investing to small investors.

Schneider previously headed Loyal3, which was best known for placing IPO shares in the hands of small investors.

Now he's the CEO of Parkside Securities, which aims to solve a problem Loyal3 faced: building the infrastructure to offer trades cheaply and quickly for retail stock buyers.

"I learned quickly that the infrastructure wasn't up to speed," he said. "Loyal3 and other fintech innovators had cool front ends, but they were dependent on backend operators that were legacy. That compelled me in January 2019 to attack the infrastructure."

Parkside is an extension of what Schneider was trying to do at Loyal3: provide low-cost access to equities for retail investors. When Loyal3 got started, it wasn't possible to scale without compromising performance and provide real-time, low-cost, small transactions, Schneider said. With Parkside, he's offering the infrastructure for trading fractional shares, quickly and cheaply, focusing first on international customers.

It's often difficult for international investors to buy U.S. stocks, unless they are wealthy and have an account with a firm that can buy U.S. shares, said Schneider. Parkside aims to make it easier for international investors to access U.S. stocks.

"We're looking to get more millennial and Gen Z investors," Schneider said. "We want to do that by making sure the experience is easier and also allows smaller increments of investments."

Parkside, which is a clearing broker-dealer in the U.S., will work with counterparties that are licensed in each country. Parkside will be launching next quarter in a "very large country with a very large counterparty," Schneider said.

There are other brokerage-as-a-service companies, such as DriveWealth and Alpaca, that provide trading infrastructure for apps and financial advisers.

Parkside says it's different because it's focusing on fractional share purchases. While other companies have done fractional shares, Parkside says it allows investors to buy virtually any U.S. equity — 6,500 stocks, ETFs and ADRs — with fractional shares, and it has developed technology to ensure that fractional shares are priced the same as traditional shares. Fractional share prices typically receive worse pricing than whole-share purchases, Schneider said.

"It's all algorithmic-driven. As a rule our customers always get [National Best Bid and Offer] or better pricing," he said. "What we'll deliver is fractional shares delivered in real-time with always the best execution. In our system, with the rules of the algorithm, if somebody buys $1 of Amazon or 10,000 shares of Amazon, the price should be the same."

With other brokerages, fractional share orders are aggregated and traded in batches once or twice a day, Schneider said. But that doesn't provide the best prices. Others offer only certain stocks in fractional shares.

Parkside's focus on fractional shares is not just to grab Robinhood day traders, but to enable more international retail investors, because many retail investors overseas make stock purchases of as little as $10 or $1, Schneider said. In China, for example, the market is 80% retail investors and 20% institutional, while the U.S. is roughly the opposite. The average share price in China is $2 to $5 per share compared to about $100 in the U.S., Schneider said. That practice has made fractional shares less needed there.

Parkside was inspired by China's Yu'e Bao, once the world's largest money-market fund, which grew by focusing on small accounts for China's masses. "That inspired me to see the breadth and power of small accounts aligned," Schneider said. "We set about saying: 'Could a broker-dealer in the U.S. exist with that type of unit economics?'"

Parkside plans to work with traditional broker-dealers seeking to offer easier access to U.S. equities to clients, as well as digital banks and other fintechs that are already tech-enabled but need a U.S. partner.

Parkside's team includes President Marco Pellini, one of the first employees at E-Trade and later COO and president of E-Trade Capital Markets, as well as CFO Marc Metcalf, who was president of GE Capital Insurance Services.

Parkside charges its enterprise clients, who then decide how to charge clients or offer free trading, Schneider said.

"Every market has a different structure," he said. "The way people trade in Southeast Asia may be different than in other parts of Asia or Europe. It's not up to us to set that."

Payment for order flow is a practice that came under scrutiny after Robinhood temporarily stopped purchases of GameStop and drew Congressional attention. Parkside has agreements to optimize for price improvement. It can still use payment for order flow but it won't be a priority, Schneider said. "Practical implication is we'll never maximize [payment for order flow]," he said. "It won't be a major source of revenue because it's not a priority."

Parkside will use market makers for trading but will take inventory risk — buying shares — when necessary for fractional shares, Schneider said.

The San Francisco startup has raised $24 million in series A funding led by Shanghai-based Enlight Growth Partners, with existing investors Mubadala Capital, FinTech Collective and Colle Capital, and new investors Peak6 Investments and Entrée Capital.

Podcasts

Crypto’s big crash

Is the tech superbubble about to burst?

red and blue light streaks
Photo by Maxim Hopman on Unsplash

This week, we're diving into the crypto crash. What led luna to fall off a cliff? Are we seeing the dot-com bust, part two? Protocol fintech editor Owen Thomas explains it all to us. Then entertainment reporter Janko Roettgers joins us to share the inside scoop on his exclusive interview with Mark Zuckerberg. We learn why Meta is betting it all on the metaverse and Brian finally gets to ask the most pressing question on his mind this week: What does Mark smell like?

And finally, Caitlin and Brian take a moment to reminisce about the iPod, which was put out to pasture this week after more than two decades on the market.

Keep Reading Show less
Caitlin McGarry

Caitlin McGarry is the news editor at Protocol.

Sponsored Content

Foursquare data story: leveraging location data for site selection

We take a closer look at points of interest and foot traffic patterns to demonstrate how location data can be leveraged to inform better site selecti­on strategies.

Imagine: You’re the leader of a real estate team at a restaurant brand looking to open a new location in Manhattan. You have two options you’re evaluating: one site in SoHo, and another site in the Flatiron neighborhood. Which do you choose?

Keep Reading Show less
Enterprise

Say goodbye to unicorns. The cloud centaurs are here.

Protocol caught up with Bessemer Venture Partners’ Kent Bennett to discuss the state of the cloud, the new SaaS models poised to make a dent on the industry and why the firm developed a new SaaS milestone.

Bessemer Venture Partners developed a new SaaS milestone that it’s calling the “centaur,” for startups that reach over $100 million in annual recurring revenue.

Photo: Bessemer Venture Partners

Kent Bennett thinks the SaaS business model is the “greatest business model in the history of the planet.” As a partner at Bessemer Venture Partners, it’s fitting that he’s bullish on the cloud: Bennett was one of the main authors of Bessemer’s annual State of the Cloud report, which gives a bird's eye view of what’s happening in the cloud economy.

In the report, Bessemer analyzed everything from the new ways SaaS companies are trying to monetize their software to what areas are still underserved by SaaS. The firm also developed a new SaaS milestone that it’s calling the “centaur,” for startups that reach over $100 million in annual recurring revenue.

Keep Reading Show less
Aisha Counts

Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She's based in Los Angeles and can be reached at acounts@protocol.com.

Climate

The future of electrification, according to Google Trends

People are searching more often for how to electrify their lives, from induction stoves to e-bikes.

From “induction stove” to “home EV charging,” search interest is rising.

Photo: Michael Tuszynski via Unsplash

Feeling cynical about the state of the climate? Well, it’s hardly a guarantee of a liveable climate, but a peek at Google Trends might provide a glimmer of hope.

People are increasingly ready for the all-electric future at home and on the road. From “induction stove” to “home EV charging,” search interest is rising. And while climate change is certainly not up to the individual to solve — that’s mainly on governments and corporations — shifts in public tastes can bring about policy changes. Fast. (See: outdoor dining in major cities; marriage equality.)

Keep Reading Show less
Lisa Martine Jenkins

Lisa Martine Jenkins is a senior reporter at Protocol covering climate. Lisa previously wrote for Morning Consult, Chemical Watch and the Associated Press. Lisa is currently based in Brooklyn, and is originally from the Bay Area. Find her on Twitter ( @l_m_j_) or reach out via email (ljenkins@protocol.com).

What Elon's Twitter 'hold' even means

The answers to all the Musk-iest Twitter acquisition questions.

Keep in mind that Elon Musk isn't exactly known for telling the truth.

Photo illustration: Getty Images; Unsplash; Protocol

Elon Musk can tweet anything he likes, because he’s Elon Musk, and he’s buying Twitter, and free speech is awesome. What he can’t do is make false tweets true.

Musk said Friday that the Twitter deal was temporarily on hold while he looked into a report that spam bots and other fake accounts made up less than 5% of its users. He added, hours after his first tweet, that he was “still committed to [the] acquisition.” Investors promptly sold off shares of Twitter, thinking that Musk’s words somehow had meaning, embodied intent or otherwise had an impact on the world. They did not, eppur si muove, and yet the stock market moved.

Keep Reading Show less
Owen Thomas

Owen Thomas is a senior editor at Protocol overseeing venture capital and financial technology coverage. He was previously business editor at the San Francisco Chronicle and before that editor-in-chief at ReadWrite, a technology news site. You're probably going to remind him that he was managing editor at Valleywag, Gawker Media's Silicon Valley gossip rag. He lives in San Francisco with his husband and Ramona the Love Terrier, whom you should follow on Instagram.

Latest Stories
Bulletins