Upstart brokers in crypto and stocks like Coinbase and Robinhood face a dilemma: Their revenue grows when the market rises, but drops in a down or uncertain market, as transaction revenue inevitably follows trading volumes.
One way to address this is to reduce their reliance on transactions and build out features for which consumers will pay a subscription. While subscriptions aren’t new — monthly fees for online services date back decades — for consumer brokerages, these products are still largely unproven.
Companies want to increase their subscriber numbers to increase stickiness in the way that, say, Amazon Prime keeps customers coming back with perks, said Brian Graham, partner at Klaros Group. But a bigger reason is to diversify their revenue.
“Whether it's in the private markets or in the public markets, businesses that have significant amounts of subscription and that are repeatable are worth more,” Graham said. Wall Street has shown it will quickly punish businesses with up-and-down revenue linked to volatile assets like bitcoin or meme stocks.
For consumers, investment subscription offerings typically promise fuller-featured services that make trading easier, leave them more knowledgeable or keep them more secure. Coinbase and Robinhood’s products are mainly targeted to active traders for now, though that could change as these programs evolve.
Coinbase One, which is still in beta testing, offers free crypto trading for subscribers at a current price of $29.99 per month. In addition, it gives 24/7 phone support, extra tax help with pre-filled forms and $1 million in account protection against account-takeover hacks.
Since Coinbase charges a transaction fee for trading crypto, Coinbase One is especially attractive to active traders looking to save money (customers still pay a spread on transactions with Coinbase One). Coinbase has been pushing subscription services more broadly, including staking and custody, which provide “incremental stability to our revenue base as they grow,” the company said.
Robinhood already offers free trading, through its payment for order flow business model, which it applies to both stocks and crypto. But its subscription service Robinhood Gold, launched in 2016, still appeals to active traders, who want to, for example, trade on margin.
The program has evolved over the years. Now priced at $5 a month, the service lets users have larger instant deposits, varying based on how much they keep in their portfolio; professional research from Morningstar; higher-level market data from Nasdaq; and access to margin investing.
Free Robinhood members are limited to $1,000 in instant deposits and can’t invest on margin. Robinhood doesn’t break out how many subscribers Robinhood Gold has.
While the service mainly targets active and more sophisticated traders, the company hopes to build it out further and it wouldn’t be surprising to see it expand to a wider group of users.
"One other thing that we actually didn't talk about in the call, you've probably heard me in the past talk about Robinhood Gold and the subscription opportunity,” said Robinhood CFO Jason Warnick in the fourth-quarter 2021 earnings call. “We've assembled a team, and we're building a plan and are excited relatively soon to start adding value into our Robinhood Gold subscription. And I think that, in particular, if we do that right, can add a lot of positive synergy to the platform and the customer experience.”
The biggest critique of investment subscriptions is that they mostly appeal to active traders. No one seems to have identified a broad-based subscription offering — the money equivalent of Netflix or Disney+.
“For the folks who don't trade these kinds of assets frequently at all, it's not going to make sense,” Graham said. “The folks who are really trading all the time, it may make sense to have multiple [subscription accounts] because it'll lower their cost and not constrain them.”
Neobank Revolut has tiered subscriptions, with two levels in the U.S. and three in the U.K. They give perks such as free international payments, fee-free or no-limit foreign exchange, higher interest rates on savings and lower-fee or free crypto transactions. The highest tiers include Revolut’s Metal card.
While Revolut’s subscription does offer a crypto trading perk, the service may appeal more to expats living abroad who make international payments or exchange currency, or people with a large savings account. The service has other perks such as overseas medical insurance, cash back for stays at certain locations and theft and accident coverage that make it seem similar to what a credit card might offer. Revolut offers both monthly and annual fee options; the latter might be more easily compared to high-end credit cards.
That points to a direction these programs could head in: Consumers are used to credit-card style perks like cash back and insurance. So bringing those types of perks to a financial subscription service will likely bring more consumers on board.
But companies shouldn’t rely on subscriptions just to boost immediate revenue, said Melody Brue, principal analyst at Moor Insights & Strategy.
“As a business model, the subscription isn't necessarily going to be the revenue driver,” she said. “Loyalty, increased engagement, community and more customer and behavioral data that comes from those things will drive the long-term value of that customer.”