Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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How to spin Robinhood's campus crusade

Stanford University

Hello and welcome to Protocol | Fintech! This Friday: Robinhood's campus offensive, Sift's CEO on more consumer payment choice, and how Revolut pays bitcoin rent.

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The Big Story

Young money

Robinhood already has 3.8 million student accounts. It wants more.

The online broker found early success by dishing out referral codes, which spread its no-commission trading through word of mouth on online forums like Reddit. But it's now trying a more conventional approach to marketing — the classic "back to school" campaign.

Young money is hot right now. Online brokers and financial superapps are angling for first-time investors, hoping they'll turn into long-term customers.

  • Cash App recently teamed up with rapper Megan Thee Stallion to promote its investing and crypto options to "hotties." (If you're not sure what that is, you almost certainly aren't one, sorry.)
  • Fidelity introduced accounts for teens in May.
  • Venmo added crypto trading, a popular option for its young user base, in April. And PayPal, its parent company, is gearing up to add investing.
  • Robinhood wants to keep its lock on the young-investor market. It mentioned in its S-1 several times how it wants to be "the first financial services relationship for many new investors and younger generations of investors."

Aparna Chennapragada, Robinhood's chief product officer, appears to be spearheading the push. She joined the company in April after a storied career at Google.

  • The campus offensive is about "meeting the next generation where they are," she said.
  • Robinhood is going on a campus tour, including historically Black colleges and universities and community colleges. That could make its college initiative considerably more inclusive.

But the question remains: Is this good for young investors — or just good for Robinhood? Robinhood has built an impressive money machine that's particularly effective at extracting returns from small accounts.

  • Robinhood, in a blog post announcing the campaign, said it aims to expand "access to financial markets by welcoming a younger, more diverse generation of investors."
  • The company is giving students $15 for signing up with a campus email address and another $5 for every student they refer. That's more generous than Robinhood's free-stock award program for new customers, which rarely exceeds $10 in value.
  • But Robinhood's a business, so you have to figure it will more than recoup those sign-up bonuses over the lifetime of the customer's account. The primary way it makes money today is through payment for order flow — rebates it gets from market makers for sending orders their way, which means Robinhood has a clear incentive to get its new customers started trading.

This is about "winning over youngsters before they go to other platforms," Rob Siegel, a management lecturer at the Stanford Graduate School of Business said.

  • The competition is real. Besides Fidelity, Cash App and possibly PayPal, Public.com, SoFi and others are angling for new investors.
  • The "positive spin" on Robinhood's campus move, Siegel said, is that it's like "Apple selling computers into the education vertical," he said. And the "negative spin"? "It's flavoring tobacco and vaping to hook youngsters."
  • In the latter camp is Tim Ranzetta, co-founder of Next Gen Personal Finance, a finance-education nonprofit. "Speculating on crypto, options and stocks is not the path to creating long-term wealth," he told Protocol. "I hope it doesn't sour this generation on the stock market and blind them from products like diversified, low-cost index funds."
  • A Robinhood spokesperson said Friday that the company believes "investing early is critical to building wealth long-term" and that its goal is "to democratize finance for all." CEO Vlad Tenev has defended Robinhood's app interface as "democratizing" finance: "Even though we have made investing easier, we recognize it is not a game," he told members of Congress in testimony for a February hearing.
  • In March, he told Bloomberg, "We align ourselves with long-term customer outcomes," noting that most Robinhood customers "aren't buying and selling on a daily basis" and are "largely doing buy and hold activities."
  • Robinhood's take on index funds, by the way? "An index fund acts like a mime," it wrote in Robinhood Learn, part of the educational materials it touted in its campus campaign.

"You are the next generation of investors," Robinhood told students. But Ranzetta worries that those who sign up for Robinhood will be more interested in short-term financial gains than "long-term investing success."

"That's not investing, that's speculating," he said.

A MESSAGE FROM CHAINALYSIS

In the last year, cryptocurrency has hit all-time price highs, reached new users, and become a bigger, more mainstream part of financial strategy for both individuals and institutions. But cryptocurrency adoption doesn't look the same everywhere. People all over the globe use cryptocurrency in different ways depending on their unique needs.

Learn More

From Protocol | Fintech

Crypto's payment for order flow dilemma. The SEC is scrutinizing the controversial system which could be an even bigger issue in crypto.

Gary Gensler is not your daddy. The SEC chair was grilled at the Capitol on the agency's approach to crypto, climate change and other issues.

COVID-19 is remaking the life insurance market. Ethos is among the startups capitalizing on a preference for signing up for policies online.

Overheard

  • "Climate change poses an existential risk to society and the associated financial risks pose safety and soundness risk to banks. To safeguard trust, banks and regulators must begin to take action now." —Acting Comptroller of the Currency Michael Hsu said in a speech, as the OCC works on new guidance for large lenders.
  • "Client demand is there. Our ability to offer it in a clean and simple and easy form on mobile is built and ready. We're just answering a few questions." —PNC Financial CEO Bill Demchak, saying the company is ready to enable crypto trading.
  • "The advantage of paying in crypto is the ability to make nearly instant payments without middlemen who charge large international remittance fees." —A Revolut spokesperson, explaining the neobank's use of bitcoin to pay for its Dallas WeWork office.

3 Questions With …

Marc Olesen, CEO, Sift

What fintech trend are you most excited about?

The swelling interest and investment in "buy now, pay later" is an obvious one, but it's also indicative of a larger trend of the diversification of payment methods for consumers. Consumers are making it clear that they want more choice in how and when they pay for things and that means businesses need to meet that demand. Ultimately, this flexibility should reduce transaction fees for merchants and generate savings for consumers, increasing the demand for digital transactions.

What fintech trend is most troubling for you?

Government regulations. The industry needs regulatory oversight but the regulators need to take an innovative and fresh approach to a digital industry that operates in vastly different ways from traditional non-digital businesses. Mitigating fraud in an online context, for example, requires an entirely different toolset for merchants than in-store purchases — a merchant can't rely on the security of physical credit cards so they need to use different signals to determine a purchase's legitimacy. Regulators will need to work with the industry to issue guidance on privacy, risk-prevention and user experience in order to get everyone on the same page.

What's been your biggest professional blunder and how did it help you?

Earlier in my career, I joined an early-stage startup. We had 10 engineers and the product was supposed to launch a couple of months after I jumped onboard. Within a few weeks, I realized that the product was at least one year from launching, with serious product-market fit challenges and misaligned founders. I had made assumptions about the company that I should have more deeply questioned so that I knew what I was getting myself into. The experience made it clear to me that I really enjoy helping scale growth-stage businesses that have worked through early product-market fit. It also underscored the importance of building a culture predicated on trust, humility and collaboration.

Need to Know

  • OpenSea's head of product is out. Nate Chastain was caught trading NFTs using inside information.
  • Chivo bitcoin ATMs come to 10 U.S. cities. El Salvador, which recently made bitcoin legal tender, has rolled out 50 of the ATMs so that people can send money to people in El Salvador.
  • Amazon weighs replacing JPMorgan Chase as its longtime credit card issuer. That's according to WSJ, which notes that Amazon just added Affirm as its "buy now, pay later" provider as it tries to "widen the acquisition funnel." The Amazon relationship dates back to a deal it struck in 2002 with Bank One, which merged with Chase two years later.
  • The Treasury is preparing a stablecoin report. Making sure investors can move in and out of tokens and that crashes won't threaten the financial system are among the concerns, Bloomberg reports.

Making Moves

  • Paul Vienick and Andrea Finan are joining JPMorgan to build its online investing arm. Vienick, formerly of TD Ameritrade, will lead online investing, while Finan, recently of Goldman where she worked on Marcus Invest, will run the self-directed investing business.
  • David Quinn is the new CFO at BlueVine. Quinn was formerly the commercial bank chief financial officer at Silicon Valley Bank.

Deal Flow

  • Goldman Sachs bought GreenSky for $2.24 billion. The bank's acquisition of the "buy now, pay later" provider for home improvement moves the bank further into consumer finance.
  • Form3 raised $160 million led by Goldman. The payments-as-a-service startup is getting ready to launch in the U.S.
  • Self Financial raised $50 million. The startup helps consumers build credit through installment loans and save at the same time.

Data Point

222%


That's the increase in crypto scam inquiries to the U.K.'s Financial Conduct Authority between April 2020 and March 2021.

A MESSAGE FROM CHAINALYSIS

In the last year, cryptocurrency has hit all-time price highs, reached new users, and become a bigger, more mainstream part of financial strategy for both individuals and institutions. But cryptocurrency adoption doesn't look the same everywhere. People all over the globe use cryptocurrency in different ways depending on their unique needs.

Learn More

Thanks for reading — see you Tuesday.
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