Robinhood CEO Vlad Tenev testifies at a House hearing
Photo: Daniel Acker/Bloomberg via Getty Images

Robinhood’s secret weapon could also be its undoing

Protocol Fintech

Hello and welcome to Protocol | Fintech! This Friday: Vlad in the HOOD, Megan Thee Stallion explains stock investing, and Brian Armstrong takes a tip from Apple.

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The Big Story

Going with the (payment for order) flow

Robinhood's IPO filing confirmed what many analysts suspected: The online brokerage is growing fast. But the disclosures also underlined the precarious nature of that growth.

Now we know that Robinhood, which is going public under the ticker "HOOD," makes a ton of money when customers make a ton of trades. And the startup is worried that that system could be upended by legislators and regulators. Ironically, the eye-popping financials it unveiled in its S-1 could fuel the calls for reform.

Payment for order flow is Robinhood's key revenue driver. Robinhood said revenue tripled to $959 million from 2019 to 2020. Three-quarters of that came from rebates it earned for sending trade orders to market makers, also known as payment for order flow.

  • That's a huge percentage which "could give investors pause," Santa Clara University law professor Stephen Diamond told Protocol.
  • That figure climbed to 81% in the first quarter of 2021. That was when Robinhood found itself in the center of the GameStop trading frenzy.
  • That fiasco turned into a PR nightmare for Robinhood and CEO Vlad Tenev, whose attempts to explain why the brokerage shut down trading in GameStop shares was severely criticized.
  • But the GameStop controversy turned out to be good for business: All those trades caused Robinhood revenue to jump fourfold year-over-year to more than $522 million in the first three months of 2021, according to the company's S-1.

What goes up could go down. Trading volume could drop, for one. And the GameStop fiasco turned the spotlight on payment for order flow. Robinhood admits the growing attention from legislators and regulators could be a problem.

  • The company said there is "heightened risk" of new regulations that could force it to "make significant changes to our business model and practices."
  • Robinhood cited new SEC Chair Gary Gensler's recent testimony that payment for order flow "could promote behavior that is not in the interest of the customer, such as excessive trading."
  • New rules that restrict "excessive trading" could be disruptive to Robinhood. "Their business model is rendered moot" if that happens, Bill Pearce, assistant dean of UC Berkeley's Haas School of Business, told Protocol.
  • Robinhood rival Public said payment for order flow is getting the "scrutiny it deserves," Chief Operating Officer Stephen Sikes told Protocol. The online brokerage dropped payment for order flow early this year, at the height of the GameStop controversy, and replaced it with tipping.
  • Robinhood also said in the filing that its revenue "could … be harmed by decreased levels of trading generally."

Don't underestimate Robinhood's momentum. Investors who believe that Robinhood can "maintain the pandemic and meme-stock level volume" will likely believe they can pull off the IPO, Moor Insights & Strategy analyst Melody Brue told Protocol.

Diamond said Robinhood likely has been "testing the waters," as companies going public typically do through conversations with potential investors. "They may feel confident they can get this done," he said.

And while Robinhood's drawn plenty of public criticism, it's probably the one trading app that Gen Z investors, born decades after Charles Schwab was founded, have heard of.

— Ben Pimentel


Buy-side leaders who make data-driven decisions now could prosper for years to come. That's why asset managers are prioritizing data and analytics initiatives at a faster rate than ever before. Broadridge helps you transform operations, strengthen client relationships and uncover opportunities that others may miss.

Learn more

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  • "Apple didn't attempt to build every app for the iPhone, it empowered developers and gave mobile users an easy way to access new innovative apps. We need to do the same in crypto." —Coinbase CEO Brian Armstrong, discussing a potential dApps store.
  • "We cannot stand by and allow algorithms to resurrect old biases in new packages, or introduce new forms of discrimination hidden in proprietary code." —National Community Reinvestment Coalition CEO Jesse Van Tol, joining fintechs PayPal, Square and others in a call for more guidance on how AI should be used in lending.
  • "There is a lot of risk from interconnectedness. It's the same counterparties lending and borrowing to each other." —An unnamed executive at a crypto trading firm, talking about the high returns and high risks of crypto lending.
  • "Buying stocks seems complicated, but really it's a pretty simple process." Megan Thee Stallion, promoting Square's Cash App in an "Investing for Hotties" video as part of a campaign giving away $1 million worth of stock.

Need to Know

  • BNY Mellon can't make up its mind about crypto. BNY claimed it was the first big bank to enable clients to hold, transfer and issue crypto. But Insight Investment, a unit of BNY Mellon, said bitcoin isn't good for most institutional investors.
  • AmEx partnered with fintechs for home loans. AmEx customers can get a credit between $2,000 and $6,000 if they get mortgages with Better or Rocket Mortgage by Quicken Loans.
  • Walmart upgraded its MoneyCard. With a conversion from a prepaid card to a demand deposit account, customers can access partner Green Dot's banking services like direct deposit and overdraft protection.
  • TD Bank plans no-overdraft-fee accounts. The move, the latest among big banks to compete with neobanks, comes after the bank settled a class-action lawsuit that alleged the bank overcharged customers for overdraft fees.
  • PayPal launching Zettle in the U.S. The payments giant bought the Swedish mobile payments company, which helps integrate merchants' online and offline sales, in 2018 for $2.2 billion.

Making Moves

  • Point72, Steve Cohen's mega hedge fund, is seeking a head of crypto. The $22 billion firm could invest through its main hedge fund or its private investment unit.
  • David Reidy jumps from Payactiv to Scale LLP. The former chief legal and compliance officer at Payactiv is the new managing partner at the virtual law firm.

Deal Flow

  • JPMorgan acquired ESG fintech OpenInvest. The startup, backed by Y Combinator and Andreessen Horowitz, enables financial advisers to manage socially-aware portfolios.
  • Riskified files for IPO. The ecommerce risk-management company is backed by General Atlantic and Fidelity.
  • Mercado Bitcoin's parent raised $200 million. The Brazilian crypto exchange owned by 2TM Group got money from the SoftBank Latin America Fund.
  • Karat Financial raised $11 million for corporate cards for creators. The series A was led by Union Square Ventures.

3 Questions With...

Kumesh Aroomoogan, CEO, Accern

What's been your biggest professional blunder?

Learning that simplicity is one of the keys to scaling a company. You may have the most advanced product in the market. However, it will be a difficult path to success if buyers can't understand what you're selling. Simplifying your messaging, product and implementation will allow you to scale to more users at a faster rate.

What fintech company — besides your own — have you been most impressed with this past year?

I've been most impressed with, which is a rival to Robinhood. The execution to 1 million users within 18 months and market timing of raising capital and hitting unicorn valuation during the Robinhood situation were perfect.

What fintech sector or company is most underrated and overrated right now?

The most underrated fintech sector currently is financial data and analytics. Data is the new oil and with the growth and amount of unstructured data today, organizations are faced with the challenges of obtaining clean data. Big data analytics brings value by enabling users to analyze and extract information from complex data sets. With no-code AI, analyzing and extracting information will be easier than ever.


Buy-side leaders who make data-driven decisions now could prosper for years to come. That's why asset managers are prioritizing data and analytics initiatives at a faster rate than ever before. Broadridge helps you transform operations, strengthen client relationships and uncover opportunities that others may miss.

Learn more

Data Point


That's the proportion of daily trading volume represented by retail investors on the Russell 3000, compared to 15% in September, according to Morgan Stanley.

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