Consumer Trading Platforms
Enterprise

Welcome back to the Protocol Power Index, a ranking of the most powerful companies by tech industry subsector, as well as the companies best positioned to challenge them. This time: consumer trading platforms.

In early 1998, E-Trade customers were paying an average commission of $19.62 per trade. That statistic looks quaint now that a growing cohort of younger retail traders would balk at paying anything for a trade. It also shows just how much Robinhood's commission-free model has disrupted the consumer trading platforms space since the late 2010s.

What's also become clear in recent years is that commission-free trading was only the beginning. The race is now on for consumer trading platforms to add value in new ways, whether that comes from social feeds, cryptocurrency trading, more intuitive trading interfaces or the ability to trade from a single financial super app. There's also plenty of money to be made by taking the Robinhood model to new regions, as Groww has done in India and eToro and Trade Republic have done in Europe.

Still, the threat of dramatic regulation casts a shadow over the industry. In particular, the practice of payment for order flow has drawn considerable scrutiny since January's meme stock debacle, and the SEC and EU are exploring ways of reining in its practitioners. New crypto features have also helped newer trading services differentiate themselves from more powerful but also more risk-averse legacy players such as E-Trade and Charles Schwab (TD Ameritrade). Impending crypto regulation could serve to either vindicate these legacy players or provide an impetus for them to ramp up R&D spending in the crypto arena.

And one final note: There are a couple of noticeable absences in the ranking, most prominently AUM powerhouses Fidelity Investments and The Vanguard Group. In both cases, the amount of data available was not sufficient to produce an accurate readout of their power in the consumer trading industry. While they may be mentioned as major forces in the "What happens next" section, they do not appear on the leaderboard.

But which companies have the lead right now? And which ones are challenging that dominance? We've ranked the market for you.

Ranking Company Score
1 Morgan Stanley 87.85
2 Charles Schwab 81.96
3 Robinhood 56.56
4 DriveWealth 45.56
5 Trade Republic 41.37
6 eToro
40.86
7 M1 Finance
37.79
8 Public.com
34.73
9 Groww 34.41
10 Webull 24.40

Morgan Stanley (E-Trade)

Power Score: 87.85 Momentum Score: 57.65 (8) HQ: New York, NY CEO: James P. Gorman Founded: 1931

Though Morgan Stanley had some self-directed trading capabilities in the past, it moved into a true position of power with a big M&A bang. When the company agreed to acquire E-Trade for around $13 billion last year, the Wall Street mainstay vastly expanded its wealth management portfolio and signaled to the industry that its Main Street foray was not temporary. When the deal closed in October 2020, Morgan Stanley added E-Trade's 5.2 million accounts to the existing 3 million accounts active under its advisory umbrella, giving the combined entity the resources to reshape itself to take on the commission-free trading apps that had disrupted the original business model in the first place. Despite buying a huge slice of market share, its growth has faltered, suggesting that it may need to reinvent itself to maintain its position of power.

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Charles Schwab (TD Ameritrade)

Power Score: 81.96Momentum Score: 55.29 (9)HQ: Westlake, TXCEO: Walt BettingerFounded: 1971

When the dust settled on the TD Ameritrade acquisition, Schwab had more than $5 trillion in assets under management, a number that's now in excess of $7 trillion. And, at the end of June 2021, the new-look Schwab's 32 million active brokerage accounts more than doubled the 14 million pre-deal number. That said, the integration has proven more costly — $2.2 billion compared to the initial $2 billion estimate — and on the longer end of the initial timeline projections. Still, when the two companies are fully integrated, the resulting infrastructure will allow for even more expansion as the company continues to be, as CEO Walt Bettinger says, "on offense" against the likes of Robinhood that look set to undermine its power.

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Robinhood

Power Score: 55.56Momentum Score: 63.53 (T-6)HQ: Menlo Park, CACEO: Vlad TenevFounded: 2013

After its founding in 2013, Robinhood turned the consumer trading world on its head by offering commission-free trading. The company's mobile app also made trading much more seamless relative to the other market offerings at the time. These two innovations allowed Robinhood to attract investors — particularly younger investors without prior trading experience — and convert that into revenue through the controversial payment for order flow model. While Robinhood certainly shows no sign of slowing down, the Gamestonk controversy has left a bad taste in the mouths of both investors and regulators. The company will need to walk a tricky tightrope of appeasing those two interest groups while still expanding its product offering and diversifying revenue streams.

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DriveWealth

Power Score: 44.56Momentum Score: 75.29 (T-2)HQ: Chatham, NJCEO: Bob CortrightFounded: 2012

If you search the app store, you won't find a DriveWealth app, but the company has been quietly powering the surge in retail investing over the past few years with its trading API. Though it looks a lot different from the other companies on this list in terms of business model and execution, and missed out on consumer recognition, DriveWealth has established itself as a solution that could disrupt traditional and new-age brokerages alike by leveraging the scale of its partners like Revolut, Cash App and MoneyLion. It may not make headlines like Robinhood — which could be a good thing — but by powering all those partners' trades, it has become a behind-the-scenes retail investing powerhouse you can't discount.

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Trade Republic

Power Score: 41.37Momentum Score: 78.82 (1)HQ: Berlin, GermanyCEO: Christian HeckerFounded: 2015

Fresh off a $900 million funding round in May 2021, Trade Republic — which operates in Germany, Austria and France — has grown into one of Germany's most valuable tech companies, with a valuation of $5.3 billion. It offers what it calls commission-free trading for most assets thanks in part to its use of payment for order flow, though each trade costs €1 to execute for what the company says are third-party costs. After its May funding round, Trade Republic disclosed that it had €6 billion under management stored across 1 million customer accounts. Its swift growth is in part due to its ability to bring what Robinhood is doing in the U.S. to the European market — but it also potentially faces much tougher regulation from the EU. In the broader European market, the U.K. already bans payments for order flow.

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eToro

Power Score: 40.86Momentum Score: 64.71 (5)HQ: Tel Aviv, IsraelCEO: Yoni AssiaFounded: 2006
eToro is an Israeli social trading service that is popular in Europe. In March 2021, the company agreed to go public in a SPAC deal that valued the firm at around $10.4 billion. eToro disclosed at the time of the SPAC announcement that it had generated $605 million in gross revenue the previous year and had 20 million registered users. Unlike Robinhood, E-Trade, TD Ameritrade and many other trading services, eToro doesn't employ payment for order flow. It still manages to offer commission-free trading, and instead generates revenue through price spreads on securities orders. In a March 2021 interview with Bloomberg, however, eToro CEO Yoni Assia said the company was going to keep its options for new revenue streams open as it looked to expand its U.S. presence. Diversifying revenues is a wise instinct given the regulatory outlook in the EU, but expanding in the relatively mature U.S. market will be no easy task.

M1 Finance

Power Score: 37.79Momentum Score: 63.53 (T-6)HQ: Chicago, ILCEO: Brian BarnesFounded: 2015
Founded in 2015, M1 Finance is attempting to differentiate itself as an easy-to-use trading service for long-term investors. It helps guide investors through the process of building a diversified portfolio, and it eventually wants to become a finance super app. M1 Finance CEO Brian Barnes told TechCrunch in July 2021 that the pandemic has helped its business grow, with assets under management quadrupling since March 2020 and signups in January 2021 tripling compared to the same period a year prior. Capitalizing on that, M1 Finance has been on a fundraising tear in recent months, capped off with a $150 million funding round led by SoftBank in July 2021. Though growth has been strong, a challenge for M1 Finance will be convincing more risk-averse users that they're better off on a relatively new service rather than the traditional ones offered by the likes of Vanguard and Charles Schwab.

Public.com


Power Score: 34.73Momentum Score: 75.29 (T-2)HQ: New York, NYCEO: Jannick Malling, Leif AbrahamFounded: 2015

Public.com can be categorized as a post-Robinhood trading service: It borrows core elements from Robinhood but loudly eschews payment for order flow and adds other spins in an effort to attract a subset of the young investor demographic. Public.com went the route of adding social elements to its app, allowing users to discuss their investments on a public feed. And while social media and consumer stocks earned a bad rap after the GameStop craze, Public.com is attempting to brand itself as an educational site that encourages responsible trading.

Public.com has raised $311 million in total funding, most of which came from a $220 million funding round closed in February 2021. Its headcount has more than doubled over the last year, with engineering headcount growing at a slightly slower clip. While all this activity puts Public.com in a strong position for growth, a major challenge will be convincing consumers that social trading is something they should want.

Groww

Power Score: 34.41Momentum Score: 75.29 (T-2)HQ: Bengaluru, IndiaCEO: Lalit KeshreFounded: 2016

Groww is one of the most promising trading services on this list for a simple reason: India. The Bangalore-based company wants to convert the hundreds of millions of Indians who are already using smartphones for everyday payments into investors. In an April 2021 interview with TechCrunch, Groww co-founder Lalit Keshre said the company had amassed 15 million users, with 60% of them coming from smaller cities and towns in India and 60% making first-time investments through the app. Given India's digitization trends, Groww has been a hit with investors: The company raised $83 million in a series D round in August 2021 and is rumored to be in discussions to raise a $250 million funding round that would see its valuation triple to $3 billion. That would make Groww one of India's most valuable startups. Under Prime Minister Narendra Modi, the Indian government has attempted to bolster home-grown tech players with favorable regulation, which bodes well for Groww's future.

Webull

Power Score: 24.40Momentum Score: 40.0 (10)HQ: New York, NYCEO: Anthony DenierFounded: 2017

Webull is a New York-based subsidiary of the China-based Fumi Technology, which was founded in 2016 by Wang Anquan. Wang previously ran the finance unit at Xiaomi and prior to that worked for Alibaba.

Webull made a name for itself in the U.S. through its response to the Gamestonk debacle and an aggressive marketing strategy (Webull's advertising team seems determined to singlehandedly fix the New York subway's budget problem). Webull welcomed disgruntled Robinhood users after Robinhood banned trading for GameStop and other popular memestocks. Webull subsequently reported a 1,548% increase in account signups compared to the seven-day average. However, Webull eventually betrayed this new customer base when it initiated its own temporary ban on certain memestock purchases.

Overall, Webull's challenge will be getting out from under Robinhood's shadow. A $150 million fundraising round from February 2021 could help, as would a rumored IPO — but Robinhood is so far ahead of Webull that success is no sure thing.


Explore the Data

The Protocol Power Index is designed to view power through a holistic lens that reflects how modern tech companies amass and exercise their strength. To do so, the Power Index takes into account 30 metrics across five categories — Economics, Leadership, Innovation, People and Politics & Policy — and synthesizes them into a single Power Score. Read our full methodology statement here.




What happens next?

Forces that stand to shape the consumer trading space in the coming years include: regulation of payment for order flow, shifting retail trader behavior and the rise of cryptocurrency trading.

Momentum Ranking Company Score
1 Trade Republic ↑ 78.82
T-2 DriveWealth ↑ 75.29
T-2 Public.com ↑ 75.29
T-2 Groww ↑ 75.29
5 eToro 64.71
T-6 Robinhood 63.53
T-6 M1 Finance 63.53
8 Morgan Stanley 57.65
9
Charles Schwab 55.29
10 Webull 40.0

The SEC is exploring a ban on payment for order flow. SEC Chairman Gary Gensler said in an August 2021 interview with Barron's that the agency "could substantially limit or ban" the practice. Significant regulation would force many of the newer trading services to radically change their business model, thereby shifting the competitive dynamics of the industry.

  • Payment for order flow happens when retail brokers send orders to market makers in exchange for a small fee. For equity trades, a retail broker might earn 10 to 20 cents per hundred equity share orders sent to a market maker. Options tend to have larger price spreads, so market makers are willing to pay more for those trades. SEC disclosures showed major consumer trading services generating 36 to 58 cents per hundred options orders sent to market makers.
  • Payment for order flow has been a common practice for decades. Firms such as Schwab, E-Trade and TD Ameritrade generated revenue through payment for order flow without drawing much attention to themselves. Then Robinhood came along with a commission-free model; Robinhood generated 75% of its total revenue in 2020 from market-maker payments and other "transaction rebates." And according to SEC filings, Robinhood is able to command a much higher price for its orders than competitors: For example, Robinhood generated $0.24 per hundred orders on equity trades in Q1 2020 while Schwab generated only $0.11.
  • Critics of payment for order flow claim that it creates predatory incentives. Consumer trading services benefit when retail investors execute more trades, but those investors aren't always educated about the associated risks. This is especially true of options trading, since retail investors can actually end up owing money rather than just losing the initial investment. Consumer trading services are also incentivized to steer consumers to options rather than equity trading since market makers are willing to pay more.
  • Robinhood pushes back against these criticisms. Its CFO Jason Warnick said in September 2021 that payment for order flow "is a better deal for our customers versus the old commission structure — it allows investors to invest smaller amounts without having to worry about the cost of commissions."
  • If the SEC goes ahead with payment for order flow regulation, several prominent consumer trading services would need to turn to new revenue streams — it just isn't clear what those would be. This scenario wouldn't be all doom and gloom, as many of the biggest players have already found ways to diversify their revenue stream or work around potential regulation. Robinhood, for instance, has already stumbled upon a new cash cow with its cryptocurrency payment for order flow business, which would likely remain exempt from SEC regulation even after any equities payment for order flow legislation passes. For Schwab, payment for order flow represents a relatively small portion of overall revenues, with net interest revenue instead accounting for 43% of total net revenue in Q2 2020.

Young retail traders invest very differently relative to older generations. As younger generations gain purchasing power, the industry will need to adapt its services and product offerings.

  • Memestonking isn't for the faint of heart. Or for the old, it turns out. The average Robinhood trader is 31 years old; half the customers on the app have never invested before. By comparison, the average retail investing household on Vanguard was 54 years old, had owned the account for 14 years and invested 71% of their assets in index funds.
  • Schwab conducted a survey in February 2021 on U.S. stock market investors and found that those who entered the market in 2020 tended to be younger (67% were Millennials or Gen Z), more optimistic about the stock market, more likely to think the stock market value would increase in 2021, more likely to plan on investing more in the stock market and more willing to spend time managing their portfolios. All of that comes despite the fact that those new investors were more likely to have experienced economic hardship such as getting laid off or having their salaries cut.
  • The Schwab survey findings may seem counterintuitive, but they map quite closely with the ethos of the popular and notorious message board, Reddit's r/WallStreetBets. The forum has been credited with kicking off the GameStop short squeeze as well as several subsequent stonk squeezes.
  • The memestonk trend reflects the fact that many young Americans believe they will be worse off financially than their parents. Facing such circumstances, this younger cohort is willing to make riskier investments, figuring there's little to lose and a lot to potentially gain.
  • But memestonkers aren't the only cohort of young traders. There's also those who want to invest in companies they see as aligning with their values, those who want a more social trading experience, or people who turn to YouTube influencer stock-pickers for advice.
  • More recent entrants in the consumer trading space are tailoring their products to this younger generation. For instance, young traders' preference for hands-on, active investing benefits Robinhood and Webull, which are mobile-first, commission-free and designed to make executing trades easy. Similarly, Public.com aims to attract younger generations with its social trading experience. Square's Cash App promoted its investing and crypto trading capabilities through a sponsorship with rapper Megan Thee Stallion.
  • Consumers also want to be able to invest in the apps they already use. As a result, we've seen the lines between investment apps and other financial services apps blur. This dynamic benefits companies with financial services apps already popular among the younger cohort. PayPal, for instance, is reportedly interested in getting into the retail trading business, and it could reach younger demographics by adding trading functionality to its Venmo payments app (the company added crypto trading functionality to Venmo in April 2021).
  • While investor portfolios tend to get more conservative with age — a trend that would seemingly benefit older firms like Vanguard — many young customers will get accustomed to the apps they use now. It's also worth mentioning that millennials are on track to control less wealth than either of the generations above them. This could lead younger generations to hold onto the memestonk mentality for longer, rather than follow historic patterns of aging into a more conservative portfolio.

Finally, there's the rise of crypto trading, which could further blur the lines between traditional consumer trading services and crypto exchange services like Coinbase and Binance.

  • Many of the newest players in the consumer trading service space (Robinhood, Webull, Trade Republic, etc.) have wholeheartedly embraced cryptocurrency trading, making it possible for users to buy relatively obscure coins on their apps with minimal friction. More conservative companies like Vanguard have so far resisted adding any crypto trading functionality. Then there are others, like E-Trade, that technically offer cryptocurrency trading but only in a limited capacity for a few of the most mainstream coins.
  • Crypto trading can be highly lucrative. Robinhood, for instance, generated roughly 51.5% of its total revenue for Q2 2021 from payment for order flow for crypto trading. The industry isn't well regulated, which could make it more appealing as the SEC turns its attention to more traditional revenue streams.
  • If cryptocurrency trading becomes more mainstream (and the tax code around it more clear), customers may come to expect it as a standard feature. That would add pressure for the more conservative firms to add cryptocurrency trading functionality.
  • It's possible that this would work in both directions, and companies that are currently focused on crypto trading will likewise shift their market positioning to become all-in-one trading services. That would bring along stiff competition from the likes of Coinbase, which has grown at an incredible pace and boasts a $50 billion market cap.

Methodology

To rank the competitors, we've developed a formula that encapsulates 30 criteria. Those criteria span five groupings that factor into power: Economics, Leadership, People, Innovation & Politics and Policy. We then developed two systems for weighting the criteria — one for measuring power and the other for measuring momentum — such that companies can be scored on a 0–100 scale. Read our full methodology here.

Consumer Trading Platforms
power-index/fintech/consumer-trading-platforms/