What Stripe did for easy payments, Robinhood is doing for free stock trading. This week the brokerage startup launched its platform so developers can bake its zero-commission stock trading into their products.
Stop for a second and think about how big a deal this is. Before now, there were two types of stock apps. Ones that actually let you make trades but charged you a fee of around $7, like E*Trade or Scottrade. And ones where you could track stocks, do research, and monitor how others traded, but couldn’t actually buy or sell.
Robinhood has erased the line between them, first with its own stylish iOS and Android apps, and now for other apps. It’s making the former largely obsolete by giving away stock trading for free, while making the latter much more useful by converting you from a spectator to a real player in the markets. “It’s going to be a ‘tectonic plates shifting’ kind of thing for the financial services industry,” Robinhood co-founder Vlad Tenev tells me.
The first integrations let you buy stocks you’re tracking on StockTwits, compare your Robinhood stock portfolio with that of the Openfolio community, and program trading algorithms via Quantopian that actually buy and sell.
This leap forward in fintech could spark an explosion of innovation as developers build new apps and features that take advantage of Robinhood’s platform. Just as they don’t need to waste time building a payment system from scratch when they can use Stripe, Robinhood will let them focus on adding unique value. Meanwhile, the platform gives Robinhood an easy way to add new users, entrenching itself as it prepares for a long battle with the stock brokerage dinosaurs.
We Buy And Sell, You Do You
“When’s the last time you heard a startup talking about buying an HP server and looking for rackspace to stuff it in?” asks Robinhood co-founder and CEO Baiju Bhatt. Hint: the answer is never. “That’s because we have Amazon Web Services,” Bhatt explains. He believes Robinhood can deliver that mindset of not reinventing the wheel to finance tech.
For example, StockTwits doesn’t have to worry about jumping through the years of regulatory hoops necessary to become an SEC-approved brokerage that can execute trades.
Instead, when a user thinks one of the companies in their StockTwits watchlist is poised for success, the just swipe and a buy button appears. With a tap, they’re fast-switched over into Robinhood where they choose how many shares to purchase and confirm the final cost. A tap from the confirmation page pops them right back into StockTwits.
The Robinhood integration upgrades StockTwits from a companion app for monitoring stocks you have to track down and buy elsewhere to what could be your primary finance app, powered by Robinhood trading. For now, free apps will be able to use the Robinhood platform for free. Robinhood is considering asking for a revenue share from developers that charge their own users.
The Holy Grail for Robinhood would be signing on Yahoo Finance. But with time we might see a proliferation of new apps that leverage the platform, from competition apps where users vie for the best one-day gains, to collaborations where a bunch of people can mirror their most financially savvy friends’ moves.
The Trade Button
Years ago, Facebook colonized the web with its Like and login buttons. They plastered its name everywhere, reminding existing users to visit the site. They generated content you could interact with back on Facebook. And they made your Facebook account more valuable since you could instantly bring your friend graph anywhere, encouraging sign-ups. The strategy entrenched Facebook as the central social network, boosting its push to become a ubiquitous utility.
Now, Robinhood is doing the same with what’s essentially an embeddable Trade button. The more apps that integrate it, the more users Robinhood gains, the more money it has under management, and the more it earns on interest. Meanwhile, those users recruit their friends and lure more developers to Robinhood.
“Facebook’s platform provided a lot of inspiration,” Tenev tells me. “I think that really helped cement Facebook’s advantage in the space. Why build another social network?” [Disclosure: Tenev and Bhatt were friends of mine from college.]
Bhatt hopes Robinhood can walk the same path. “If we do this correctly and don’t screw it up royally, in 5 years it’s going to be completely unnecessary to build any more brokerages.”
It’s an important ‘If’. With other apps now connecting to Robinhood over OAuth, it’s critical that its security stays locked tight. If hackers were able to steal money or personal info, it could scare people away from connecting their bank accounts and put an arrow in the heart of Robinhood.
That’s why having $66 million in funding is so important. It has plenty to spend on defense thanks to the cash from Index Ventures, Andreessen Horowitz, Google Ventures, NEA, Howard Lindzon, Jared Leto and Nas.
They saw the sea change in progress as Robinhood democratized stock trading. It used software to replace the brick-and-mortar offices that force big stock brokers to charge fees that eradicate gains for smaller investors.
Those A-listers will also help Robinhood with whatever it does next. It’s got hundreds of thousands of users with connected bank accounts, SEC brokerage approval, and an ecosystem of apps. That means there are plenty more opportunities to steal business from the rich, outdated financial institutions, and give new money-wielding abilities to the poor, young and everyone else.