What does the future of the financial services industry look like? The founders of two startups with two very different answers to that question took the stage at the TechCrunch Disrupt NY 2016 conference this morning to discuss how they’re planning to disrupt traditional brokerages.
Vlad Tenev, co-founder and co-CEO of millennial-focused investing app Robinhood believes in doing away with commissions on trades and making it easy for anyone to invest with a push of a button. Betterment‘s co-founder and CEO Jon Stein effectively believes the opposite — that people shouldn’t invest their own money without guidance.
“We think people shouldn’t actually be investing on their own,” he said, calling it a “crazy way” to manage your money.
His company’s solution doesn’t try to make money off of its customers’ money, either — like earning interest on uninvested cash, for example, or the other less-than-transparent ways that firms have traditionally boosted their margins in addition to customer-facing fees.
Instead, Betterment’s customers pay a fee for investment assistance that helps them achieve goals like saving for retirement, buying a home and other plans that require capital.
“We believe that making money off your money without you knowing about it makes us unaligned with our customers,” explains Stein.
Meanwhile, Tenev’s startup is able to offer commission-free trades precisely because it follows the old model used by retail brokerages that involves generating revenue outside of commissions.
He also argued that there are different use cases for an app like Robinhood, where people invest without guidance. Not every investment is about saving for retirement or building up a nest egg, he said.
If someone really strongly believes in a company and supports them — maybe because of something they read, or maybe because they bought their products, then “it’s not necessarily our job as people who make the software to tell you that you shouldn’t be investing,” Tenev countered.
The two startups, therefore, couldn’t be more different — one offers commission-free trades that are user-directed, the other helps you invest smartly for a fee.
However, one area where the two are aligned is in disrupting the big banks and brokerages.
“We wanted to take the technology institutions are using and make that available to retail investors,” said Stein. “We think it’s harder for retail investors to compete in the market — if you’re a retail investor the game is rigged against you.”
Robinhood is also about taking down the big banks, having grown out of the discontent for the financial services industry in general, as characterized by the Occupy Wall Street demographic.
“People lost trust in the financial system — especially people in our age group,” he says, referring the millennial customers who would use an app like Robinhood.
Despite their different strategies, both seem to be well on their way to achieving their goals of challenging the old guard and old way of doing things.
Tenev says that Robinhood has grown to nearly a million customers, and a few months ago announced it had passed 3 billion transactions taking place on its platform. It’s now expanding internationally, including into China, where 20,000 people have joined a waitlist to access the service when it opens, which will allow them to trade on the U.S. stock market.
Stein, meanwhile, said that Betterment is profitable on every customer, as most clients have grown their balances 50 percent in the last year, and its own share of the wallet, in turn, has also grown.
Now its goal is to become the market leader, in terms of tech firms operating in the space the way Amazon dominates e-commerce or Netflix does with streaming video.
“It’s crazy there’s not a single tech company that’s leading the future of financial services,” he said, “we want to be that company.”