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Tearsheet PRO Newsletter: Robinhood’s attempt at growing up

  • Robinhood is still a company growing up – new account growth has stopped (plateauing to around 23 million funded accounts).
  • Elsewhere, large US banks team up to launch a digital wallet – why and how will they pull this off?

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Tearsheet PRO Newsletter: Robinhood’s attempt at growing up

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In today's edition
  • Robinhood's attempt at growing up
  • US large banks team up to launch a digital wallet
Coming up next week
  • PayPal’s search for a new CEO
  • Bank/fintech consolidation has begun

Robinhood's attempt at growing up

User decline points to a plateau. Where do we go from here?


Triple whammy. Robinhood’s new account growth has stopped (plateauing to around 23 million funded accounts) and engagement as measured by monthly active users has been dropping since Q2 21 (from a high of 21 million-ish to 12.2 million in Q3 22). 

Source: Robinhood
  • Regulatory overhang: Add to the mix that the SEC is putting in plans to limit Payment for Order Flow, which is Robinhood’s main source of revenue. In 2022, transaction-based revenue made up about 60% of Robinhood's total revenue, which is actually down from 77% in 2021.
  • Transaction-based revenues are down: The firm’s transaction-based revenue, its historic bread and butter, dropped 30% compared to 2021 due to slower crypto trading activity and retail investors trading less.
Source: Robinhood

New products haven’t really caught on. Robinhood still continues to execute on its product pipeline, launching extended hours trading, a cash card, a crypto wallet, and higher yielding cash product – all in 2022.

Robinhood is still a company growing up. The company still does boneheaded things sometimes. For example, the firm’s social media account was hacked to promote a fake token and NFT scam. 

  • But the firm’s geeky-celebrity founders are finding a way to execute as a publicly traded company, doing more with less, giving up stock based compensation, for example.

Cash is king. The online broker does have over $6 billion of corporate cash on the books. That’s a good thing given the uncertain economic environment, buying time for Robinhood to find its market.

Source: Robinhood

Doing more with less. But here’s the thing. Even though the top line metrics look ugly, the company has found a way to stem the bleeding. 

  • Robinhood has found a way to better monetize its shrinking active user base and lower its expenses. So it’s nearing breakeven. Net interest income in this higher rate environment has helped here, too. 

It wouldn’t take a whole lot for the fortune of the company to turn around. The company is definitely facing organic and macroeconomic headwinds but it is also finding a way to run more efficiently. A little animal spirits would go a long way for HOOD.

  • In fact, if it wasn’t for a $57 million trading error (!) that allowed customers to short a meme stock in December, the firm would have beaten its numbers. 

US large banks team up to launch a digital wallet

The big banks have big plans.


Big US banks are working together to launch a digital wallet this year for consumers and merchants to use for online transactions, WSJ reported. The group, which includes the likes of Wells Fargo, Bank of America and JPMorgan Chase among others, wants to create a digital wallet linked to debit and credit cards that will allow shoppers to pay at merchants' online checkout.

  • Naturally, the digital wallet will be managed by Early Warning Services (EWS) LLC, the same company that runs Zelle, but the two will be operated separately. 
  • In a way, the digital wallet is a natural extension of Zelle – big banks are looking to expand their ecosystem from money transfers to online payments, and probably eventually digital identity, but fraud could be an issue 

Also very similar to Click to Pay, the one-click checkout option introduced back in 2019 by Amex, Discover, Mastercard and Visa, which brought Secure Remote Commerce in the US (SRC) but then rebranded it to Click to Pay 

  • The digital wallet will implement the SRC standard to smooth the payment journey of Visa and Mastercard users during checkout, but the system is not that great for non-card payment methods. EWS said it wants to also enable payments directly from bank accounts, so cutting out the card companies won't be easy.
  • EWS says that the wallet will include approximately 150 million Visa and Mastercard credit and debit cards connected at launch, with plans to add other card networks in the future.

The main play is to compete with Big Tech, but mostly Apple Pay and PayPal 

  • Banks are worried about becoming 'dumb pipes' and losing the connection with their customers. Technology companies dominate the digital realm and are using their competitive advantage
  • "Apple, in particular, poses a big threat," says the WSJ article. Big Tech has had a mixed experience in financial services, but Apple's moves through the Goldman Sachs partnership have given banks food for thought, and now they're ready to play ball. 
  • However, it looks like Goldman spent a lot of money to make this happen for Apple – the $1.2 billion loss due to the Apple Card will have some consequences.
  • Wall Street analysts believe that it will take a while before the new wallet becomes a serious competitor.

“It simply takes a very long time, a killer customer experience (which needs to be better than incumbents, not just similar), and a compelling merchant value proposition to build the two-sided network effects in payments to achieve scale,” said Bernstein analyst Harshita Rawat, according to CNBC.

Source: CB Insights
  • The mobile wallet sector has become one of the fastest growing industries in the world: it’s currently worth around $1 trillion and is estimated to grow to over $7 trillion by 2027, according to CB Insights.
  • Cards remain the preferred payment method for US online orders with a 70% share, followed by PayPal with 17% and Apple Pay with 7%, according to Salesforce data. Apple Pay usage went up 62% YoY in the 2022 holiday shopping period. 

This move points towards a longer discussion on digital identity and what role banks want to play here. 

  • The growing need for trusted online identity is giving banks a chance to embed themselves more meaningfully in their customers’ lives by becoming the "trust brokers" in a digital economy
  • Digital Identity Wallet issuance offers an opportunity for banks to control the entire customer experience around their online services, including the identity verification piece.
  • In Europe, eIDAS regulation is already driving this trend. Examples of Digital Identity systems that have been set up by banks include BankID in Norway and Sweden, and Canada’s Verified.Me.

Weekly 10-Q

Affirm’s results resurface old questions on the financial viability of the BNPL model
  • Leading BNPL providers are still reporting disappointing numbers. Affirm announced its Q2 2023 earnings on Wednesday, and investors weren't very happy with the results.
  • The firm slashed 19% of its headcount in an effort to dial back costs.

Editor's picks

Just look at the charts

This week's reads

‘The time is now’: Monzo searches for US CEO to double down on expansion


COO Sujata Bhatia says the neobank is finally getting serious about taking on the US, and has ditched the idea of a banking licence.

The SEC cracks down on crypto


Matt Levine writes on Kraken and staking, Paxos and BUSD, and taxes and yachts.

Is this the end of the BNPL boom?


When the economy was booming, the buy now, pay later space thrived. But as inflation and interest rates climbed, consumer-focused players in the space have struggled with increased defaults amid less discretionary spending.

Merge or perish: 25 struggling fintech startups


Many once-promising financial startups are cash-strapped; others have broken business models.

The case for more crypto-friendly banks


Would the crypto jungle be a safer place for Americans if the companies where they keep their cryptocurrency holdings were permitted to do business with regulated banks?

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