Vlad Tenev and Baiju Bhatt are betting there’s a big, untapped market of millennials curious about buying stocks.
Their waiting list of more than 700,000 people would suggest they are right.
Tenev and Bhatt launched pick-up-and-go brokerage app Robinhood (no connection to the charity foundation of Paul Tudor Jones) late last year, and began with an invite-only beta. Word-of-mouth buzz built the app’s waitlist up to more than 700,000 people. Today, Robinhood has announced it is letting in everyone on the list, and its service will now be available without a wait. The company also suggested to Fortune that it has plans for an app catered to the Apple Watch. It has raised $16 million to date, from investors that include Index Ventures and Andreessen Horowitz.
Robinhood’s selling point is that it allows for quick buying and selling of stocks—for now, only U.S. stocks on the New York Stock Exchange and Nasdaq—with no commission per trade and no minimum balance required.
Big brokerages like E*Trade
and Scottrade charge transaction fees of $7 to $10 per trade, and both require minimum balances of $500. The Robinhood web site even highlights these competitor fees in a table. “We set out to create an app that was free and didn’t have account minimums, and I think that by itself makes it appealing to younger people,” said Tenev in a visit to Fortune in December. “We definitely wanted to speak to the younger generation. But the hard part with that is, how do we get a younger generation of Americans to do this action that they have never done before?'”
That action is: caring about the stock market. After meeting at Stanford, Tenev and Bhatt created Chronos Research, a financial services software company. They believe that most college students, or recent college graduates, don’t yet invest in stocks because they are turned off by the large fees. (They don’t, for the most part, believe there’s a lack of interest.)
But beyond its no-fee value proposition, Robinhood is winning with mobile-obsessed millennials thanks to its cleverly simple design. After an easy sign-up process (the company does a background check that takes just a couple of days before you can begin buying and trading), the app shows you a screen of “popular” stocks among its users. (Think “millennial,” so think of hot tech and young brands: Tesla, Lululemon, Under Armour, to name a few.)
You may choose a few to “follow,” or not, and then users can hook up the app directly to their bank account and begin buying. As you scroll through a list of stocks, the tickers are in green if the stock is up that day, red if down. In another thoughtful touch, the entire background of the app screen is green if the market is open, black if currently closed.
This app has hit its target audience on the bullseye. Robinhood won’t say how many members it has, but says its average user is 26 years old—Tenev and Bhatt are both under 30—and over 25% of users had never used a financial investment product before. On average, each customer makes five trades a month. Robinhood calculates that in total it has saved its users $5 million in trade fees in just the last month.
The app is free to use, but makes its money two ways: by taking interest from uninvested cash balances, and by taking interest from customers who trade on margin using a line of credit. (It hasn’t yet added this feature for all, but is testing it in beta.) “Right now, we aren’t making very much money, because we aren’t taking much from cash balances,” says Bhatt. “When we roll out margin trading, I think we will do very well, because people keep asking for that feature.”
Like Airbnb in its early days, Robinhood will earn points for design. There is a tactile pleasure in swiping up (the cofounders owe a tip of the hat to Tinder) to confirm a stock purchase. The ease of use is what attracts young people, but it could also be a danger to their wallets. College students have expendable cash, often from their parents, and an app that allows them to play in the stock market, with no knowledge, may raise concerns.
That possibility is, “something we talk about multiple times a day,” says Bhatt. “And we heard a lot of that rhetoric when launching the product. But I think it’s off the mark. Here’s why: the younger folks, in their early 20s, investing on Robinhood, it’s typically just a few hundred bucks. If you lose like $300 in your 20s, it’s the equivalent of, ‘Oh crap, I dropped my iPhone in the toilet.’ The stakes are low when you’re young. It’s just not a big deal.”
That may be true for most, though one can still imagine a wealthier student spending thousands, gobbling up shares of a single hip stock. Of course, nothing was stopping college kids from buying stocks in the past—except perhaps the fees and other bumps in the process with larger services.
Robinhood could have cut down on this risk with content or tips, but the cofounders say they considered that and made a conscious decision to steer clear. Instead, later this year they plan to release a Robinhood API, in the hopes that stock sites like Yahoo Finance
will connect on top of the app. It will also integrate with certain investment advisors, if users want to pay a fee for tips and advice. “It’ll be the electronic equivalent of sitting down with a grey-haired gentleman in a Fidelity location in your neighborhood,” says Bhatt. He believes most investing news and analysis online today can’t be trusted anyway.
Indeed, the lack of any extra content whatsoever is what makes the app as fun to play with as Snapchat or Tinder. It is uncluttered, even addictive, which may sound strange in reference to a stock-market product. Bhatt says that he and Tenev took design inspiration from the mobile email app Mailbox.
Do the founders have high hopes of unseating Fidelity, E*Trade, and other services? “That would be great,” says Bhatt, “but we just don’t have the resources yet to expect that to happen.” Nevertheless, the big dogs may have already taken notice: in January, Fidelity
launched a location-based stock-picking app (the Times called it “Grind for stocks”) that sounds aimed at young people. When asked about that product, Bhatt scoffed.