Snoop Dogg has been known to cause disruption occasionally around the world. He has been in the news for a number of reasons, not many to do with fintech though until recently! It seems he is now looking to participate in the disruption of financial markets. He is part of the investor circle that funded one of the top ten most downloaded app of 2015 according to both Apple and Google: Robinhood.
Robinhood is a new app that aims to make trading stocks simple and free. You no longer have to pay commission to trade. Started by two Stanford University roommates, Vlad Tenev and Baiju Bhatt, who worked on Wall Street building high frequency trading platforms before quitting to go West Coast, Robinhood’s mission is “To democratize access to the financial markets.” And Snoop Dogg is just one of many who are taking notice. He is surrounded by a posse of high profile Hollywood/music industry investors—such as Aaron Levie, Nas and Jared Leto— high profile VC firms— NEA, Index Ventures— and Google Ventures, Andreessen Horowitz. To date this fintech firm has raised close to $66 million.
Robinhood looks to follow the same principle of other major industry disruptors (examples like Netflix, Uber, Etsy, AirBnB etc …). Those companies serve two purposes,: 1- streamlining a popular product or service by eliminating excessive features and expenses and 2 – catering to the next generation of the DIY-inspired, independent Millennials.
Free is a good start but not a sustainable business model, so how does Robinhood make money? According to their website blog:
“Robinhood makes money in many of the same ways as traditional online brokerages. These include:
– Collecting interest from customers unused cash deposits and for customers who choose to upgrade to a margin account. They will charge 3.5 % vs E-Trade 8.44%. We are testing margin in beta and will offer margin accounts later this year.
– Accruing interest from customers’ unvested cash balances. It is important to note that our customers are not charged.” (How Robinhood Makes Money).
Why should the traditional brokers and advisers care?
It is super critical for brokers and advisers to take note because this is the fight for the future customer of tomorrow. This is the fight for the money of the millennials. A recent study by ICI the fund’s industry trade group showed that only 5% of the $15.9 trillion in the US household’s mutual fund assets are held by millennials. Because of this just 30% of advisers say they actively seek clients under age 40 (Brokers and Advisers Fight For Millenials’ Money).
Millennials have no qualms about abandoning firms that don’t meet them on their terms. In a survey by LinkedIn and market research firm Ipsos, nearly seven out of 10 millennials said they were open to trying financial products and services from nonfinancial brands (think Apple or Google); only 47% of Gen Xers said the same.(Affluent Millenials Wealth – Whitepaper)
New apps such as Robinhood and Acorns and other Artificial Intelligence (AI) based advisors (Betterment, Wealthfront) offer services to millenials without any human touch. Leveraging algorithms, self service models these platforms allow access to multitude of investments and giving clients more control on their investment and risk.
Jan Hammer, a partner at Index Ventures who led the Robinhood investment says: “From the time of our Seed investment in 2013, Robinhood has continued to impress us with the quality of their product and the pace of growth.
“They’ve not just made trading simpler, mobile and free, but by doing so, they’ve opened up stock trading to a generation of Millennials who have largely stayed clear of the stock market.” (Trading App Robinhood plans European Expansion).
A Lesson From Snoop?
A number of traditional advisers have been gearing up their partnership models and strategic investments to support the customer of tomorrow and deal with the impending disruption.
“If we don’t stay at the top of our game, our industry is ripe for disruption,” says Nicole Sherrod, managing director of the trader group at TD. (Brokers and Advisers Fight For Millenials’ Money).
As the financial world continues to evolve with unlikely partners, players and investors, it is a great opportunity for existing establishments to continue to change with the times. Building the right partnership ecosystem and reaching across the traditional financial siloes is a key strength that the firms need to build.
So when Snoop Dogg raps “ You should take a trip and visit the West Coast’. Maybe he was always inviting the Wall Street firms to go west for partnerships!!