Whether Robinhood is successful or not, big investors are increasingly thinking about Digital Finance startups. This week, asset management giant BlackRock announced a $ 50 million investment in Acorns, an app that allows users to automatically invest replacement money in exchange-traded funds. Acorns has signed more than 3.3 million accounts.
Stash, an investment app that allows customers to invest as little as five dollars, announced in mid-April that it has two million customers. In February, the company received $ 37.5 million in funds from a group led by Union Square Ventures.
"When millions of millennials say, 'Yes, sign up, the incumbents must be careful and valuations must be easy,' said Javier Paz, senior analyst at Aite Group Wealth Management Practice.
About three years ago, Robinhood started his no-fee equity trading app and has big ambitions to run stock brokerage, starting trading options last year and limiting itself to cryptocurrency trading this year.
"Over the next few years Robinhood will look like a full-service consumer finance firm for years to come, "said Baiju Bhatt, co-founder of Robinhood Co-CEO, CNBC on a telephone interview this week.
The subscription product, Robinhood Gold, rolled out in September 201
Margin trading, a common feature of online brokerages like E-Trade and interactive brokers. But Robinhood calculates differently for these margin trades. While traditional online brokers charge interest on a specific loan amount, Robinhood Gold's monthly flat fee covers how much "buying power" a customer requires.
Trading at $ 10,000 in profit margins would result in an annual interest rate of 3.2 percent for Interactive Brokers and 9.75 percent for E-Trade. That's $ 320 or $ 975 a year.
Robinhood Gold charges $ 40 a month for $ 8,000 in purchasing power or $ 50 for $ 12,000, regardless of whether the investor uses the full amount. That would be $ 480 or $ 600 a year. For an investor who wants access to $ 10,000 a year, the monthly fee is $ 600 a year.
"They tend to be on the low side, but not on the lowest," said Aite's Paz. "They have to make some kind of money, and that allows them to ride alongside the bull market."
"When the market starts at the top and starts to move again, they will not see so much money on their margin lending business," Paz said. "Other brokers are not as heavily dependent on margin loans."
Robinhood said in October that 75 percent of its transaction volume is handled via its gold product, which is up 17 percent mom. The company said this week it has no updated figures to share.
"It's a very unique approach they have taken," said Bill Capuzzi, CEO of Apex Clearing, which manages the infrastructure and operating systems for Robinhood and other financial services firms. "They were trying to demystify what margin is."
"Online brokerage was a dying business and margins rotted and you only had the big players," said Capuzzi. "This start-up [that] goes to 4 million customers. [It] just shows there's still plenty of room left in the market."
Robinhood said the 4 million accounts refer to accounts that are admitted to trading, but not all can be funded
How much money these users ultimately put into Robinhood also affects their revenue, as the Companies, like a bank, collect interest on customer deposits. The size of the accounts ranges from 50 to millions of dollars, said the start-up.
– Eric Rosenbaum of CNBC contributed to this report.