US retail trading platform Robinhood (US:HOOD) has announced it will acquire UK crypto currency business Ziglu. This is Robinhood’s first move into the UK since it scrapped plans to expand into the market during the summer of 2020.
“Ziglu’s impressive team of deeply experienced financial services and crypto experts will help us accelerate our global expansion efforts,” said Vlad Tenev, chief executive of Robinhood Markets. The companies did not report a purchase price, but Ziglu was last year valued at £85mn.
This acquisition comes two years after an aborted UK launch for Robinhood. In 2020, the trading platform had over 200,000 customers signed up in the UK before deciding to pull out, saying “a lot changed in the world in the first half of 2020, and so we made the difficult decision to postpone our UK launch indefinitely”.
The implication in the release was that the pandemic disruption was at fault. However, payment for order flow (PFOF), the controversial method Robinhood uses in order to charge zero fees to its users is also not workable in the UK, as it has been illegal since 2012.
PFOF is the payment that retail brokerages, like Robinhood, receive from routing orders to wholesale brokerage firms like Citadel and Virtu. Around half of Robinhood’s orders are forwarded to Citadel which will then act as market maker - sitting between buyer and seller - and pay a small portion of the spread back to Robinhood. PFOF trades provide the majority of Robinhood’s total revenue.
The platform has not had a smooth run on public markets itself. Since the IPO in mid-2021, Robinhood's share price has tumbled from $35 to $11, and equity trading revenues have started to fall. In the fourth quarter of 2021, revenue from equity trading fell 35 per cent to $52mn compared to the fourth quarter of 2020. At the same time, crypto currency revenue increased 304 per cent to $48mn. In these results, Robinhood said it had “set aggressive goals to start opening its crypto platform up to customers internationally in 2022”.
It said Ziglu customers would not see any major changes post-closing but it would "integrate Ziglu more fully into Robinhood" and "bring the Robinhood brand overseas".
Given its reliance on PFOF, acquiring crypto currency exchanges is a way for the company to expand internationally. In fact, earlier this month the UK Treasury announced it would introduce “a series of measures to make the UK a global hub for crypto asset technology and investment”.
If the aim of the Treasury’s new stance on crypto was to attract investment regardless of the source, it seems to be bearing fruit. But Robinhood's operating record includes a $57mn fine in the US from the Financial Industry Regulatory Authority (Finra) for causing “widespread and significant harm” to its users, so its entry into the UK crypto space should be greeted with a high level of scrutiny.