- Robinhood’s proposition looks cheap but basic for now
- Will investors bite?
Investment platform Robinhood (US:HOOD) has once again opened a waiting list for UK investors. The company is hoping to grab market share through free trading and 5 per cent interest on cash holdings. This is not the first attempt, after an aborted local launch in 2020 and a failed bid to buy British crypto app Ziglu in 2022.
It will initially offer free trading in about 6,000 US stocks only, charging no annual fees, dealing fees or foreign exchange fees. Investors will have the option to trade in fractional shares, and 24-hour trading five days a week is available on certain stocks.
The platform will also offer a 5 per cent interest rate on uninvested cash, with no cap and on an easy-access basis. For now, investors will not be able to trade UK-listed stocks or open an individual savings account (Isa).
Investors who signed up for the waiting list will be granted access to Robinhood’s app “on a rolling basis over the following weeks, reaching full availability in early 2024”, said the platform.
Jordan Sinclair, president of Robinhood UK and the former boss of Freetrade's Swedish offshoot, argued that “for too long, UK investors have incurred high fees to invest in the US markets and earned low returns on their uninvested cash”. The app, which was at the front of the 2021 meme stock trend and has been accused of promoting the “gamification” of investing in the past, is hoping to encourage the UK public to invest more in equities via its fee-free model.
Competitive but basic
At first glance, Robinhood’s fee-free proposition looks competitive, even for a trading app, whose fees are typically lower than that of the more traditional platforms. Freetrade and Trading 212, for example, charge no annual or trading fees for general investment accounts, but do have a foreign exchange fee (0.99 per cent for Freetrade’s basic plan and 0.15 per cent for Trading 212). But with no Isa, ETFs or UK stocks, for now Robinhood’s offer is basic compared with competitors.
The interest rate paid on uninvested cash is higher than on other platforms. Freetrade does not pay any on its basic plan, and for example Hargreaves Lansdown pays between 1.50 per cent and 2.20 per cent in a general investment account, depending on the balance. But looking at the small print, with Robinhood the cash is converted from pounds to dollars in the process, leaving investors with an unplanned currency exposure. Deposits are not covered by the Financial Services Compensation Scheme but are insured with the Federal Deposit Insurance Corporation (FDIC).
Other platforms are stepping up their game on US stocks too. This week, Freetrade broadened the range of US stocks it offers on its basic plan, while Bestinvest launched free US sharedealing at the beginning of the year.
There is also the question of whether Robinhood will be able to keep its fee-free promise in the long term, considering that it is not entirely clear how it intends to make money from its UK business.
The company posted an $85mn (£67mn) loss in the September quarter, as transaction revenues fell 11 per cent. This was despite interest income soaring in the year, similar to other investment platforms. Higher interest rates also allowed the company to present a more "diversified" sales stream.
Previously, Robinhood has relied on payment for order flow, where market makers such as Citadel Securities pay brokers to execute client orders. It is illegal in the UK.
Holly Mackay, founder and chief executive of Boring Money, stressed that the platform market is competitive and that new customers are “thinner on the ground”, so “new brands are going to have to fight hard, with a compelling message” to get traction.
“Price alone is not enough to sway new investors and so it’s going to take something special to make Robinhood stand out in a crowd, as groups like Monzo target less confident newer investors and eToro and Trading212 court more engaged or more active investors,” she said. “It’s not going to be easy.”
