As much as Robinhood portrays itself as an outsider in the financial world, it earns money in staid, traditional ways. The company relies on the same financial machinery that Schwab, E*Trade and other decades-old trading platforms do.
Because the company doesn’t charge trading commissions -- which is now the industry standard for discount brokers -- it collects revenue in other ways. These include collecting interest income from uninvested customer cash, lending out securities and payment for order flow.
Those who seek out Robinhood may crave a non-traditional trading experience and are likely to embrace the platform no matter what, said Cait Lamberton, a professor of marketing at the University of Pennsylvania’s Wharton School.
“You don’t go to Robinhood unless you want what they’re offering,” she said. “People simply won’t show up who might be dissatisfied with the offer.”
This article was provided by Bloomberg News.