Investing app Robinhood has consistently been a hot topic over the past year. Out of COVID-19 has come what is remarkably known as the Robinhood effect, a literal and figurative reading of the company’s branding and the way its users are referring to the movement that the app has created. Of all its newsworthy achievements (and mistakes), Robinhood is most notorious for sparking the trend of millennial investors.
Millennials make for an interesting demographic to the investment economy and have caused quite the stir since their mass entry. Born between 1981 and 1996, Millennials represent 7% of the total assets in America. Despite this figure being lower than the 26% held by baby-boomers at the same age, accumulated saving and inheritance windfalls will see the millennial’s share rise rapidly. The innovations in fintech will also enable the demographic to have more control over their assets, provide the option to invest earlier than older generations.
This year, with more people spending online alongside a considerable stock market dip, the space was opened for new traders to acquire previously unattainable pieces of the pie for less. Enter Robinhood, with a median user age of 31, offering a zero commission fee across all trading platforms. The result was a huge boom in activity and, notably, first time traders. Suddenly, millennials were able to turn their attention to equities investing. Some investors simply started with their stimulus payments hoping to turn a little benefit into a fortune. To the dismay and confusion of Wall Street traders, the internet saw a boom in Reddit threads and TikTok accounts offering trading tips, sharing losses, and boasting wins.
Founded in 2013 by Vladimir Tenev and Baiju Bhatt, Robinhood’s overarching mission has been to democratise the investment economy. The founders believe that the more successful traders they bring to the market, the more successful the economy. A Silicon Valley darling, the company skyrocketed in usage after removing commission fees making the app more appealing to first time investors.
Today, the app has over 13 million user accounts, and brand loyalty that runs laps around its competitors who have raced to the bottom on commission fees to keep the market share. In particular, it is the simplicity of using the app that appeals to millennials who quickly grew accustomed to the ‘game-ification’ of its features.
However, despite the perceived benefits to millennials, the company has faced troubles as a consequence of imbuing unbridled confidence in inexperienced traders. Last week Bloomberg shared further controversy facing the fintech reporting that 2,000 users targeted by cyber criminals sat helplessly as they watched their accounts go to zero.
While there are growing pains to the company’s rapid success, it seems that millennial retail traders are here to stay thanks to Robinhood. After four successful financing rounds this year alone, Robinhood will have to manage its growth while mitigating the slew of challenges it faces by paving the way for a new demographic.