Steal from the Rich and Give to the Poor — in stocks?

Welcome to 2015 everyone! We start this year off with stealing from the rich and giving to the poor. Well, not us per se – but a new app called Robin Hood.

The P4Capital executive team investigates.

Amanda: Welcome to 2015 everyone. We start this year off with stealing from the rich and giving to the poor. Well, not us per se- but a new app called Robin Hood. The P4Capital Executive team sits down and investigates  in week’s round table discussions.

Jim: Today’s discussion is about another tech disruption app called Robin Hood

Archana: Robin Hood is the latest iPhone app to hit the market which lets users buy and sell stocks without having to pay commissions in each and every trade that they execute. The belief behind this app is that individual investors are currently shelling out anywhere between seven to 10 bucks per transaction. This new app would solve the problems for the millennials.

Shaheerah: Well from the money point of view, the app is more cost effective because the company now has no human traders that they have to pay, and no older infrastructure for turning the trades. The app features fast execution, real-time data as well as notifications.

Jeremy: Any ideas how many users are on this app right now guys?

Shaheerah: Well, I know they actually had 500,000 people on their wait list, and most of them were millennials.

Jeremy: Yeah, I saw that as well. I was wondering what their active base is. It sounds kind of gimmicky that there’s only numbers on what the wait list is, not as to how many people are using it. Especially given the revenue model for this, which is non-existent pretty much.

Archana: In line with what Jeremy just said there, basically they had these beta testers who were using Robin Hood app, and what’s interesting to see is actually about 80% of these testers were millennials, so 18-29 year olds, and they had great feedback from the community that they were essentially trying to target.

Shaheerah: With this app, in my opinion, I think there could be some security and privacy issues. I mean they ask their applicants for personal information like social security number, and it also links with your bank account. And I just personally wouldn’t feel comfortable trading money on my mobile device. But, according to the company site the app does use encryption technology, and Robin Hood Financial is a member of the financial community and receive regulatory authority, and the securities investor protection corporation, which actually protects members up two 500 000, including two $50 000 on claims for cash.

Amanda; There’s been a lot of cases in the last year of Bitcoin, or Heartbleed where encryption isn’t all that secure. Do they have any comments about that?

Archana: I mean, this app specifically is the brain child of two Stanford roommates Vladimir Tenev and Baiju Bhatt, and their thinking is that because it’s a technology driven company, so they would be absolutely out there in terms of their updating  their technology and security encryptions and what have you.

Shaheerah: I think that another potential problem with the app is that it’s going to make trading too easy and too cheap. Because of that investors will get over-confident, and we all know that too much trading is dangerous to the world. So unless they pass some kind of safety measures or restrictions on your trading behaviour.

Jeremy: I have to wonder what the cost portrayed would be to the company here? I know it’s not a major concern of theirs; companies can get by without making money for a long time, indefinitely. You don’t have to look further than Amazon or Twitter, I’m not sure that Facebook is even profitable at this point. Does anyone know that?

Jim: But that goes hand in hand Jeremy, with the last decade of corporate growth. The actual aim is to create a community, and the more extensive and integrated community that you can weave together, that’s where your revenue model will eventually come from. So, A, we have a lot of millennials who are just onto the market with their first trade my generation went through, secondly, do it on a technology model that doesn’t have any infrastructure there for any past overhead costs that the banks and current brokerage houses are saddled with, akin to GM building cars 5 years ago with the $11,000  group pension benefits built into every car. All the banks and brokerage companies established also have a fixed in overhead if you will, hence your cost portrayed is higher than it actually would be. These guys don’t have that problem, and more importantly, thirdly, is now if you take a look at the way the market is kind of construed if you will, there is a buyer and a seller but the word market is the key. There is a place where the trade is executed – I’ll buy x for you for y price and you will do the reverse on the sell side. It’s done in a communal spot if you will. Entry into those communal spots, there’s a limit to who can participate in those, hence the broker that fronts all these sort of things.  I’m sure if they have a large, established knitted community that requires brokers, they can maybe get some revenue from that side as well too. It’s a very intriguing revenue model, one I think actually is quite exciting. One if I was a financial institution right now I’d be quite worried about.

Archana: The app is seen, as a potential competitor to the other brokerage houses that are out there, so market watchers are saying that the traditional institutions that have managed trading should definitely be worried about with this new app coming on the market.

Jeremy: Robin Hood’s website actually says how they make money, and they’re earning interest on the people’s accounts one, which wouldn’t be that much really, and two on margin lending. Maybe there’s more potential there.

Shaheerah: I actually just wonder why have they called it Robin Hood, because I always associate Robin Hood with the legend who stole from the rich and gave to the poor.

Jim: I think you hit the nail on the head Shaheerah. I believe that’s exactly what they’re doing and it came out of the Wall Street movement of three years ago, Archana?

Archana: Yes that’s right. That’s the basic premises for the origins of this company can essentially be traced back to the Wall Street protests. Basically again, the two Stanford roommates struck upon this idea to democratize the stock market essentially, and probably try to bridge the gap between the haves and the have-nots.

Jim: The interesting part is the creativity and ingenuity of the millennials. Historically, stock markets have only been in existence for 200 years, and reality is the western world has only seen stock markets for about a hundred years, add a decade or two on that. Non-western markets are much less on the time line of that. So I look at this as kind of, if you will, a tree trunk root that maybe wasn’t anticipated but will definitely flourish and become the canopy very soon.

Archana: The millennials are definitely a group that the traditional financial institutions cannot ignore. I’ve been reading a lot of research where the take on millennials is that they’re moving away from traditional financial institutions and first and foremost, the generation itself is so mobile friendly. So something like Robin Hood, I see that like a natural extension. But having said that, like what Jeremy pointed out, anything new on the market people are always sort of lining up to get on the leader board, but is this company is this app here to stay? Only time will tell.

Amanda: That was the P4Capital team discussing Robin Hood, and how millennials are changing the stock game.  Want to know more? Visit our website at http://www.planet4it.com You can also tweet us @planet4IT or @pfourdigital Thanks and see you next time.


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