Hi, good afternoon, everyone. My name is Ken Worthington. I'm the financial analyst that covers Robinhood at JP Morgan. Thank you very much for joining us this afternoon. I'd like to introduce Steve Quirk, who's the Chief Brokerage Officer at Robinhood. Robinhood is an $18 billion brokerage firm that offers retail investors access to stocks, stock options, crypto trading, as well as other services and retirement, securities lending, and now credit cards. Steve has served as Chief Brokerage Officer of Robinhood since early 2022, and previously oversaw strategy and development of initiatives for trading at TD Ameritrade and thinkorswim. Steve has a plethora of industry experience. Really appreciate you joining us today. I think we'll learn a lot. I wanted to start a little bit with Steve's background.
I wanted to dig into sort of Robinhood-specific topics, and then we'll sort of conclude. As I just mentioned, Steve, you were previously at thinkorswim and Ameritrade. What sort of attracted you to Robinhood? Sort of, what do you think you bring to the table, and sort of what are you learning from, a much younger, colleague base that you, you work with day in and day out?
So first of all, thanks for having me, and thanks for attending. I think moving to Robinhood was like my Benjamin Button moment. I had been working with brokerage firms that were servicing people that look a lot like me in terms of age and it was, t here's a funny story to it. I was actually working at Schwab at the time, and I have three daughters that are in their twenties, just starting to work, and I explained the importance of being that annoying father in financial services. I said, "You need your money to work as hard as you work for your money." And finally, one day, they took me up on it, and they said, "Here, yeah, we did it.
We opened an account." And I'm like: "That's not a Schwab account, that's a Robinhood account." And they basically said: "We're doing this the way all our friends and our, and other peers are doing it." So I said, "Great, I'll help you." But I just thought it would be a very good and interesting challenge to be able to really help the next generation of investors. Look, Robinhood cracked the code. I mean, as a competitor, we all saw it. It took 6 decades for us to get to 15 million customers. They did it in a couple of years. And so they cracked the code on bringing new market participants in, which is, it's great, it's awesome, and it's something we all wanted to see. We're sitting today at 58% of U.S. households participating in the market.
We're the envy of the world. And when we talk to people from other countries, whether it's regulators or elected officials, they say, "Please, have the Robinhood effect come here," 'cause they would love to see that happen elsewhere. But along the way, the journey, it's been really fascinating and interesting to be able to help this next generation of investors. Half the people at Robinhood, 24 million customers, this is their first time brokerage. So we get to walk along their investing path and deliver all the things that they need as they continue on their investing.
So in my opinion, Robinhood has been revolutionary rather than just evolutionary. So how has Robinhood really changed the brokerage business that you entered into, you know, those years, those many years ago? I think, and by the way, I, I'm guilty, a nd, do you agree with that? Do you believe the revolution?
Oh, I do agree, but as a competitor, I was guilty of thinking about it through one lens. "Hey, they got rid of commissions. How are they gonna make this work, this model work?" That's actually just one facet of it. It's a very important facet, but it gets to the mindset of what we try to do at Robinhood. And look, Vlad and Baiju started this thing. Essentially, what they do is try and compress the margins and put more of those dollars in the pockets of the customers, so that they can help them enhance their returns. So it starts with getting rid of commissions, but it's also like having no account minimums. You have fractional shares you can buy with as little as $5.
And then we move into other areas, like retirement accounts, where we match contributions or, you know, give 5% yield. It's just a continuation. Today, we launched margin rates of the cheapest in the business. We're just compressing margins everywhere we can because we have a highly operationally efficient model with 2,400 people that permits us to be able to deliver in a way that I think a lot of our peers can't.
Mm-hmm. So maybe taking a step back, thinking about it from sort of a high-level perspective, we hear this concept about the retailization of trading. And it seems like as I look at your product roadmap, I think you're really playing into that. So what is retailization of trading? How do we think about what was once institutionally traded products migrating into, you know, either bite-sized portions or less, less expensive portions? How do we think about retail getting into things like futures and index options and, you know, maybe even commodities? So what is this concept, and how does it impact Robinhood?
Yeah, I think if you think about it a little more holistically, it's actually something. And by the way, that we think about it through the lens of our customers, but we think about it through the lens of their inclusion in being able to. Look, our customers are average age early thirties, very diverse. A third of them are women. That is not the case in the places that I came from. And their accounts are smaller. They don't have as much experience. However, they don't want anybody telling them that they shouldn't be doing XYZ. They need to be, you know, 20 years older with a larger account.
So I think when we say retailization, it just means opening the doors and making sure that they have the same capabilities to do all the things that others want. Look, if they want to write a covered call on a smaller portfolio than one that's much larger, we're gonna help facilitate their ability to do so. The exchanges and other market participants see this. We talked about this earlier. I said, "If you would have asked me 10 years ago, if a brokerage firm that did 95% of their trades on a mobile device could be the number two options retail broker in the U.S.," I would have said, "No, I don't think that's possible.
I think it's just too hard for that interface to be able to make it digestible for customers." But that's where Robinhood is today, and that's been something that I think Robinhood really excels in, is being able to take something that's very complex or maybe not well understood or has friction to it, and remove that and make it very understandable. So some of the products that Ken just mentioned, like futures, which has traditionally been an institutional product. You know, the exchanges are saying, "Well, we'd like you to do what you did for options on the futures market, and make it a more retail-friendly product." And we will collaborate.
We always do this with exchanges to make sure that it's something that's suitable and, you know, of a notional size that's going to work for our customer base. But I think we have a lot of opportunity here to really kind of open the doors in a lot of asset classes and capabilities for this next generation of investors.
Mm-hmm. So you mentioned that 95% of the activity that you're doing is on the mobile device.
Mm-hmm.
I think you're also building out the web presence.
We are. Yes.
What is the opportunity for you to actually take a business that sort of has evolved to mobile and almost sort of bring it back to the web?
Yeah, I think the evolution of Robinhood, when you think about it, and this is the way, you know, I, as a competitor, perceived Robinhood. It was a bunch of younger people that were trading with smaller accounts, and that has evolved in a dramatic fashion. Prior to my time at Robinhood, I've been here two and a half years, but in a very big way, in the two and a half years I've been in Robinhood. We now have retirement accounts, we have securities lending, we have high yield, we're rounding out the offer. You have to grow with your customers. Like, if you don't grow, they're gonna graduate and go to some other brokerage firm where they have all these capabilities.
So we've been building on all these capabilities so that we can be their full-service brokerage shop. Along the way, we've come to realize that Robinhood has a strong brand and a strong presence, and people really like it. But in order to get people to actually come to Robinhood from another brokerage firm, we had to make sure that we've completed that offering or in the process of completing it. We've seen in the last year, we went from being negative ACAT. In other words, more customers are leaving us than are coming to us from other brokerage to positive net ACAT in every single brokerage firm, every brokerage firm, and by a pretty significant margin. So we have a unique opportunity now to transform the way Robinhood's business is all put together.
Mm-hmm. So you mentioned ACAT. You mentioned winning business. So you're offering a number of promotions that I think is contributing to your success. So talk about, like, what promotions you're doing, and ultimately, are these promotions sustainable? Is this something that's now sort of part of the DNA, and you'll continue them for a while, or are the promotions really temporary? We're gonna see them for three or four months, they're gonna go away and probably only return in a limited fashion. Like, is this really a strategy that can persist?
Yeah, I would say the promotions that are being discussed are w e have a couple different promotions that we're working on right now, but they're part of a larger picture of, again, delivering value. So when you think about Robinhood and its history, and the way that we were perceived in the early days and what it is today, it's a very different company. But if people haven't looked at us in a while, and I'm a valuable customer that's sitting at brokerage firm XYZ, right? I need a reason to take a look and see what your capabilities are.
So we come up with some promotions, like a match, a 1% match, and we roll that out, and then we watched the number of much larger customers, more established and engaged customers that have come over and started to take us up on that ACAT match. And as a result of that, we started to understand it's been wildly successful, and you'll hear it from some of our peers. The questions they're asking is, is it sustainable? And I know our CFO shared this on our earnings call. The payback period is less than a year for us, so that's just an affordable CAC that is really powerful. If you think about our peers, we sit with $130 billion in assets. Our peers sit with trillions. Trillions.
And so it's really hard to defend yourself in a 1% match environment when you are sitting on that cash pile or AUM pile. So the other things that we think about in how we manage the offers is we don't wanna do something to just incent people to come here once. This is the reason why we did our retirement match. We understood that over 40% of the people in our customer base either work partially or completely in the gig economy, and as a result, there's nobody incenting them to save for retirement. There is no 401(k). So we created our own match on an IRA, a 1% match, or if you're Robinhood Gold, a 3% match, and that's in perpetuity.
Every time you contribute, we match your contribution, which is a great incentive for people. So the long, roundabout answer to the question is, it's not just the match, it's also everything that you do once you come here. This morning, we rolled out margin rates that are some of the lowest in the industry because we have a lot of very engaged, larger users that are now ACATing over, and they're saying: "Hey, great that you've matched this, but I would like to be competitive, you know, in the margin rates that are being charged," and so we're delivering that.
Mm-hmm. So one of the concerns that I think we had for a period of time was this concept of graduation risk.
Yep.
Can you talk about, like, you're, you're ACAT positive, more money is coming into you from peers than going out the door? You know, did this graduation risk sort of exist previously, and what ultimately has changed it? Is it the promotions that have changed it?
Mm-hmm.
Is it the product offering that changed it? Like, how, how does Robinhood look to, you know, bigger customers that have grown up at Robinhood, how can you service them, you know, today as bigger accounts versus maybe a year or two ago when they were smaller accounts?
Yeah. The graduation risk is essentially... This is the analysis I, as a competitor, used to do. We did this very actively of all of our competitors, but when we looked at Robinhood, we said, "Okay, they're amazing. They cracked the code. They're bringing all these young users in, but as soon as these people need a retirement account, as soon as these people want yield, as soon as they want, you know, to generate additional income, they don't have that in their portfolio. So we're gonna get them. They're gonna graduate to us. So they're actually just acting as a feeder and bearing the brunt of the cost of acquisition." You know, you heard CEOs of publicly traded companies saying that on earnings calls. They don't say it anymore because it stopped.
So now we still have a powerful funnel, but now we have enhanced the offering to a point where there's no reason to leave. Those capabilities exist at Robinhood, so that graduation risk is gone, and it's actually become more of a funnel from both sides, a funnel from, you know, an organic funnel and then a funnel from our competitors.
Mm-hmm. So as we think about growth, one of your initiatives is active trading.
Mm-hmm.
Maybe first, can you define, you know, what is an active trader at Robinhood, and what are you doing to both grow them and attract them to your platform?
Yeah. I think active trader is a term that sort of gets thrown around, and even within certain brokerage firms, there isn't really a clean definition. Like, a lot, a lot of brokerage firms use 30 times in a quarter, if you trade 30 times in a quarter. So let's just use that. The engaged investor, like every brokerage firm, you know, you have an 80/20, 90/10 rule, where you have people that are very engaged, and then you have people that are less engaged, and then you have people that are, you know, buy and hold, and they probably set it and forget it and don't look at it, you know, other than potentially once or twice a year. When you build for these customers, you actually build for the most engaged because it's really just an exercise of.
It's not that you're building a different tool set. You're building the same tool set, it's just that they're using that more frequently. So in other words, I love to use this analogy because when I first got to Robinhood, you know, it's a, it's a very ethos-driven company, and we love the idea that we're democratizing finance for all. So there was a little bit of organ rejection to me, because they didn't wanna think that we were providing more value to one customer over another customer. In other words, if I have $10 in my account as opposed to $1 million, you know, we should all be getting the same thing. It's wonderful, but you can do both because what you're delivering for the $10 customer is the same thing you're delivering for the $1 million customer.
They're just using it far more frequently and engaging with your offering far more frequently. So when I got to Robinhood, the worst NPS score, I'm gonna say Net Promoter Score in the company was the most active users. That's a very bad model, right? Now, the best NPS score is the most engaged user. That's the way it should be. If I'm using you and rewarding you with my business, you should be rewarding me with the best of what you have, and that's where we stand today.
Mm-hmm. And are you creating these active traders, or are you sort of recruiting them in? Like, how are you, how are you getting, t hese are, you know, some of the most profitable customers at, at Robinhood. How are they coming in the door?
Or in the early days, and even today, they're being created organically because these customers are newer market participants that are learning, and we have a great, we have a great learning program. It's both in the pathway of their investing and research, but we also have separate areas where they can do a whole learning center. But it's flipped now. Now we have a growing number of people that are coming in from other brokerage firms. People who are already very active and have much larger accounts are now coming in on the other end of that funnel that I mentioned earlier. So we're kind of seeing it from both sides, which has been really exciting.
Mm-hmm. Robinhood does a lot of things that we don't see elsewhere. One of the things that Robinhood is doing that we don't see at peers is growing outside the U.S.
Mm-hmm.
So, you know, how is, what are you doing? How is that going? And, you know, in the same sort of vein, like, why, why haven't the e-brokers or e-brokerage peers, if we can call them that, why haven't they spent the last 15 or 20 years trying to build outside the U.S.? Whereas you, Robinhood, very early in your maturation, have targeted, you know, Europe and the U.K. for investment.
Yeah, I think some of our peers have, but they haven't done it very aggressively, I would say. So when you build the capabilities, there are a lot of people, not just in the U.S., but across the globe, that want to interact in the U.S. marketplace. And you already have these capabilities, so it makes a lot of sense to venture out. Robinhood has been licensed since, I think, 2019 in the U.K.
And the reason that we, t hat this was prior to my time, but there was a foray and an approach to go there, but it then we hit the COVID period, where we had this re-explosion in interest on the retail side, and so we had to make a choice whether we're gonna address that and make sure that we're handling those volumes or continue to move to the UK. So we took a pause and then re-engaged and just launched there. It's been going well.
The interest in Robinhood, I mentioned this earlier, it's fascinating when you go and talk to the elected officials 'cause they just really wanna see market participation among their citizens at the rate that we're seeing in the U.S., and, you know, they use this term, they wanna see the Robinhood effect. But if you go to, I've had the privilege of running brokerages outside of the U.S., in Asia and other places. In every single country, you will find the U.K., or sorry, the Robinhood of Australia, the Robinhood of Singapore, the Robinhood of any country you go to, there's something that they call the Robinhood of. So we have a brand. We have a global brand already, and now we can just walk in and say, "Instead of the imposter, we can be the original, the OG.
Mm-hmm. So another thing that we see at Robinhood that we don't see at peers is you have a gold subscription, a gold, a gold membership. Can you talk about, you know, what that gold membership really entails? I would say probably the best analogy is Amazon Prime.
Yes. Mm-hmm.
How does it work? How is it driving engagement, and sort of what are you investing behind it, that's leading to the growth that you're seeing?
So it's, it's Robinhood Gold is a subscription service. It's $5 a month, and there's a host of things behind it. One of the things that I think has driven a lot of the growth in the last year and a half has been a yield product, so a 5% yield, which you can boost up to 5.25%. Seen a lot of traction with that because I think, you know, if you think about the average age of a Robinhood customer, they actually haven't really seen a high-interest environment. Like, the interest rates for a lot of these new investors were very low when they started investing, and when we got to a point where you could actually have a consideration whether to invest or achieve yield, they really hadn't experienced that before.
So we wanted to deliver something for them in that capacity. Other things that have always been part of Gold have been lower margin rates, premium research, Level II quotes, and now a Robinhood Gold Card, which gives 3% back, which was just rolled out. But to give you an idea of the mindset, we always wanna put something in Gold, we think is going to be a value add for our most engaged and loyal customers, and they've been rewarding us with a very large jump in number of subscriptions as a result.
So how engaged are they compared to your typical customer? How much better a customer things are?
Yeah, so I think from a deposit, and Chris will check me on this, I think we're 2x. They do 2x the number of deposits, but they adopt our products. So it's a great way for people to come in, like, "I'm a new investor. I don't really. I'm not really that clear about everything that Robinhood can provide." Once they get into Gold, it becomes very evident all the areas where they can invest, and they adopt products at, I think, a 5-8 times higher rate than our, what I'll call our non-Gold customer.
Okay. I'm gonna ask you a question on regulation, and then I'm gonna turn it over to the audience to see if you have any questions. So if you're thinking about asking, you'll have your opportunity. So in terms of the regulatory environment and the SEC, there's a couple of items on the SEC agenda.
Mm-hmm.
So what is sort of top of mind for you in terms of what the SEC is looking at? And then one thing that you mentioned earlier in the day is that within the crypto ecosystem, you're really pursuing your innovation outside the U.S.
Yeah.
So what's sort of driving that?
Sure. I'll start with the last one first, the crypto. So there really is a lack of clarity from our regulatory bodies on where we're going with crypto, and that, you know, for us, as a highly regulated entity, with 90% of our revenues being driven by the brokerage side, this is our primary regulator. So we would love to understand where - how we should be operating in a digital asset environment, and there isn't a heck of a lot of clarity. So, you know, we have not been as aggressive as peers. You know, we're smaller, 15 coins, no staking, no lending. We've gone in and tried to register, without much success. And so absent that clarity, we've said: You know what?
We can't ask our team not to continue to innovate. We have a great team, but they can't sit on the sidelines and wait for some hopeful regulation to come. So we've actually moved to Europe, and now we're moving at a very good pace over there because there is more clarity in Europe as a result of what they've laid out. And so I think you know, we're not alone. We see our peers doing the same thing, and so I'm hopeful that we get regulatory clarity, but absent it, we're just gonna keep moving at a very good clip over there. As far as the SEC and the other proposals that have been put forth, you know, it's hard to tell where they are and how quickly they're coming.
We have been very active in talking to them about our concerns. You know, we always look at it through the eyes of our customers and say, "This is what the experience is gonna look like. Should you enact this, this, this, or this?" There are some of them that, you know, we've been mildly supportive of, like some of the disclosures, you know, so 605 reporting, which is fine. I mean, let's be honest, nobody looks at those other than maybe two or three people in this room. But the other ones, you know, I think I don't know where they are, and I'm not sure... Look, the clock is sort of running out on this, on this, regulatory regime, so we'll see how much gets done.
Okay. Any questions from the audience? Okay, nothing, nothing burning. Maybe we can talk about the business environment. You've been in the business for, for quite some time, where, you know, in a year-
You just called me old.
When you think about the business environment, where we are today, how do things compare today versus five years ago and 10 years ago? What's the biggest sort of changes that are driving retail trading behavior, you know, and the success that you're seeing at Robinhood today?
Well, I think there's more—when you have more market participants, you're gonna get... And especially different market participants, they're gonna actually—they're gonna drive the business to the areas that they think are, are interesting. Obviously, crypto is one of those areas. But if you just think about crypto, I'll, I'll use crypto as an example. What is—what makes crypto interesting? Obviously, a belief in, in, you know, in the ecosystem, but also it trades around the clock, seven days a week, right? So if you think about... This is very perplexing, by the way, when you talk to a first-time investor who's, you know, in their late twenties or early thirties. When we try to explain that they have to wait for this old man to ding a bell two times a day to trade, they're like: "What do you mean?
This is an electronic marketplace. Why, why do we have to wait for that? I'm doing my research when I get home from work. I did my, you know, my education, and now I know I wanna buy stock ABC at $10. Now I got to wait for this person to go ding, ding, ding in the morning? Makes no sense, right? And if you try and tell them, "Well, no, no, no, we need those people on a trading floor," they're like: "I think we just went through COVID, and I didn't see anybody on the trading floor, and we were actually still trading, right?" They're right. So, I think that's just an example of some of the things that I think are gonna change.
And by the way, we have the ability for our customers to trade around the clock. We provide them that. There's about 930 securities that they can trade around the clock, and we've seen nice adoption of it. And there are a lot of things that happen in the late night or overseas hours that, you know, move securities either up or down. NVIDIA does their earnings, and then they have an earnings call afterwards, and most of the movement happens after the market's closed. So if I, as a person, that said, "If NVIDIA ever got to this price, I really want to take advantage of it," and it hits that price in the after-hours, and the next morning it's back up, I missed that opportunity.
So when we ask a customer: "Hey, do you care if you buy stock ABC at 3:00 A.M. or at 2:00 P.M.?" They really don't care. So it's, it's been, I think things like that, when you sort of think about the new generation of investors, they sort of challenge what are a lot of the long-held norms of investing are. And it's also access to certain asset classes, you know. I mean, look, there was a proposal that another one of our regulators, self-regulatory agencies, came out with it said, you know, "Hey, listen, if you're..." You know, they were basically going down a path of saying: If you're not this age, with this many assets, you shouldn't be able to trade an exchange-listed option. And our customers are like: "Well, what? What? What is that?" Right?
Like, I don't know how to write a covered call. I'm sorry. Like, I got my driver's license at 16. I think I can handle it.
Great. Steve, thank you so much. This has been an enlightening and pleasant conversation, and thank you to the audience for attending.
Thank you.