Almost eight years ago,
Baiju Bhatt and I founded Robinhood.
We believed then as we do now
that the financial system should be built
to work for everyone, not just a select few.
It's really simple,
just press three buttons
and then you already got the amount of crypto that you want.
Just about any stock I've wanted,
I've been able to grab
and it's been pretty easy to use
and I've felt pretty safe.
Robinhood is a stock trading application
that's really popular among the younger investing crowd.
So, mainly Gen Zers and Millennials
and one of the reasons why it is so popular among them
is because of its design.
Just from a design angle,
if you open Robinhood's app
and you open the other apps for Schwab
or TD Ameritrade or E*TRADE,
you can tell that they look different.
Trying to convince investors
that trading is simple and easy
is not new to Robinhood.
Robinhood's just been more successful
at making it simple and easy.
Robinhood's design enables users to sign up
and start trading within a matter of minutes.
Its colorful, easy-to-use interface
resembles something more at home in Silicon Valley
than Wall Street.
Robinhood's mission has always been
to democratize finance.
And so, when they set out to build their app,
what they wanted to do was to remove any barriers of entry
that have existed for people
who've wanted to invest in the stock market,
but haven't been able to before.
Imagine taking $100
and turning that into $1,000.
I see a stock going up and I buy it
and I just watch it until it stops going up
and then I sell it.
Let's see this one keep on falling, 1.57,
let's keep it going on down, baby.
We're cracking trend lines
and let's just lock it on up, baby.
Let's just lock it on up
and take $50,000 in a day!
Let's go!
It was really a wake up call
to a new kind of investor
and a kind of investor
that, in many cases, was using Robinhood to place trades
and trade, not based on fundamentals necessarily,
but based on something that seemed like fun.
While Robinhood isn't the only app
that's design and usability
blurs the lines between investing,
entertainment and gambling,
it's left many people asking,
is this product a little too good at what it does?
There's something to learn
between the old world and the new world.
The new world is much more frictionless,
giving a lot more access to everyone else.
So, I think that change is happening
and a lot of the old world applications
are still not understanding what it takes, to be honest.
So, we're just in a completely uncharted territory
in some ways.
This is a new type of behavior
that's emerged in the past year.
Like, meme stock was not in the vernacular in 2020,
is all I'm saying.
During the pandemic through 2020,
we saw that app usage grew on average 40%.
There were about 35 billion downloads.
What we found is that,
whilst users have a lot of apps on their phone.
So, typically 80 or so apps on their phone.
Less than half of them are used on a monthly basis.
And so now, it's not just about creating an app,
it's about making sure that you get a user to download it,
making sure that the app's sticky enough
that they come back on your daily active users
or your weekly active users.
Those numbers are also high.
The pandemic offered an opportunity
for older apps that had plateaued in user growth.
As people delved deeper into the app store,
the products that proved most appealing
were the ones that offered
something more long lasting to their users,
be it a language, a new skill or money.
So, as soon as the coronavirus pandemic hit,
what happened was a lot of people
started spending a lot of time at home
and that boredom really led to them
trying to find out new things to do
and the interest in investing really peaked
in the middle of the pandemic
because people were at home
and they had access to their phones.
And for the first time,
Robinhood became an app of massive interest.
It's been around since early 2010s,
but it really didn't go off the way it did
until the pandemic hit.
There's no question that Robinhood
has been wildly popular in attracting users.
You've got more than 22 million active users
on the platform now
and that's just in a matter of a couple of years
that they've built that base.
The platform opened up to investors in 2015.
So, the growth that they've seen has been astronomical.
So, I think what you need to understand
when you're trying to understand
why the Robinhood user experience is that good
is who built it.
And we're talking about the co-founders of Robinhood here,
Vlad Tenev and Baiju Bhatt.
These were two guys who met at Stanford
at a time when Facebook, Twitter, Instagram,
all of those apps were really taking off
and had really established what it means
to be an application that drives user engagement
and really draws people in.
Think about pop-up notifications
or the ability to engage with your friends.
So, if you invite a friend to the platform,
you get a free stock.
All of those things hadn't really existed before
and so, they really pioneered the way
for investing to become way more democratized
through a very social media like experience.
So, I'm opening my Robinhood app
and I see a nice little green screen
with the feather logo in the back
and what comes up is this very clean interface.
You don't have to type anything into your phone, right?
So, you get lists of things
that you can just scroll up or down
to click the correct answer.
And I know it's really trivial, right?
Like, you can just type in New York
rather than having to scroll up and pick New York,
but those are sort of the design features
that, when you talk to experts, will say,
it's just easier, right?
You don't have to type anything in.
They would tell you that that is just, again,
sort of bringing down barriers
and making it easier for people,
from a design point of view,
to sort of sign up.
A critical element for Robinhood
is making that first trade for these users
as easy as possible.
When signing up to most brokerages,
a user will have to wait a few days
before money is deposited into their account
and they can start trading.
But Robinhood lets users
trade up to a thousand dollars instantly
while waiting for their account to clear.
If I were a first-time investor,
I would not find anything intimidating about this.
It's kind of welcoming, honestly.
Right up front,
there's a big button to click trade,
I can see the volume
and I have the option
to either buy shares of, let's say, Apple
or trade options on it if I want,
that's right there for me too.
And so, really what you see in the Robinhood app
is just very little information
presented in a very user-friendly way
with a lot of colors, with a lot of animation,
and that's something that hadn't really existed
in brokerage platforms before.
From data font sizes that help direct users
to what they should focus on
to the snowflake animation that falls on December 25th,
Robinhood has been very deliberate
in all its design choices.
Take the cryptocurrency trading page for example,
its interface reflects the excitement
and buzz around this type of investing.
It almost looks like you're in like a video game
or an ad for like an energy drink or something.
It's a design element that's completely different
from anything that I've seen
on a traditional trading platform.
There's a lot of these delightful graphical moments
where it's just reflective
of almost an artist signing their work.
You've gone from 15 years ago,
people seeing folks sitting
with six or seven screens and trading
to realizing actually you've got your mobile phone
and a small screen
and you can achieve the same outcome really
as an individual.
Those trading systems, the data,
the exchanges, the trading exchanges,
they've been the same for years and years.
What's changed is there is now a user interface
that makes it easily accessible to a broader set of users.
We're proud of the fact
that we've enabled so many younger investors
and first time investors to have access to the markets.
I think design is at the heart of it
because the ease of use,
the enjoyment that a user gets using the application
is so important.
Over half of Robinhood uses are first-time investors,
with 70% of its assets held by millennial investors
between 18 and 40.
It's popularity among young investors has been in part
down to a frictionless user experience.
Friction refers to something in the design
that slows you down in accomplishing your goal.
This may sound familiar
if you've ever tried to unsubscribe from a mailing list
and being presented with something like this.
One of the things that people talk a lot about
is frictionless user experience.
Designers, more and more, are realizing
that users are unforgiving.
They will drop off during the registration
or sign-up process.
They will drop off if they get stuck on a screen
and can't work out what the next call to action is.
Designers are now starting to value user feedback,
look at what users are doing in terms of using an app.
So, tracking through heat maps, etc,
what kind of utilization the app has
from a user perspective.
If you look back at how Robinhood
really sort of created this user interface,
was by going out to coffee stands
and coffee shops at Stanford
and going up to students and asking them
how they felt about investing
and how they felt about the apps that were out there
and really getting the sort of feedback from users
about what they wanted to see
and what they didn't want to see.
And even up until this day,
Robinhood research team
is really, really prevalent in the company
and they really go out of their way
to sort of try to give users what they want,
but there's cost to that.
While frictionless user experience
may be what customers want,
some argue the frictions in investment apps
can actually work as a safety mechanism.
The problem for many investors
with making trading too easy
is that oftentimes frictions take the place of self-control.
And when something is too easy,
we may do it more than is in our own best interests.
So, I've done research over the last few decades
that showed that, on average,
when individual investors trades more actively,
they end up worse off.
There's not a great deal of information on the app
compared to other brokerage sites.
And one thing that does is gives one the feeling
that this is not too complicated
of a thing to do, to buy and sell stocks.
And clearly, the mechanics of buying and selling are easy,
but choosing stocks,
analyzing stocks can be difficult.
We put a great value in this country,
in letting people have the freedom to do what they want
and yet, we also want to have some protections.
The family of 20 year-old Alex Kearns
is suing popular stock trading app, Robinhood,
after Kearns died by suicide last year,
believing he was hundreds of thousands of dollars in debt.
The worst aspect of what they do, Chloe,
is the way they're gamifying the idea of investing.
They're taking unsophisticated investors,
most of whom have no experience,
and basically making this into a game,
causing them to suffer losses.
Robinhood has faced some pretty serious criticism
that it's making investing almost too fun,
which seems like a strange criticism.
But the point is that they've made investing
so accessible and so easy
that they might be pushing traders
to take risks that they don't understand
or outsize risks in financial markets
or see stock trading as kind of a game
or kind of a gamble.
And for the critics of Robinhood,
there's one design element
that never fails to get mentioned.
I'm a bit surprised by how much attention
the confetti animation has gotten.
It's literally an animation that comes up
after you make your first trade.
You think, from reading some of the commentary,
that confetti's flying through the app all over the place.
The story behind the confetti
is that Robinhood used to display a confetti graphic
to celebrate the first trade that you made on the platform.
And the confetti motif also came up
in its ad campaigns early on,
where you would see people trading on their Robinhood app.
With an app that's changing the way we do money.
Now, what came to pass
was confetti became like the thing people would point to
when they said Robinhood is gamifying investing.
Eventually, Robinhood scrapped
the confetti graphic altogether,
but it's not like you're going to see
people migrate away from Robinhood
just because they don't show confetti anymore
when you place your first trade.
In my mind, gamification is so broad.
It's anything that allows you
to almost experiment and enjoy the process.
The fear that a lot of regulators have
is that retail investors don't have the knowledge base
that professional investors have
and as a result of things like gamification
or stickiness in an app,
they'll almost be brainwashed into
or influenced into making investments or taking risks
that they otherwise would not be comfortable doing.
But I actually don't think that's the case.
I think users are going on to apps, etc,
because they want to invest.
They want to try investing in different securities
that otherwise they didn't have access to.
And there was a particular stock
that really captured the imagination of these new investors.
In January this year,
users of Robinhood and other trading apps
pushed up the price of GameStop options,
leaving hedge funds
facing hundreds of millions of dollars in losses.
Let's start off with what is almost bordering
on the ridiculousness here
with regards to the GameStop trade.
Do you see a fundamental reordering here
in the hierarchy of who has the power on Wall Street?
A platform like Robinhood
was the perfect sort of vehicle
to create this frenzy in trading
because it made it so easy
that now so many people had access to this stock
and it took off.
Of course, what we've all been talking about,
a stock which has now been on a rocket ship
as part of this short squeeze
and whether those that are investing in this
fully understand what they're investing in.
Robinhood customers with all of their traits
like younger,
maybe more plugged in to online message boards,
maybe with a little bit less than their account
and more of an appetite for YOLO-type investing,
this all came to a head in the GameStop saga
and it was the first time that we'd really seen
such a mass coordination of retail investors online.
In the wake of GameStop,
Robinhood's CEO, Vlad Tenev,
testified before Congress.
He was questioned on a variety of topics,
including his decision to halt customers buying these stocks
and faced scrutiny over the app's design.
Confetti falls every time they place an order,
they get push notifications, they're encouraged to trade.
If a friend signs up, they get a free stock, on and on.
Why have you added specific gaming design elements
to look like gambling to your app?
There was also criticism
of the way Robinhood makes its money.
Instead of taking a slice from the user,
Robinhood takes its cut
by selling customers orders to trading firms.
Put simply, the more a user trades,
the more money Robinhood makes,
leaving some to question
whether the apps frictionless user-friendly design
was actually in its user's best interest.
In 2020, Robinhood earned about 75% of its revenue
based on transactions happening on the platform.
So, that gives its critics ammunition to say
Robinhood wants you to trade more,
whether or not it's good for your financial health
to be buying and selling stocks all day or all week.
Robinhood is there making money from transactions
and at present, without that source of revenue,
I mean,
it would lose three quarters of its business, basically.
Now, the U.S. Security and Exchange Commission
is weighing whether to ban this way of doing business.
Robinhood's legal chief,
who himself is a former SEC commissioner,
said banning payment for order flow would be "draconian".
What you're going to see moving forward
is a lot more regulatory scrutiny
and a lot more regulation
to set in place some protections for these investors.
But I don't think it's going to happen quickly.
I think it's going to take time
and in the meantime,
having access to these financial tools
is going to go one of two ways.
It's either going to help people
learn more about the stock market
or it's going to help them lose a lot of money.
I think it would be completely crazy
to almost penalize someone
for building a high quality,
high functioning well-designed app.
Innovation is inherently fraught with risk.
Of course, the utility they offer can be regulated,
but the fact that they make it easy for users to use
and make it fun for users to use
has to fall outside that regulatory set of restrictions.
I think that's something that,
if you start regulating that,
you're stifling innovation.