
Robinhood Checking Moved Fast and Broke - kgwgk
https://www.bloomberg.com/opinion/articles/2018-12-17/robinhood-checking-moved-fast-and-broke
======
3jckd
It seems odd to me that they would make such move in the first place without
proper legal analysis. Especially, given that it's fintech which already is
quite tightly regulated and Robinhood has been in the stock game for a while
as well. Or was it just "the magical ampersand" as the article suggests and
hope that they would slide under the radar.

~~~
freediver
It could be just a publicity stunt. Announce an unbelievable thing, get ton of
attention and then figure it out later.

~~~
coryfklein
The Klein effect strikes again!

> I need to coin a term for this concept, I see it on every Hacker News thread
> once it reaches a certain size. It is the attribution of the topic to some
> nefarious intention of a dude in marketing. Once you start noticing it you
> can't unsee.

> Intel fires their CEO? It's a PR stunt.

> Startup abandons Europe due to GDPR? PR STUNT!

> AlphaZero beats professionals at Dota 2? You guessed it, it's just PR for
> oligarchy parent Alphabet.

> I see this so often now it's becoming humorous. As if some how this being
> all about PR explains everything. It doesn't explain anything! Although I'm
> sure Bill over in marketing loves that he has subsumed the historical role
> of deity in explaining the unknown.

[1]
[https://news.ycombinator.com/item?id=17499447](https://news.ycombinator.com/item?id=17499447)

~~~
CPLX
Indeed. Combine that with the HN tendency to assume literally every single
story that runs in the press is a "submarine" story (also known as PR) that's
essentially the same as an advertisement, and you have an impressive
collective delusion that all of perceivable reality stems from the mind of a
few ingenious communications professionals.

------
fredcy
Matt Levine is a treasure. His Money Stuff column/email has taught me, a
programmer not versed in fintech, a lot about the intricacies of the financial
world. In particular, his clearheaded view of blockchain tech is useful
counterpoint to the hype.

~~~
wuunderbar
Do you have any particular links for Matt Levine content you found
interesting?

~~~
nlh
(Not PP)

I just discovered his writing recently, and he publishes a daily newsletter
that's, more often than not, all of funny, interesting, and informative. I
haven't gone back to the archives, but the day-to-day is terrfic:

[http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-s...](http://link.mail.bloombergbusiness.com/join/4wm/moneystuff-
signup)

------
vthallam
This whole thing was a net negative PR for Robinhood. The fact that they
removed old tweets, blog post and started calling this cash management is
downright fraud.

It doesn't make sense even as a growth hack, because they already have
millions of users, it's not like without this, they will not be able to
acquire more users. My reaction was, "What were they thinking"?

~~~
mbesto
Disagreed. You aren't the target market market here (highly analytical). They
just want millennials who see "ohh 3% checking thats more than I'm getting".
Very likely those people will forget that they signed up, but are now in the
RH activation funnel ("Oh I guess I never really needed this but look at how
easy it is to buy stocks! One button...vs 8 buttons on E-Trade")

~~~
duxup
You mean signed up for the email?

I guess maybe but if they sort of try to squeak by using signed up users who
signed up in a period where there was bad data out there and don't go out of
their way to correct what they told them.... I gotta think there is very real
legal risk there.

~~~
mbesto
No one is denying there is a legal risk. However, they got an estimated 600k
signups (probably more?). Even converting 10% of those (which a company of
their "growth hacking sophistication" should be trivial to do) could provide a
substantial amount of growth for the company. Since they don't charge for
order execution (and are likely paying a 3rd party to do so), they're clearly
going for volume to make up for it.

As I've mentioned previously in another thread, this is clearly a gamble. When
you're on the VC track to justify $4b+ valuations, taking gambles is par for
the course.

~~~
duxup
I guess so as far as taking risks.

I just see bringing those customers along after putting out information that
could be seen as deceptive / was deleted and already called into question info
a recipe for legal and regulator ... pounding.

Silly social media stuff is one thing, but financial stuff where you rope in
users with stuff that sounds like "bank" but isn't. Whole mess of folks out
there with serious legal tools to come down on you, and a lot eager to do so.

This just seems unusually risky.

------
lordnacho
So why don't they get a banking license? Aren't they stuffed full of VC money?
Either get a licence for RH, or buy a small bank that has a license.

A guy was telling me I could do that with just $10m a few years ago, just go
and buy some small bank and there would be deposit capital to invest.

Surely the thought must have crossed their minds to become a bank?

~~~
dunpeal
Because running a bank isn't easy, especially in post-2008 USA.

For example, you have to maintain a fraction of your total deposits in a cash
account. That means that if RH becomes a wild success story, they may have to
keep millions or even billions worth of cash stack.

I believe there are many other requirements that are not easy to satisfy when
you're a small nimble startup.

Personally I hope the banking industry in the US gets disrupted, right now
it's a dinosaur and consumers suffer.

However, with the current legal framework that doesn't seem easy.

Seems like RobinHood was trying to disrupt banks and then the big boys (SIPC)
shut them down fast.

~~~
al_chemist
> Because running a bank isn't easy (...) For example, you have to maintain a
> fraction of your total deposits in a cash account.

What is hard keeping a fraction of not-your-money in a cash account?

~~~
clairity
the problem is not in keeping the cash stashed away, but in the opportunity
cost of doing so. startups are first and foremost expected to grow quickly and
setting money aside dampens their growth rate (along with the hefty regulatory
requirements of running a bank).

if banking is needed, most startups will partner with a bank instead, so it
has access to all of its cash, even if it has to pay a bit more to do so.
flexibility has value (which is the same reason options have value beyond the
underlying asset).

~~~
harryh
"maintain a fraction of your total deposits in a cash account" != setting
operating capital aside. Those are two different piles of money.

------
chromaton
FWIW, Fidelity now offers brokerage accounts that include checking, bill pay,
etc. and have access to no minimum, no fee, no load index funds.

~~~
icelancer
Fidelity also bans people from their platform, does not tell them why, and
makes it a pain in the ass to liquidate assets and get your money.

Source: It happened to me, I have fine credit, I don't daytrade (I'm an index
investor for 95% of my investments), don't rapidly move money in/out, don't
exploit interest-bearing accounts like weirdos do on various sites, and I have
no idea what the hell the problem was. They still won't tell me anything
beyond "We don't want your business."

~~~
elliekelly
If they aren't telling you that means it's AML-related and they legally can't.
It could be for any number of things ranging from online gambling to your name
(or even the name of a family member of your business/employer) appearing on a
"watchlist" or being similar to a name that appears on such a list.

You should try to figure out where you're getting flagged because if it's a
problem at Fidelity it's only a matter of time before you get the same flag
from other financial institutions.

~~~
icelancer
Hasn't been a problem at any other financial institution that I'm at,
including Vanguard (been there over a decade).

Also, there is some irony in you telling me to figure out why I am getting
flagged while also telling me I can't be told what it is.

~~~
elliekelly
Sorry, I meant via performing your own searches against the watchlists. Most
of them are public. Treasury Department sanctions are a good place to start.

------
lgleason
No big surprise here. I worked on a project for a fintech startup. They were
dealing with small business bank accounts in the US and were missing some
basic security. Had there been a data breach someone could have come in and
cleaned out their customers accounts. Unlike consumer accounts, US banks have
no legal obligation to make a business customer whole under that circumstance.
Some small businesses have gone out of business over things like this.

When I brought it to the founders attention they blew it off so I immediately
told them that I'm rolling off the project. I'm all for disrupting the
industry, but not at the expense of knowingly putting your customers in harms
way.

------
ngngngng
I'll be honest, 90% of the reason I signed up was their debit card looked
super clean.

~~~
guelo
Do you ever introspect that commercial "super clean" design is a hack on your
brain to make you buy things that you wouldn't otherwise and that you should
not use design as a purchase criteria?

~~~
sooheon
No, because design is part of the value proposition. A brain hack that brings
me happiness is... what any product is.

------
Animats
_Companies are racing to do things that were done in the 1920s, before modern
financial regulation came into effect, only this time with an app. The
regulators know how to handle that._

Yes. Come on, a fake bank?

The ICO industry is the penny-stock market, but with "blockchain". Some of the
same suspects, too.

------
anonu
There's no free lunch. A quick check of the markets and where short-term
treasuries are trading can tell you that 3% is too good to be true.... Glad it
broke quickly rather than deluding people into thinking their money was safe
and getting a good return.

High Reward =~ High Risk...

If you can call 3% high...

~~~
spullara
You can buy CDs from Ally Bank that give you 3.1% with only a 90 day interest
penalty for early withdrawal. Not too far off what they were offering assuming
that you aren't using it as your main checking account.

~~~
pishpash
Uh, 90 day penalty is a 25% per annum haircut on day 364 => 2.325% and even
lower on any day before. Saying that's "not too far off" is the financial
illiteracy that upthread is talking about.

------
abb1234etric
I'd be shocked if RH can eventually launch this product in any form. People on
HN seem to think its a marketing issue, but it isn't. The problem with the
product is much deeper.

The core issue is that there is no way right now to provide savers with a 3%
risk free interest rate. 1 year treasuries for e.g are at a 2.7% yield and
that assumes you lock up your money for a year. Basically, their "novel" idea
was to supplement the rate they would theoretically be getting from investing
your money in t-bills with interchange revenue. But the interchange revenue
wouldn't be a sure thing. It depends on the behavior of the customer. This in
turn means that they would have to just pay depositors out from their VC money
until they attract that type of customer that could support their interchange
revenue assumptions.

There is a good reason that ideas like this are strictly regulated. If I could
just set up a company and promise main street investors a guaranteed return
based on my rosy view of the world, a lot of people could end up hurt. I'd be
shocked if the product, after they finally launch it, offers any of the
features that attracted people to the offering in the first place.

~~~
russdpale
The 3% was definitely interesting, but to me at least, moving money quickly
between my account and trading/investing account would be nice. Especially
when its all in one application.

To me, the 3% is not that interesting. 3% is chump change, 3k on 100k.. who
cares? Most Americans don't even have 400 bucks in any of their accounts. I
don't think most people are going to sign up with a bank for 10 bucks extra
per year. Usually much less than that.

------
DevX101
Robinhood's whole business model is making money from people who think they're
getting a free lunch. You're still paying money for the trade. But instead of
paying a direct fee, you're paying more money via the bid-ask spread.

Everytime you make a trade, Robinhood sells that trade to a market maker.
Robin hood charges more money for forwarding this trade than most other
brokers. To make up for this increased cost to market makers, they then pass
the cost to you by charging more money for the trade.

This is akin to restaurants that claim you get free delivery. You don't really
get free delivery. They just increased the price of the food.

Looks like they were trying to play a similar game with that 3% savings
account by claiming your money was risk-free when it really wasn't.

[https://www.wsj.com/articles/why-free-trading-on-
robinhood-i...](https://www.wsj.com/articles/why-free-trading-on-robinhood-
isnt-really-free-1541772001)

~~~
bobcostas55
Due to RegNMS they still have to fill you at the NBBO. You're not crossing a
bigger spread than you would with any other broker.

~~~
xtacy
Yeah, they still have to fill you at the NBBO, and this trade routing is no
different from what other brokers (Schwab/E-Trade/etc.) do when you place a
trade.

I wonder whether the fact that Robinhood doesn't internalise its trades (i.e.,
capitalise on the bid/ask spread by matching buyers/sellers from their own
customer base) is the reason why market makers pay more to Robinhood?

~~~
lordnacho
The reason why MMs pay more for RH is there are no toxic clients in there.
RH's flow is almost entirely a bunch of little guys.

Toxic flow would be something like a huge institution that just keeps buying a
stock they like. Once the market maker has sold them a few portions, he
realises the price has moved against them.

With a bunch of little guys the MM combines:

\- Benefit from the two-way nature of the flow. Some little guys are buying,
some selling.

\- Hedge against other pools of liquidity. Either find a similar stock (stocks
are highly correlated) to sell, or an index.

\- Hold on to the risk until it relaxes and goes the other way.

Ex MM / HFT guy.

~~~
xtacy
Interesting, thanks for sharing your insights. I thought that huge
institutions prefer to trade on exchanges directly (for anonymity), but it
looks like there are other incentives in play.

~~~
lordnacho
There are degrees of huge. A large hedge fund still trades through a prime
broker, who has the exchange connection. The PB plays yet another game by
aggregating the risk of the funds they are servicing.

------
m23khan
folks, be super careful with your money - even if they survived and got X
number of customers, if they were to fail - I don't know how and when the
customers would get their money back.

In the past, I have seen small mom-and-pop brick-and-mortar 'finance groups'
pop up which promise to give you much better returns than the markets based on
investing in some 'magical fund'. Such groups then take your money and for a
while the going is good until Government halts them and then overnight these
'money mills' are gone and your money is stuck as is money of other folks with
tax authorities taking action against the customers who had no idea. And the
way these operations are setup and run, folks running these money mills get
off scotch free only to shy away for few years until they come back again with
yet another 'idea'.

------
Ice_cream_suit
"In many areas of fintech, though, companies are racing to do things that were
done in the 1920s, before modern financial regulation came into effect, only
this time with an app. The regulators know how to handle that."

------
mlthoughts2018
One of the main things it communicates to me is that the decision makers in
these start-ups are no different than the decision makers in bloated old firms
that survive with regulatory capture.

If you follow the money trail, it eventually bottoms out with the same musical
chairs of people making the same tired business moves with overt and
deliberate goals to manipulate people into product lock in before changing
terms to be unfavorable.

Most start-ups, even fancy seeming ones backed by sexy VCs where you think,
surely this one must be genuinely innovating in some way, are just the same
centuries old bureaucratic anti-consumer bullshit, just dressed up with a
sleek infinite scroll and using hashtags and the word lolz on the webpage.

------
catacombs
A tale in two acts:

Act 1: Checking available to everyone!

Several days later...

Act 2: Sorry, no more.

~~~
jaclaz
To be fair three acts:

1\. announcing the thingy

2\. _gather emails of people interested in it_ [1]

3\. Sorry, not going to happen...

[1] and possibly interested in other products ...

~~~
dragonwriter
Also, emails of other people: there was a waitlist bump for referrals.

------
kevin_thibedeau
The whole thing may have just been a viral marketing scheme never intended to
be implemented. They get to ride the wave of the news cycle for a week or so
and potentially gain new trading accounts with the free publicity.

~~~
rchaud
At a time when newspapers struggle to sign people up even with a "$1 for 4
weeks" deal, you really think people are pulling out their credit cards to do
business with a financial firm that just got publicly told off by a reglator?

------
abootstrapper
I’ve chased hot new banks and their interest rates before. It’s always a bait
and switch. Or in this case a complete fumble. Credit Unions are where it’s
at. Boring, safe, aligned with their members interests.

------
Derek_MK
Hopefully the author here is right in that the SEC will continue to step in
and say "No, you can't just call it something else. What you're providing is a
bank account."

If Robinhood manages to get away with saying "It's not a bank account; it just
does everything a bank account does", and therefore that it doesn't require
the same level of regulation, then that's going to be a HUGE problem.

~~~
the_clarence
My guess is that it is really hard to become a bank in the US and this has
slowed down innovation. Look at The UK and what they did with openbanking. You
now have new banks like Monzo and Revolut which are completely disrupting the
industry. I’d advise anyone to get a Revolut card, Monzo is unfortunatey UK-
only, to see what it means to have a bank 2.0

~~~
vikingcaffiene
> slowed down innovation

When it comes to money and ensuring people manage mine correctly and honestly,
I’ll take safety over innovation thank you very much. Feel free to continue
“disrupting” low stakes stuff like juicers and scooters. Call me old
fashioned.

~~~
the_clarence
Again. You should probably get a revolut card. You’ll save way more money this
way believe me. It is disrupting shitty banking.

------
dcchambers
Well if the goal was to get people interested in the brand and create accounts
on robinhood (needed to sign up for early access) then they succeeded. :) Now
they can try to convert some of these new users to their core product.

------
beachwood23
I'm curious how this compares to SoFi's Money program. SoFi manages student
loans and now they are moving into cash management.

It seems that this is an area new companies feel is ripe for disruption.

~~~
astura
Well, SoFi Money hasn't launched yet, so the product doesn't exist.

The difference is SoFi Money claims to plan to offer 1% less interest than
Robinhood claims to offer, also SoFi Money claims to plan to be FDIC insured.

~~~
dawhizkid
It has launched - I have the debit card and use it

~~~
astura
Really? I put my name on the waiting list in the first couple days and I
didn't hear anything.

Looks like they offered it to people who already are "SoFi Members" first.

------
paulpauper
I want robinhood to succeed. Retail brokers charge huge fees for poor order
execution, and also charge fees for arbitrary stuff. $7-10/trade adds up fast
and also huge fees for options.

~~~
chrismaeda
Search for 'payment for order flow' if you want to know how robinhood gets
paid and why you might want to pay trading fees instead of getting it for
'free'.

~~~
icelancer
And most people should realize that all discount brokers are this way and
Robinhood is not special in this regard.

------
calebm
I couldn't help but wonder if it could have been some gigantic robinhood
scheme to take from the rich and possibly give to charities or something. Now
we'll never know.

------
skywhopper
Let me just say that this is a fantastic summary of why financial regulation
is important and good:

    
    
        Long experience has taught that those basic ideas
        are mostly good, but have some problems, and a
        regulatory system has been built to remember and
        address the problems. If you borrow short to lend
        long you’ll want deposit insurance; if you sell
        shares of a thing you’ll need to give buyers some
        disclosure; if you trade derivatives you should
        make sure your counterparties understand them; etc.

~~~
TAForObvReasons
All types of regulation are important and good, for the reason stated in first
sentence. It's just tragic that so many people in the tech industry fight
tooth and nail against any sort of regulation, like during the GDPR
discussion.

~~~
cle
In part, it's because things move fast in the tech industry, and regulations
based on expired premises can impede one's ability to react to change. It's
the cost of regulation.

It seems deceptively simple and cheap at first to pass a law or engineer a
mechanism to protect us from something. But that should be weighed with the
long-term cost and risk of the regulation/mechanism going out of date. It's a
lot harder to get rid of it than to add it.

~~~
rchaud
The biggest tech companies in the world do advertising, retail, video
distribution and business software services. What about any of these moved so
fast that regulations would have stifled their innovation?

I would argue that DoJ vs Microsoft and EU v Microsoft encouraged healthy
competition, and didn't hurt innovation. It even forced Microsoft to look
outside of the Windows/Office businesses to make money.

------
poof_he_is_gone
Did anyone get an account opened or make a deposit before this got shut down?

~~~
jmcgough
It was announced, not available.

~~~
ada1981
Yeah I mean this feels like it amounted to some marketing and a viral sign up
page.

I have no reason to believe there was any tech built yet.

~~~
minimaxir
Even assuming that they moved-fast-and-broke-things on the legal side, the
development lifecycle of something as important as _replacing conventional
banking_ takes months, if not more.

Robinhood likely lost a good amount of development opportunity cost with the
cancellation.

~~~
dvtrn
_Even assuming that they moved-fast-and-broke-things on the legal side_

Doesn't moving fast and breaking things on-as you say-"the legal side" in
essence mean breaking the law, or did you mean something else and I've
misunderstood?

~~~
minimaxir
Legal as relating-to-the-law, not legal as against-the-law.

~~~
dvtrn
Right, that much I grok, but when you say "move fast and broke things", in the
context of "relating-to-the-law" what are you hypothesizing was 'broke'?

I think it's a matter of phrasing perhaps, that has me a bit confused of what
your post is suggesting as a matter relating to the law.

------
Forge36
Did it break? Or was the cost to announce vs total new accounts worth it?

------
zenexer
This article is brilliantly written. I could write an article about how much I
enjoyed reading this article, but then I’d be distracting you from what I
actually want you to read. Go read it.

------
vxxzy
Gorilla Marketing at its finest. Way to hack society Robinhood

------
jpm_sd
This is amazing and beautiful. They're disrupting the bullshit cycle! Speeding
it up by orders of magnitude!

------
mmartinson
A comment on the title and not the content.

As a Canadian, I find the American revised spelling of English words to range
from helpful and reasonable to needlessly confusing. This is one of those
cases where my brain spent a while trying to figure out what exactly Robinhood
was checking for before I realized it was about bank accounts.

------
dqpb
In other news:

 _Bloomberg Moved Fast and Broke_

[https://www.bloomberg.com/news/articles/2018-12-11/super-
mic...](https://www.bloomberg.com/news/articles/2018-12-11/super-micro-says-
third-party-test-found-no-malicious-hardware)

~~~
Armisael16
Is that at all relevant? This is an opinion piece.

~~~
dqpb
Sorry, but "this is an opinion piece" is not a valid argument ever since the
news media started going after social media where literally everything is an
opinion piece.

~~~
Armisael16
I’m afraid that I have genuinely no clue what you’re getting at here. This is
an opinion piece, which means that the journalistic side of Bloomberg you were
criticizing had nothing to do with it.

Do you have any criticisms of the piece other than Matt Levine’s choice of
magazine to submit it to?

