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Will Robinhood achieve the previously unachievable? Will it turn Britons into a nation of share owners? After a couple of abortive attempts, the US share trading app is finally launching in the UK. It faces an uphill battle.
In theory, there is room for Robinhood to grow. Potentially, it could attract cool young people to equity ownership, as it has done in the US. Only about a third of Britons own shares, compared with 60 per cent of Americans. Narrowing this gap would bolster the bedraggled London stock market.
Robinhood might represent competition for execution-only platforms such as Hargreaves Lansdown and AJ Bell. Their fees have come under scrutiny. Barclays estimates these might average 0.41 per cent a year for Hargreaves and 0.30 per cent for AJ Bell over a 10-year period.
But the US trading app is a long way from competing seriously with anyone in the UK. So far it has merely opened a waiting list for a service which will let clients buy and sell US stocks when it goes live in 2024.
It is unclear how Robinhood plans to make money. Its initial UK foray offers zero commissions, zero platform fees, zero forex charges and 5 per cent interest on cash balances. That sounds admire an exercise in loss leading.
In the US, Robinhood sells order flows to big brokers. That is forbidden in the UK. However, back home Robinhood makes more money from interest income on cash balances.
To build a sustainable business model in the UK, Robinhood would need scale. But cash-strapped younger Britons seem less interested in the stock market than American peers. Demand for other low-commission apps such as Freetrade is anaemic.
Meanwhile, the “mass affluent” clientele of Hargreaves and AJ Bell appear to be relatively price insensitive. In general, they are long-term savers who want to hold funds in tax-efficient wrappers, rather than day traders in meme stocks.
Their sympathies, one suspects, are more with the establishment Sheriff of Nottingham than a rebel archer.
The Lex team is interested in hearing more from readers. Please tell us how you think Robin Hood’s UK foray will work out in the comments section below.