Trading Troubles: Robinhood's Fall from Fintech Fame

Robinhood was the first trading platform of its kind. With its goal to “democratize finance for all,” the platform enabled any user, regardless of financial expertise, to invest in stocks, crypto, options, and more.

Of course, any company’s downfall is a result of a combination of multiple factors. But according to Robinhood’s CEO, Vlad Tenev, one of their critical mistakes was assuming that heightened user engagement in the pandemic would continue… post-pandemic.

Meaning they barely had a retention strategy.

Meaning they weren’t prepared. At all.

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Robinhood’s Value Proposition

As I mentioned, Robinhood largely came into the limelight because it was an opportunity for novice traders to actively participate in the market. Combined with its seamless UI/UX design, Robinhood reduced the barrier of entry and enabled anyone to trade.

To say the least, Robinhood’s mission is valiant. And it checks out why so many people flocked to it during the pandemic.

1. The platform simplified trading into just a few clicks and swipes.
2. People had more downtime to do research and learn basic financial literacy.
3. Investing is a good side hustle (if you know what you’re doing), especially given the economic climate.

In 2021, Robinhood’s popularity peaked. Especially after the GameStop short squeeze (don’t need to get into it, read this if you’re really curious), Robinhood saw user engagement like no other. By that summer, they had roughly 22 million users and even IPO-ed at the end of July. Even though they were reporting some losses during the first quarter since they went public, analysts were still optimistic that Robinhood had infinite growth potential.

Slight caveat, though - Robinhood had infinite room to grow in the context of the pandemic.

But before we talk about what happened post-pandemic, let me first provide context as to how the platform itself works.

When placing any sort of order on the market, it has to be handled by a third-party broker or another kind of market maker. Instead of having to find a broker and organize all the logistics yourself, Robinhood handles that for you - all you need to do is make an account. When you place an order through the platform, it’s automatically routed to a market maker. That means Robinhood makes a fraction of the ordered share for providing business to its partner market makers and accumulates revenue with every order a user places.

Now that the stage has been set, we can finally talk about what happened to Robinhood post-pandemic.

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Heading Downhill

The US began to transition out of the pandemic in late 2021. Schools and companies were instating hybrid work policies, restaurants were opening outdoor seating, and Big Pharma was rolling out booster shots - all planned for 2022.

To everyone, this was great news - a return to normalcy. But to Robinhood? This was just the beginning of their worst nightmare.

The first indication was the company’s 2021 Q4 report: It reported over $420M in losses for that quarter, totaling up to $3.7B for that year.

The next was the gradual decline in the number of active users. Robinhood peaked with 22M in the summer of 2021, and it’s only dropped since then. By the beginning of 2022, only 15.9M users remained. Note here that both of these numbers include users who are idle - people who are simply holding money in their accounts - meaning we can largely attribute this decrease to the drop in active, engaged users.

The third red flag? Robinhood’s inability to address the first two.

Remember our earlier conversation about its business model? Robinhood simply cannot make money unless it has active users!

So when Robinhood assumed that its pandemic-induced traction would continue even after the transition… Well, let’s just say we’re not surprised that no one’s sticking around anymore.

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Your Retention Strategy Is What Keeps Your Business Afloat

You need to have a retention strategy if your business is dependent on consumers in any capacity. And what’s even more important is to keep updating your retention strategy and forming different versions of it to appeal to different consumer segments.

Robinhood’s a great example because they could’ve easily segmented users by financial expertise and appealed to each segment specifically. For novices, they could’ve offered more educational and informative features to offer additional long-lasting benefits. For more experienced users, they could’ve implemented smarter insights features to help users keep track of their performance. Some people have even suggested gamifying the platform to keep traders hooked.

But beyond product development, there are also other, more operational ways to retain customers.

For instance, Robinhood initially had a very rough and unresponsive customer service pipeline. Users would also get incorrect notifications about profit/losses, and would have to wait several days before receiving help. Having better customer support to enhance the design of their platform would’ve enriched Robinhood’s user experience even more.

While these suggestions all seem very straightforward, they’re also the smaller, more granular details that companies typically forget. Your product can be fantastic, but if you’re not selling it or marketing it in the right ways to the right people, you’re not going to have customers. Even worse, you might have some at first, but they will all eventually forget about you.

Retention is extremely important - but can seem very daunting to execute. After all, your retention strategy will change depending on customer segments. It’ll also look different depending on your company’s growth.

But have no fear, Cotera’s here! We’ve mentioned our perks in customer segmentation and RFM quite a bit, but I want to also emphasize our ability to go beyond just providing you with the raw data. On top of that, we pull out the important pieces and insights that can help form the basis of your next retention campaign. Within each segment, we can highlight ways to increase customer loyalty and detect patterns in their engagement with your product. We can even help you decide between which customer segments you should be focusing on converting and which to let go of. We are here to aid you in making smart, data-driven business decisions because we want you to see you succeed and your customers to be satisfied.