- Robinhood announced the launch of its own in-house clearing service on Wednesday.
- The new service required building a 70-person team at its new "Major Oak" clearing center in Florida.
- The two-year effort will allow the zero-fee brokerage to save money and better execute trades for its customers, a brokerage expert told Business Insider.
- In an interview, cofounder and CEO Vlad Tenev explained Robinhood's fight to become the Amazon of personal finance.
Robinhood, the zero-fee stock trading app that helped kickstart a race to the bottom in brokerage fees, has a new weapon in its arsenal as it fights to become the Amazon of personal finance: an in-house clearing system.
The $5.6 billion startup announced Wednesday that it has completed a two-year effort to build and launch its own in-house clearing provider that will allow it to save money and improve trading for its 6 million customers, cofounder and CEO Vlad Tenev told Business Insider.
"This will allow us to not only clear and settle transactions but also the assets of all of our customers without having to depend on any third parties," Tenev said in an interview. "Over the past five years we've reached massive scale, and because we pride ourselves as being a technology company first, we said it may be time for us to actually build our own systems from scratch using modern technology."
Jessica Hoelscher, head of data at investor.com, a site that reviews brokerages and investment advisors, says self-clearing comes down to control.
"If you're self-clearing you don't have to depend on a third-party to provide operational support (you can control the new account application processes, you handle money movements, etc.), you can determine what services and products to offer, and you don't have to rely on someone else's technology (or data)," Hoelscher told Business Insider.
"There is a significant capital requirement to self-clear, and there's also a huge human investment that's needed to handle everything a Custodian would (think IT, operations), but if they're big enough and can afford it, self-clearing generally gives them full control over their businesses," she continued, noting substantial cost savings after the initial "substantial" investment.
Robinhood declined to say how big of an investment the clearing system required, but noted it has hired a staff of 70 specialists at its new Florida-based clearing center. The service is powered by a dashboard called "Major Oak," a nod to the famous tree in Sherwood Forest where the fictional Robinhood character lived, where customer support staff can view account info and assist customers. Previously, Robinhood trades were executed by Dallas-based Apex Clearing.
"No one has really done this before," Christine Hall, head of Robinhood's product effort for the new clearing service, said in an interview. "There's no blueprint or handbook to say 'you're building a clearing system, here's how to do it,' so we had to build internally a lot of expertise."
Robinhood still has its eyes on an IPO, Tenev said, echoing statements he's made for years,. He declined to elaborate on the company's potential timeline for going public. Until then, the company has its eyes on a five year road-map that will allow Robinhood to offer a full slate of financial products to its customers, beyond just trading stocks and cryptocurrencies.
"Five years from now you should be able to open Robinhood and get anything that you can walk into your local bank branch and get," Tenev said. "In the same way that you think of Amazon as the best value, place, and experience to buy something online, Robinhood should be the home for all of your financial needs."
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