Robinhood launches in-house clearing to become Amazon of finance

Robinhood

• 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 Orlando, Florida-based “Major Oak” clearing center, a
nod to the famous tree in Sherwood Forest where the fictional
Robinhood character lived. 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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