[pjg]

Am I the only one who thinks nobody is talking about the elephant in the room ? i.e. the cause and effect. Fintech companies like Robinhood have popularized the concept of (a) zero fee trading and (b) better UI/UX and just better service/offering on highly scalable platforms that allow them to introduce new products/services, which are virtually impossible for legacy providers like Schwab. Seems like that is the single most important cause of Schwab and TDAmeritrade merger. Much like ~15 years ago when "Internet" based trading companies forced the traditional "phone calling" brokers to either merge with Internet upstarts or go out of business. Schwab survived the first wave of disruption as it aggressively embraced into Internet based trading. There was a wave of consolidation with other purely online trading companies e.g. Datek, Scottrade etc. merged into what is now TDAmeritrade.

Seems like the traditionals haven't been able to survive the second wave of disruption. This is what is prompting the merger i.e. if you can't grow like the fintechs then cut costs using merger cost synergies. A side effect of this is move from extremely high cost locales to lower cost ones. It's PR couched in terms like "Any additional real estate decisions will be made as part of the integration process, over time."

Good for San Fran and the bay area, it seems. Some prime corporate space being vacated should take a little pressure off real-estate prices (I hope).

[aloknnikhil]

https://www.schwab.com/public/schwab/active_trader

I don't think Robinhood can even compare to the tools offered by Schwab's brokerage accounts. It's like r/wallstreetbets vs r/investing

I do agree that Robinhood was the first to make trading accessible to the masses and pushed for zero-fee trading.

[pjg]

What percentage of the users at Schwab use the premium tools, my guess is somewhere between 1-10% ? Does Schwab earn disproportionate revenue from them ? If yes, then I can see your point but as someone below points out most brokerages make money off balances carried in the brokerage accounts. That makes Robinhood (and the likes of it ) valuable since it's more about monthly active users. My point is user base growth has been stagnant with traditional brokerages, whereas fintech upstarts are on a tear. That combined with other revenue vectors e.g. crypto trading, SIPC insured bank accounts etc. make it difficult for traditional brokerages to compete

[Areading314]

Will be interested to see robinhoods "financials" when they finally release them. It's likely their business model is of the "give free stuff away and raise more funding" variety.

[pjg]

Financials are not public but they make money like other brokerages i.e. on the float. They also seem to have a fremium model. Add to that other products they are offering and I won't be surprised if they growing in revenue per user terms. Yes, they are likely using VC money for growth but also have long term potential for a viable model

[irq11]

Schwab has a great website, and has for a lot longer than Robinhood has been a thing. Also, they stopped charging commissions on trades as well.

Schwab is pretty great. If your only frame of reference is Robinhood, you should really look into it.

[JumpCrisscross]

> the traditionals haven't been able to survive the second wave of disruption

Pretty much all major American brokerages now offer zero-commission equities trading. It’s been a long time since retail equities traders depended on commissions to butter its bread.

This merger was driven, in part, by the greater fraction of revenues commissions represented ex ante for Ameritrade versus Schwab.

[scurvy]

This ^^

Most brokerages make the lion's share of their profits on carried interest in cash accounts, not trading. Robinhood isn't forcing this merger at all. TDA was ripe for the taking considering its nice overlap with Schwab demos (tons of small retail and some active traders with ThinkOrSwim). TDA fits better with Schwab than Fidelity, Vanguard, etc.

I'm honestly surprised that MS or BofA didn't make a play here. The influx just might save those two dying market players.

[droopyEyelids]

Keep in mind it's not a technological wave of disruption this time, but a round of venture backed growth companies that compete for users, but do not need to make a profit.

[pjg]

Sooner or later they will need to make profit. I posit they are on a good trajectory to do so:

Square and Stripe will make profit in payments (they almost are) Coinbase will make a profit in crypto (it's already break even) Affirm, Lendup, Sofi etc. will make a profit in lending Robinhood and the likes of it will make a profit in trading

The reason is simple: The traditional companies that they are displacing had an order of magnitude higher cost structure and weren't able to transform their backend legacy systems quickly enough (yes, they did transform their front-end UI/UX somewhat to match the newer ones, but the core is not scalable to be able to offer newer products). If the older companies were able to make a profit the newer ones will make greater profit. Again, to take Robinhood as an example: Free trading a great lure for users, however most of the money is made on other services e.g. float. Thus giving away a small part of revenue i.e. trading cost and recoup more from other services is huge.