Robinhood Hits University Campuses That Credit Card Companies Fear

Robinhood, the free stock trading app 21 million active users and counting, about to go college coffee shop tour to gain new customers.

Now where have we heard this before? Ah, yes, the credit card industry.

The campus antics of the card companies up to twenty years ago were so gruesome that 2009 federal law this has made it difficult for anyone under the age of 21 to buy their products in the first place.

There are some important differences. Credit card issuers can put marks on your record that could prevent you from qualifying for an apartment or other service years later. Robinhood is giving away just $15 for each student to enjoy investing.

But here’s what they have in common: Both products are addictive, and if you get confused, the results can be costly.

So let’s start with a history lesson.

First-year college students are a highly desirable pool of potential customers. They renew themselves by the millions each year, and many start school without a strong interest in any peddlers. And fish in a barrel for the right step: A generation ago, card issuers and marketing companies started popping up on campus with offers of free food or college logo items to people who completed an application.

“Really, you’ve had kids enrolling for exactly the wrong reason,” he said. Odysseas Papadimitriouis a former Capital One employee who is intimately familiar with how to work with clients with little credit. “They had no idea how the products worked.”

MBNA, which Bank of America eventually acquired, took things a step further. It made deals—up to seven figures a year—with schools or alumni departments in exchange for names, addresses, and phone numbers, so the company could refer students directly.

Entrepreneurial student journalists and others raised alarm bells, noting that schools were taking their lambs to slaughter. Inevitably, politicians and consumer advocacy groups took notice. USA PIRGA consumer group that started on campuses began to emerge for a counter-campaign. One of his images looked like Visa’s logo: fee“Free gifts now. Big fees later.”

Then, in 2009, Congress passed federal credit card law. between many provisions He was someone who prevented most people under the age of 21 from getting credit cards without a co-signer.

Is Robinhood doomed to a similar fate? This can happen especially if the markets take a dive and a large number of customers experience unexpected losses.

Like credit cards used to be, Robinhood’s service is easy to get and use. (Robinhood’s original game-like interface was particularly appealing to young investors; students who take themselves long enough from the screen to attend the lecture will no doubt discuss its design prowess in business schools for decades to come.) And as with credit cards—another saturation is that attracting customers from competitors is expensive. industry – much depends on finding inexperienced people willing to try your offer.

This isn’t necessarily a bad thing. If you use credit responsibly early — and many people do — you start a permanent record that can lead to high credit scores. Similarly, exposure to the stock market is necessary for most people to retire comfortably, and the sooner you start investing prudently, the better off you’ll be.

But a avalanche research Decades have shown that individuals who trade too often end up with less money than if they had left their investments alone. We lose because we fear and grasp too much for winners. our greed.

Less trade is a problem for Robinhood. Like some other brokerage firms, it makes money from something mentioned. “pay for order flow.” Third parties pay Robinhood for the privilege of processing clients’ transactions, as these parties can make money themselves with smart market maneuvers. But you can’t monetize the order flow without orders.

There is evidence that many young Robinhood investors, like my colleague Nathaniel Popper, have been burned. reported last year. Robinhood sued It was brought in by the family of a college student who killed himself believing he had incurred more than $700,000 in damages. NS Crazy trading at GameStop pulled in more novice.

Caution signs and other guidelines can be helpful and some of Robinhood’s educational materials they are pretty good. They reiterate the necessary point that holding investments for a long time can earn you heaps of compound interest.

Still, the company does not offer Individual Retirement Accounts that can help turn small investments into big nest eggs. Roth IRAs come with the following tax benefits: private use to college-aged, low-income savers.

Robinhood in July CEO Vlad Tenev said: can add such offers. A company representative had no additional information to add about any decision or timeline.

Still, there are reasons to be skeptical of Robinhood. information technology recently paid approximately $70 million in damages plus fines – largest in history Financial Sector Regulatory Authority — resolve accusations of misleading millions of customers and allowing others to trade with investments that are not suitable for them. And at the end of last year, paid $65 million Paying Securities and Exchange Commission fees, where it misleads users into using payment for order flow.

In both cases, the company neither admitted nor denied the accusations and findings.

“Investing early is important to build wealth over the long term, but research shows that the vast majority of young adults never invest in the stock market,” the company said in a statement. We want to educate and empower all investors, including university students, on investment.”

According to Robinhood’s own survey data, their clients are already more racially diverse than more established brokerages like Fidelity and Charles Schwab. Thanks for this.

But Robinhood has come a long way from establishing itself as the champion of new investors. boast “democratization” of finance. It even impressed critics who questioned whether it had startups’ best interests at heart.

When I raised this issue, the company said in a statement, “It’s pretty elitist to suggest that small investors’ participation in the markets is gambling, and that the participation of the rich is investment.”

That’s pretty rich, because no serious person would suggest that all low-balance people are gamblers. Hopefully, Robinhood employees and investors who are profiting from the company’s stock Initial public offering of $31 billion There will be no elitist types in July.

Robinhood said the campus tour will go to community colleges and historically Black colleges and universities, but did not name them. Perhaps young people who trade aggressively at these institutions will achieve somewhat above-average results in the long run.

No doubt some Robinhood investors have stepped forward so far. In a rising stock market, a lot of people do – which made it as good a time as any for Fidelity to do it. introduce a plan on its own to enable adult customers to open accounts for their young children.

I was wondering if Robinhood’s cafe tour would cover the same kinds of financial arrangements it makes with schools as credit card companies pay for student data. A company statement said it did not compensate schools for “this particular” partnership. The company declined my suggestion to pledge not to do so in future partnerships.

Let’s assume that such campus pitches do not disappear and Robinhood remains a central player for a while.

If your future includes a trial with any trading app, consider it as it could be if you are a new rider or a new rider.

Most people don’t learn to drive in a high-performance vehicle. They also take a course that usually lasts for weeks and learn to defend. “I learned to drive in a slow car,” he said. Ed MierzwinskiHe spearheaded the US PIRG credit card counter-campaign.

Beginners also often learn from mistakes. Smaller investment losses can be a very good thing as I mentioned earlier. a column last year.

Mr. Papadimitriou, who started the loan and personal finance website WalletHub After his Capital One stint, he found himself in the $20,000 hole after losing big on complex bets. Priceline’s stake during a tech stock meltdown twenty years ago. He said he’s much more conservative today.

If history is any guide, today’s gunslingers will shoot themselves in the foot, lick their wounds, and return to the market by buying and holding a few key indices or exchange-traded funds.

But until then, every year there will be a new crop of teenagers graduating from high schools that teach little or nothing about personal finance and are freed from any form of parental supervision.

Robinhood wants to buy those students a latte. Good luck to them.

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