In the mid-2000s, there was an explosion in the number of online trading firms coming to market. The internet and easy access to off-the-shelf trading platforms meant that it was simpler than ever before to set up a brokerage hocking CFDs to retail customers.
Today, we may be about to see similar growth in the number of companies offering access to stocks trading. In the US, Robinhood has taken the industry by storm, amassing 5 million customers and a $7 billion valuation.
The Californian firm also plans to move overseas. Last month, the Financial Conduct Authority – Britain’s main financial regulator – confirmed that the stockbroker had received the green light to operate in the UK.
And another emerging giant in the financial services world has also launched commission-free stock trading for its 7.5 million customers – Revolut.
The London-based challenger bank launched the service this month after a limited release in July.
The platform, which is built into Revolut’s existing mobile application, is being provided in conjunction with technology firm DriveWealth and – unlike Robinhood – the bank says it won’t be selling its clients order flow.
Less than a week after the new service went live, we spoke to Andre Mohamed, Revolut’s head of wealth and trading.
Mohamed joined the bank at the end of last year, having previously been the co-founder and chief technology officer at Freetrade, another commission-free trading app.
The Revolut executive talked to us about adding new products to the bank’s trading platform and why he believes they can beat the other companies bringing stock trading services to market.
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Why did Revolut decide to add a stock trading service?
Revolut is doing for stock trading what it has already done for forex. It’s really just a natural evolution and part of the overall mission to build a one stop shop for all of your financial service needs.
How come you decided to partner with DriveWealth as opposed to doing things in-house?
We polled our customers and they told us that they wanted access to US markets. With the prices of popular US stocks being so high, I believed it was important to offer the ability to buy and sell fractions of shares to make the service accessible to as many people as possible.
We looked at how we could deliver this in a reliable and low cost way and also took into account time to market. After looking at the options, a partnership with DriveWealth was the most attractive choice to go to market. It allowed us to have a product in the hands of our customers quickly whilst we look to build more things in-house for the medium to longer term.
DriveWealth only provides access to US equity markets. Would you you work with other firms to add new markets for customers in the future?
Yes, we are actively working on offering access to other markets in the near future, and will be doing so via different routes.
You have very low custody fees and a pretty high ceiling of 100 free trades a month. Does Revolut expect to make money from stock trading or is it more of a ‘bolt on’ to attract customers to the core banking business?
We use a freemium business model much like Amazon Prime. There are a range of benefits and additional perks to being a Premium and Metal user – trading with higher commission-free limits is just one of the benefits that you get as part of your subscription.
We do expect to make money from stock trading – either through driving more subscriptions to Premium and Metal for Revolut as a whole, or via commissions when Standard and Premium users trade outside of their commission-free limits.
Incidentally, for Metal users, we have just removed the £100 a month limit – they now benefit from unlimited commission-free trades.
With companies like Stake, eToro and Freetrade all providing the service, the market for commission-free trading is heating up in Europe. What makes you think Revolut can beat the competition?
This is an easy one! Revolut is the only one of those mentioned that has a growing ecosystem of complementary financial services all under one umbrella in one seamless app. For example, you can fund your Revolut Trading account from your main Revolut account in a couple of taps, instantly. Revolut also has 7.5 million customers and counting. In the end though, the competition is great for the consumer and helps to push us to innovate and differentiate further.
You were at Freetrade previously, a company you founded. Why the move to Revolut?
After I left Freetrade, I was looking around for other interesting opportunities that might fit my skills, experience and ambition. I spoke to a number of companies but then the chance to interview with Revolut came along. Once I grasped the scale and ambition of what Revolut were trying to do, it was simply an opportunity I couldn’t pass up.
On a similar note, how was the transition from start-up to big corporation? What is the culture at Revolut like vs Freetrade?
When I joined Revolut, the headcount, ignoring customer support, was still only a few hundred or so – I wouldn’t characterise that as a big corporation. Culturally, it still felt like a start-up, albeit one rapidly transitioning into something else. Looking around the office at Revolut, I see smart, driven and ambitious people who are intent on disrupting the status quo of the incumbent retail financial service providers.
Many retail investment programs say they are trying to ‘democratise’ trading but then in reality just take advantage of uninformed retail customers. How do you ensure clients actually know what they are getting into and you aren’t just providing them with a service they probably shouldn’t be using?
We don’t add spreads or trade against our customers. I also think there is a great opportunity for Revolut to lead the way in terms of education.