Robinhood Gold and Coinbase One: the business strategy

The subscription prescription

Upstart brokers in crypto and stocks like Coinbase and Robinhood face a dilemma: Their revenue grows when the market rises, but drops in a down or uncertain market. One way to address this is to build out features for which consumers will pay a subscription. While subscriptions aren’t new — monthly fees for online services date back decades — for consumer brokerages, these products are still largely unproven.

There’s a Prime example for how this works. Companies want to increase their subscriber numbers to increase stickiness in the way that, say, Amazon Prime keeps customers coming back with perks, said Brian Graham, partner at Klaros Group. But a bigger reason is to diversify their revenue.

• “Whether it’s in the private markets or in the public markets, businesses that have significant amounts of subscription and that are repeatable are worth more,” Graham said. Wall Street has shown it will quickly punish businesses with up-and-down revenue linked to volatile assets like bitcoin or meme stocks.
• “One other thing that we actually didn’t talk about in the call, you’ve probably heard me in the past talk about Robinhood Gold and the subscription opportunity,” Robinhood CFO Jason Warnick said in the company’s fourth-quarter 2021 earnings call, touting the product’s potential to Wall Street

Coinbase and Robinhood’s products are mainly targeted to active traders. For consumers, investment subscription offerings typically promise fuller-featured services that make trading easier, leave them more knowledgeable or keep them more secure.

• Coinbase One, which is still in beta testing, offers free crypto trading for subscribers at a current price of $29.99 per month. In addition, it gives 24/7 phone support, extra tax help with pre-filled forms and $1 million in protection against account-takeover hacks. Coinbase has been pushing subscription services more broadly, including staking and custody, which provide “incremental stability to our revenue base as they grow,” the company said.
• Robinhood already offers free trading through its payment for order flow business model, which it applies to both stocks and crypto. But its subscription service Robinhood Gold, launched in 2016, still appeals to active traders who want to, for example, trade on margin. Now priced at $5 a month, the service lets users have larger instant deposits; professional research from Morningstar; higher-level market data from Nasdaq; and access to margin investing. Robinhood doesn’t break out how many subscribers Robinhood Gold has.

No one seems to have identified a broad-based subscription offering, though — the money equivalent of Netflix or Disney+.

• “For the folks who don’t trade these kinds of assets frequently at all, it’s not going to make sense,” Graham said. “The folks who are really trading all the time, it may make sense to have multiple [subscription accounts] because it’ll lower their cost and not constrain them.”
• Neobank Revolut has tiered subscriptions, with two levels in the U.S. and three in the U.K. The subscriptions give perks such as free international payments, fee-free or no-limit foreign exchange, higher interest rates on savings and lower-fee or free crypto transactions. The highest tiers include Revolut’s Metal card.
• While Revolut’s subscription does offer a crypto trading perk, the service may appeal more to expats living abroad who make international payments or exchange currency, or people with a large savings account.
• That points to a direction these programs could head in: Consumers are used to credit-card style perks like cash back and insurance. So bringing those types of perks to a financial subscription service will likely bring more consumers on board.

Companies shouldn’t rely on subscriptions just to boost immediate revenue, said Melody Brue, principal analyst at Moor Insights & Strategy. “As a business model, the subscription isn’t necessarily going to be the revenue driver,” she said. “Loyalty, increased engagement, community and more customer and behavioral data that comes from those things will drive the long-term value of that customer.”

— Tomio Geron (email | twitter)

A version of this story first appeared on Protocol.com. Read it here.

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