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Lessons from Robinhood’s tumultuous year

Education, authenticity, and designing for both short and long term needs can make or break customer trust


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Meghan Wenzel

3 years ago | 8 min read

Robinhood is a Silicon Valley darling, pairing the bold mission of democratizing the financial system with a sleek design and explosive user growth. However, in the past year, we’ve seen some serious cracks in their public image.

Last summer, a 20-year-old took his own life believing he lost almost $750,000 through risky bets on Robinhood. Despite being young and completely inexperienced in trading, Alex Kearns was allowed to buy and sell options, opening himself up to increased risk and potential losses.

When he frantically reached out to Customer Support for clarification and assistance on his perceived loss, he didn’t receive any response.

Late last year, Robinhood paid the SEC a $65 million dollar fine for misleading business practices.

They failed to disclose payments from trading firms in exchange for routing customer orders, lured inexperienced investors with “gamification”, lacked proper controls and infrastructure to keep the platform running during volatility, and failed to seek the best available trading terms for customer orders, depriving customers of an estimated $34.1 million in aggregate.

In January, Robinhood suddenly froze trading on GameStop (along with a few other companies including Blackberry, AMC, and Nokia) citing “market volatility”.

Hedge funds and institutional traders were able to trade as normal though, which greatly angered Robinhood’s users who felt that Robinhood was handicapping them in order to bail out hedge funds who had heavily shorted these stocks.

Based on this string of incidents, we can see how customer education and support, authentic and transparent business models, and forward thinking design can make or break customer trust.

Thoughtful, robust, and accessible customer education is essential

Robinhood doesn’t surface crucial education and information upfront nor in context

The financial markets are highly complex systems, with entrenched and powerful players. While anyone should be allowed to engage in them, it’s important to provide newcomers with fundamental information and realistic expectations. If you’re inviting someone in, you have a duty to provide basic education, not just exploit them.

Robinhood should convey the complexity of the markets, provide in-context data to help users evaluate options and make informed decisions, and transparently acknowledge their connections to other market participants.

“Robinhood isn’t democratizing investing…They may be learning about market mechanics — how to buy and sell securities — but that is the easy part. What they are not learning about is how to value securities.

They are not learning anything about investing. And my fear is that many will lose money, conclude that the markets are a game rigged against them and simply exit financial markets.” — Robert Johnson, PhD, a professor of finance at Heider College of Business, Creighton University

Most trading platforms allow users to place limit orders, meaning they can set a maximum (or minimum) price they want to buy (or sell) a stock at. This provides more control over price and can help users take a more strategic and calculated approach to buying and selling stocks.

Robinhood’s UI doesn’t surface that limit orders exist in its free version — only offering them to paid Gold members. As a novice myself, I explored other trading apps and soon realized limit orders are standard functionality.

It really turned me off that Robinhood doesn’t even let you know this type of trade exists. This reduces trust in the platform, indicating that you can’t trust them to provide the relevant information to make the most informed choices.

Robinhood’s gamification of trading creates large risks

Stocks and finance are quite complicated! Companies need to responsibly convey the complexity and severity of it all. While UX focuses on making experiences more intuitive and intelligible by reducing complexity, Designers need to provide the necessary context, information, and tone.

“Buffett and Munger…refer to the ‘gamification’ of trading. Blinking lights, flashy animations, big buy and sell buttons, limited information about the company trades and limited analysis functionalities within the Robinhood trading app remind of a casino type of ‘action.’” — Alexander Voigt, founder and CEO at trading-insights platform daytradingz.com

Robinhood has the opportunity to carefully synthesize and surface crucial information that could help users better value and select stocks. By providing sufficient education and relevant data in-context, they could empower users to make better decisions. However, their current gamified and low friction approach is more focused on their bottom line.

What can we learn?

“Move fast and break things” doesn’t cut it — companies need to think through the larger implications of their products and services and provide relevant customer education and guidance. While companies don’t need to be paternalistic or patronizing, they do need to be transparent, supportive, and user-focused.

  • Combine both push and pull of information. Cover important concepts (i.e. investing fundamentals, data privacy, tax implications) up front and/or in-context during important interactions and complement this with a wealth of more in-depth resources (i.e. investing strategies, financial deep dives) for people who want to learn more.
  • Be conscious and rigorous in development. The burden of proof should be on the company to prove that the product is reasonably safe and ready for use. Companies should take necessary precautions and thoroughly validate the product before releasing it on the market and putting the burden on consumers to deal with consequences completely on their own.

Customers are quick to pick up on inauthenticity, which kills trust

Robinhood’s business model is purposely opaque

Robinhood makes a significant chunk of its revenue from payments for order flow (PFOF) — a common yet controversial practice. Robinhood is compensated for directing their users’ orders to specific partners to execute the trades. This means the more users trade, the more Robinhood makes.

This creates a fundamental conflict of interest between users’ interests and Robinhood’s, since the average person builds wealth through long-term investing (i.e. buy and hold), rather than rapidly buying and selling stocks.

To encourage more trades, Robinhood’s UI purposely feels light, carefree, and inconsequential (not exactly the tone you’d expect from a product with serious financial implications). These design decisions deliberately create a “gamelike” environment to lower resistance, hesitation, and worry.

Robinhood is “more financial entertainment than investment management or wealth building. What they’ve created is an incredibly fun, exciting, legal casino in your pocket.”

While Robinhood isn’t the only company to engage in PFOF, it’s in direct contrast with their core mission, branding, and marketing.

Bill Gurley, a prominent venture capitalist, noted Robinhood’s PFOF model gave him pause: “It made me feel bad. Emotionally bad. Because I think it is misleading to people…My issue with Robinhood is, I think their mission and what they say they stand for is not actually true.”

What can we learn?

Building your brand around helping the average Joe while simultaneously cuddling up to market makers (and hiding it) isn’t a good look. This breaks trust, which is paramount to strong brands and customer loyalty.

  • Be honest and transparent about your business practices. If you’re scared to be transparent, maybe it’s time to rethink your business model. Because when — not if — customers find out, it’ll break their trust and have them running into competitors’ outstretched arms.
  • Consciously build an authentic brand. Don’t explicitly market yourself as a friend of the people and then do shady things behind their back. Find messaging and branding that can truly be transparent and authentic. People can smell inauthenticity a mile away, and they’ll search for alternatives.

Companies need to consider and design for the larger picture and users’ long term needs

Robinhood failed to surface long term considerations upfront

We constantly have to scope things, choosing what to include — and what to exclude. In product development, especially those with serious outcomes, it’s important to prioritize ethics and customer needs over profits. We need to deeply understand users’ needs and how our product or service may impact them in both the short and long term.

As the 2020 tax season progressed, several new Robinhood traders were shocked by massive tax bills. In one extreme case, a new trader faced a potential tax bill of $800,000, despite only making $45,000 in net trading profits.

New traders are suddenly learning that common tax-minimizing strategies are difficult or impossible to adopt within Robinhood’s platform. “I think it’s absurd. Taxes are a huge component of investment returns, and it’s an area where investors have some control,” explains a CPA and money manager.

Companies should do the leg work to consider, explain, and convey long-term implications of various actions and choices within their platforms. Otherwise, they’ll face furious, frustrated, and fickle customers.

What can we learn?

Companies need to put their users first. Customer obsession is key in building trusted and successful brands. In order to do this, companies need to put in the time and consideration to understand users’ short and long-term needs so they truly have customers’ best interests at heart.

  • Gain a holistic and long-term understanding of your industry. What are the short and long-term interactions with your product? What are the consequences and implications? What (unexpected) factors come into play? How do today’s decisions impact things tomorrow, next month, or next year? What information do users need to have now in order to make the best, most informed decisions?
  • Build a product that puts your user — and their needs — first. What are users trying to accomplish? What do they want today, next month, or next year? How can you support and enable them? While you may need to take a longer-term perspective, in the end it will build customer loyalty.

Robinhood pioneered a sleek user experience and design-driven platform to democratize financial markets. They’ve empowered and encouraged entire populations of people previously sidelined to get involved, which is admirable. However, this could ultimately backfire if it leads to losses and declining trust in financial markets.

“I was struck by the similarities between the lead-up to the financial crisis and the present moment, with millions of relatively inexperienced people jumping into the stock market, determined to take advantage of the wealth-creation machine. After 2008, the middle class suffered far more than the wealthy, and many economists worry that the high participation in today’s volatile stock market will have a similar outcome.”

Gaining and maintaining customer trust is paramount in building strong, valuable brands. Providing adequate and relevant information in context, maintaining honest and authentic marketing and design, and deeply understand customers’ needs — both short and long term — are crucial in gaining and maintaining trust.

Instead of rushing to push out a half-baked product, companies, particularly those in highly complex and/or highly impactful industries, should take the time to understand and address both immediate and longer-term ramifications.

Companies should shoulder the burden to inform and adequately protect consumers, instead of focusing solely on turning quick profits. This will benefit everyone in the long term, providing more valuable products and more trusting and sustainable relationships.

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Meghan Wenzel

As a User Researcher and Strategist, I help companies solve the right problems and build more relevant, efficient, and intuitive products. I started my UX career at a Fortune 500 company, and I've since helped established the research practice at three B2B startups. I'm currently a Senior User Researcher at Unqork, the leading enterprise no code platform.


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