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The Hollow Gospel of Personal Investing Apps

Despite the lofty promises of fintech firms like Robinhood, there’s no such thing as “finance for all.”

Steve Jennings/Getty Images for TechCrunch
Robinhood co-founder and co-CEO Baiju Bhatt (left) speaks during the TechCrunch Disrupt conference in San Francisco, in 2018.

Vlad Tenev and Baiju Bhatt, the millennial founders of the investing app Robinhood, have long claimed that their inspiration was Occupy Wall Street, the anti-capitalist movement that agitated against the runaway greed of the financial sector and the ruling class a few years before Tenev and Bhatt would become multimillionaires themselves. The explicit promise of the app, which allows users to trade stocks free of charge and with no account minimums, is to “democratize finance for all.” This is a common refrain among a certain style of fintech founders. There’s the feminist-branded Ellevest, with its muted Instagram color palette (“built by women, for women”), the naturalistic and deliberately nonthreatening Acorns (“grow your money”), and the sleeker Stash, which seems intended for the more generic striver (“own your financial future”). They all tell a similar story of financial egalitarianism: Give people the right tools, and anyone can get rich—or at least retire comfortably. 

But the majority of Americans don’t have money in the stock market, and the source of inequality, despite what fintech founders like Robinhood and others like to suggest, isn’t lack of “access” to the trading floor. What, exactly, are the 40 percent of people who don’t have $400 in the bank for an emergency supposed to invest? The personal investing industry—which exists to make money for brokerage firms and app inventors, not change the foundations of the economy—simply reduces structural inequality to a matter of individual risk. Investing apps aren’t an equalizer; they’re only the latest add-on to a system that promises a few people profit at the expense of many others.  

Robinhood in particular was versed from the start in the language of anti-authoritarianism, which initially set it apart from more modestly styled investing apps. Though it’s probably safe to assume that no one who signed up to trade stocks through Robinhood did so under the impression that they were participating in an experiment to drastically upend capitalism, the company’s rhetoric nevertheless attempts to conceal the hollowness of the gospel of personal investing. And it’s worked: The number of Robinhood users surged during the pandemic—the result, at least in part, of people in lockdown with $1,200 stimulus checks seeking to take advantage of a market on the ascent. “Robinhood truly is take from the rich hedge funds and redistribute to the poor,” CNBC commentator Jim Cramer marveled recently.

Robinhood did “disrupt” the brokerage industry by doing away with trading fees and account minimums—which enticed more first-time traders to the app and forced a number of other online brokerages to follow suit—but the app, obviously, is no charity. Robinhood makes its money through a murky behind-the-scenes process, in which it sells its trades to larger firms, and this year expects nearly $700 million in revenue, all while its users risk financial ruin. As Forbes journalists Jeff Kauflin, Antoine Gara, and Sergei Klebnikov wrote last month in an in-depth report on the company, “Robinhood has sold the world a story of helping the little guy that is the opposite of its actual business model: selling the little guy to rich market operators with very sharp elbows.” 

Robinhood ultimately serves the same ends as every other Wall Street broker, and the app’s extreme user-friendliness—one basis of its claim to financial democratization—is also incidentally what helps part users from their money. Like the various tricks casinos employ to encourage gamblers to stay another hour, Robinhood’s sleek and deliberately addictive interface lures users to continue trading, sometimes until they’re tens of thousands of dollars in the hole. Less than a decade after Robinhood launched, the company is under investigation by the Securities and Exchange Commission and the Financial Industry Regulatory Authority for inadequate customer support operations, which has left inexperienced traders hanging out to dry.

In perhaps the most tragic instance of the danger posed to new traders, earlier this year, a 20-year-old amateur trader died by suicide after his Robinhood dashboard briefly logged a negative balance of $730,000. (Following that incident, the company donated $250,000 to suicide prevention, or a little over half of a year’s worth of pay for the average Wall Street executive.) More recently, the app crashed for more than a day without warning, explanation, or any customer service support, costing some users thousands of dollars in lost trades. That seems to be part of a long line of problems with the app: “Over the first half of the year, U.S. consumer protection agencies received more than 400 complaints about Robinhood—roughly four times more than competitors,” Bloomberg reported earlier this week. This year, the company has pledged to beef up its user support but has also opened a D.C. office and hired a battery of lobbyists to promote the company’s interests on Capitol Hill—the exact opposite, that is, of cultivating democracy.

But even the apps that are slightly more benign, or at least less legally pressed, are part of the same system. Acorns, whose CEO described it as a “financial wellness system,” is well on its way to a valuation of $1 billion. The app Betterment, valued at $700 million, is close behind. And all the while, economic inequality has stayed sky-high, wages are still essentially frozen for the vast majority of workers in the U.S., and the two major political parties remain in lockstep with Wall Street. The liberatory, disruptive potential of fintech, in other words, seems to have overwhelmingly benefited the same group that was cashing in before.

In a certain sense, investing apps are for ordinary people, insofar as they’re designed to exploit them. No amount of outlaw rhetoric can transform another tech-savvy cash grab into some kind of overhaul of the financial sector, and turning loose more people onto the digital trading floor won’t do anything to ameliorate inequality, despite the claims of Robinhood’s founders and champions. When it comes to Wall Street, the house always wins. That, after all, was the very problem that sparked the movement that Robinhood’s founders once tried to claim as inspiration.