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Is Robinhood’s Disruption a Good Thing?

  • July 28, 2021

What kinds of errors?

The app has crashed at some crucial moments. It recently paid a record amount to the securities industry’s self-regulatory body for that and other mistakes including not doing enough to screen out customers that weren’t suited for a type of higher-risk trading.

Last year, a young man killed himself after a misunderstanding that led him to believe that he was in the hole by more than $700,000 from Robinhood trades, and he couldn’t reach the company to sort it out. A traditional broker might not have allowed that type of investment without guidance, or it might have been easier for a customer to find help.

You’ve written that we’re in a golden age for new types of financial companies including Robinhood, the payments start-up Stripe and semi-automated financial advisers. What’s going on?

Many people have wanted something other than big, traditional financial institutions, but they didn’t have many good or reliable alternatives. When Simple, one of the first mobile banking companies, crashed all the time, the attitude nearly a decade ago was: This is what happens when your bank is just an app.

Fast forward a few years and now the technology building blocks for newer financial companies have become more solid, and trust in them is building among the public and regulators. It’s great for people to have more choices for banking and finance, but again there are trade-offs.

A number of these companies have struggled with repeated outages, frozen accounts, hacks and other major issues. Conventional financial institutions have many problems, but they’re also not likely to lock you out of your money without recourse.

Article source: https://www.nytimes.com/2021/07/28/technology/robinhood-ipo.html

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