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Commission-free trading apps follow path of challenger banks by introducing fees

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Trading Platform Robinhood Fined 65 Million By Securities And Exchange Commission
"We share a common goal of eliminating the barriers that keep people from participating in our financial system," Robinhood said of its merger with Say.

Commission-free trading apps like Robinhood have soared in popularity for retail investors during the pandemic. Now their attraction is dwindling as they follow the path of challenger banks by introducing fees. 

Robinhood lured traders through its promise of no trading fees but has recently faced regulatory scrutiny after a year of significant market volatility. Then they came under fire from investors themselves for limiting trading on “meme stocks” at the height of the Gamestop saga. 

Other apps have jumped on the new interest in investing claiming to democratise the process, but now questions are being raised about their integrity as they start to introduce fees. 

From early April Trading 212, which has long been the “fee-free” platform, will introduce a 0.15 per cent on all stock or ETF trading in different currencies. Freetrade charges users already charge 0.45 per cent on transactions in shares denominated in a foreign currency.  

But it’s a well trodden path for young startups that soon realise they need to make a profit. “We agree that commission-free investing has to have a sustainable revenue model and sometimes that will mean fees to the end customer for some services,” Matthew Leibowitz of start-up platform Stake conceded. “But we totally reject the premise that charging on trades can still mean commission-free trading.”

Challenger banks like Monzo have successfully captured a significant portion of the market on their free current accounts but have recognised the need for paid premium accounts. “The challenge is if your key USP is free and then you start to charge customers, it becomes difficult – you’ve seen similar pushback with some of the neobanks,” said Max Rofagha, chief executive of financial education app Finimize. 

“It will be interesting to see if neo-brokers can add monetisation mechanisms without pushing away their user bases. The key will be transparency towards the end consumer, as we’ve seen how crucial consumer trust is with Robinhood.”