Robinhood has said that banning the payments it gets from financial middlemen would threaten the existence of free stock-trading. The company is about to test that theory itself, as it makes its first international expansion into a country that already bans the practice.
The catch is the U.K. doesn’t allow payment for order flow. That was Robinhood’s key revenue generator as it became the country’s fastest-growing brokerage ever during the pandemic, making up more than 80% of revenue in some quarters. The brokerage has repeatedly defended the practice against threats to restrict or ban it in the U.S.
Gensler had told Barron’s in 2021 that the SEC was considering banning payment for order flow. Robinhood pushed back at the time, saying the practice allowed brokers to offer free trading, instead of charging customers for each trade they make. Without it, some brokers would likely bring commissions back, Robinhood Chief Legal Officer Dan Gallagher told Barron’s at the time.
The U.K. expansion, however, shows that Robinhood is confident it can make money even without payment for order flow. Part of the reason for such confidence might be that Robinhood has somewhat reduced its reliance on payment for order flow as interest rates have risen. The company’s net interest income is now its largest source of revenue.