Transcript
Vlad Tenev (0:00)
We call it Vibe trading. So, you know, there's Vibe coding. I think there will be Vibe trading, which sounds a little flippant.
Interviewer (0:06)
Well, but, you know, the thing you said that we're not a trading platform. It's like, you know, it's like a financial home. It's like Vibe finances. It's like, you know, because you have all these other products, I assume it's going to, you know, like, Vibe set up my, you know, kids529 account, which is, you know, not totally.
Vlad Tenev (0:20)
Here's the areas that I'm most interested in.
Interviewer (0:23)
All right, Vlad, I'm super excited to be here. Thanks for doing this with me today.
Vlad Tenev (0:26)
Well, glad to have you.
Interviewer (0:27)
Okay, so I wanted to start by getting sort of your historical lay of the land of online brokerage. And maybe we don't have to go all the way back, but if you could sort of just go back to, you know, maybe like the early days of online stock trading into sort of like, you know, Vanguard and Schwab and Fidelity. And now you've got, like, online platforms for trading that are modern, like Robinhood. Just like, what's sort of the history in sort of the narrative as you see it?
Vlad Tenev (0:54)
There's a great book about this, a Piece of the Action by Nocera. It covers basically the modern. The rise of the modern financial industry, which is super interesting. I mean, it's basically a story of a big wave of democratization associated with lower costs. So Charles Schwab began in the 70s. I think there's a lot of similarities, if you look back, between what Charles Schwab was to begin with and kind of what Robinhood is sometimes accused of being. Right before Schwab, Merrill lynch was. Was the big broker. And really they had brokers that would sell you trades and call you and convince you to buy stuff, and they would charge hundreds of dollars per trade. And then after that, there was the. The event that led to the creation of Charles Schwab was called Mayday. Exact date, but it was in 1972. And up until that point, commissions were regulated, so you could not charge under a certain amount per trade for commission. And Mayday led to dereg. Deregulation of trading commissions, which allowed Schwab to enter the business. And Schwab said, you know what? We're going to cut costs. We're going to make it as efficient as possible. So we're not going to have branch offices. You're going to call us on the phone. We're not going to try to sell you anything. We'll Just process your ticket over the phone, make your trade, and we'll do it for, I don't know what it was, call it $75 per trade. And so they were in the news in the early days for creating this like extremely sophisticated phone dialing system that could handle lots of simultaneous. Like they innovated using the tools they had at the time. And then in the 1980s, the Apple II came out, right? And actually in Palo Alto, not very far from here, two guys, Bill Porter and I forget his partner's name, Randy or something, they met at a party and Bill Porter had just bought an Apple II computer and he had this idea of what if I use this machine to trade stocks for my home? And the two of them got very excited about this idea and they decided to make a business out of it. And E Trade was born. And of course that was sort of the origins of it. It went public 10 years later during the dot com boom. And it became one of the first profitable dot coms, right? For, for a long time they were accused the, the whole Internet thing was dismissed as a fad. Nobody thought that there would be a way for many of these companies to make money. But online brokerage was I think, one of the first, if not the first proven business model that could be profitable in the Internet era. So that was E Trade. And you probably remember maybe, maybe when you were a kid, they were heavy on marketing. They had that baby. It was kind of a cultural moment. The dot com boom was when I started trading myself. I opened my first brokerage account and then Robinhood started, let's say what would have that been. 2015 was when we launched 2013. 2012. 2013 was when I got the idea and our big innovation, I think, I think there were three innovations that led to Robinhood. First was obviously mobile. Everyone else had ignored mobile. And we made the bet that, you know, people were saying mobile is a toy. Nobody would do serious financial transactions on their smartphone, but that that would become primary. And so we like built for that when everyone else was ignoring it. The second bet we made was that high frequency trading had completely changed institutional finance on an infrastructure level. So entire rooms that would have been full of trading desks, people picking up phones and making trades, or being disrupted by five to ten kids out of MIT creating HFT firms. And so we took the technology from a sophisticated high frequency trading firm and that became the backbone for our retail product which allowed us to lower costs and offer commission free trading. And at that time commissions were still between seven to ten Dollars. So that was a huge disruption. And the third thing, the company was sort of formed in the wake of the global financial crisis and the whole Occupy Wall street movement. And if you think back on the global financial crisis, I had graduated Stanford 2008 and gone to grad school. My first month in grad school, Lehman Brothers went under. Was kind of an interesting thing because a lot of my friends, the ones that were most secure in their financial careers, just all of a sudden, as quickly as they came into their jobs, they had their internship at Lehman Brothers, they got their return offer. They were very proud. They had three years of job security in front of them, and then they were going to go get an mba. There was this well defined path and then it evaporated, evaporated. And you had the images of them with the packing up their cubicles with the boxes. There was just a lot of disillusionment, particularly among young people, among millennials, with the financial system, because some of this happened to them. They saw it happen to their parents. It felt like they were the victims, young people in particular, of forces beyond their understanding that were just like packaging products and taking risk, making things complicated, and that there was no accountability. No one went to jail as a result of crimes committed in the global financial crisis. Nobody big anyway. And I think this led to the Occupy Wall street movement, which was really a young person, a millennial thing. And I think it opened the door to a new brand in the space. No love was lost between young people and the big financial companies. And Robinhood, along with mobile, along with the great technology that enabled commission free trading, I think hit a particular resonance because it was a very optimistic message. In a way, it was kind of the anti Occupy. Whereas Occupy said the system doesn't work, we just have to reset and start it all over, which I think was not really actionable. And that's why the whole movement ended up fizzling out, which without much impact. And we were saying, why don't we plug you into the system? If we get more and more people to become investors, to own the best companies, and we want to make it easy and engaging and actually like enjoyable to do so, then we could solve a lot of these same problems. And I think at the time there was a need for a new brand. And the story of Robinhood resonated just as much as the product and the technology.