Robinhood co-founder and co-CEO Vlad Tenev speaks onstage during the TechCrunch Disrupt New York event on May 10, 2016.
Noam Galai | Getty Images for TechCrunch
Rivals to popular investing app Robinhood aren’t jumping at the opportunity to celebrate the company’s recent outage.
The U.S. commission-free trading platform experienced a massive outage that began on Monday, resulting in clients getting kept out of the market during a huge rally. The service faced downtime on Tuesday, too, before managing to restore its systems.
The $7.6 billion online brokerage firm blamed the technical problems on an “unprecedented load” on its infrastructure caused by volatile market conditions, record trading volume and a piling in of new users.
Users quickly lashed out on Twitter, and one client even went ahead with a lawsuit filed in Florida on Wednesday. Robinhood’s founders have since warned the service could face “additional brief outages” as its engineering team works to upgrade its systems.
CNBC spoke with some of the firm’s international competitors, who were more sympathetic to it than some of its users. Here’s what they had to say.
Freetrade is a U.K.-based financial technology, or fintech, start-up offering commission-free trades like Robinhood. Ian Fuller, the company’s chief technology officer, said he sympathized with the firm.
“They have a strong engineering team and have been a big disruptor to our industry for years,” Fuller, formerly an engineering manager for Snapchat, told CNBC. “When you innovate, the greater change means your risk is greater. It’s not trivial to run a brokerage platform smoothly.”
“We’ve worked to mitigate some of this risk by pushing our infrastructure to Google Cloud,” he added. But, citing technical challenges faced by Amazon’s S3 storage system in 2017, Fuller said “outages do happen.”
“When you run into issues like this, communication with your customers is key.”
For its part, Robinhood says it’s assessing customer queries about receiving compensation on a “case by case basis.” Compensation could take the form of “billing credits,” the company said.
Robinhood has ambitions to expand internationally, having launched a waiting list for U.K. customers last year. The firm doesn’t expect the outage to impact on its expansion plans and still plans on launching in early 2020.
Yoni Assia, CEO of social investment platform eToro, said “we should celebrate the growth of this industry, which is allowing more consumers to participate in the global financial markets.”
Assia’s trading platform, which began offering zero-fee trades and fractional shares last year, lets users buy and sell a range of assets from stocks to cryptocurrencies, like Robinhood. It has a few other distinctive features though, like the ability to copy another investor’s portfolio.
“There will be scalability challenges as the industry continues to grow and platforms open up the world of investing to a broader spectrum of consumers,” Assia said. “We see this in every industry: e-commerce platforms, social networks and now investment platforms.”
In recent months, traditional brokers including E-Trade and Charles Schwab have slashed their cut of trades to zero in order to remain competitive to platforms like Robinhood.
“Recent high market volatility combined with a large influx of new customers and increased volumes means the industry needs to be prepared for scale,” Assia said.
“In February 2020, we executed over 36 million trades, which is an average of more than 1 million a day. This peaked at more than 2 million trades in a single day, more than double our average daily trades a year ago.”
Trading 212, a commission-free online broker with offices in Britain and Bulgaria, also expressed sympathy for Robinhood. “I don’t think anyone wants to be in this situation,” the fintech firm’s co-founder Ivan Ashminov said.
“The current market volatility is a real stress test for most retail brokers,” he added. “We’ve been breaking new records for client activity every day, seeing unprecedented levels of activity.”
It’s a fair assessment as equity markets have been subject to wild swings this week on the back of fears over the coronavirus and hopes for a sufficient policy response to offset disruption to the global economy.
“Robinhood, with their huge client base, are in the same position at an even bigger scale,” said Ashminov. Robinhood has pulled in over 10 million customers since it was founded in 2013. “In certain situations, whatever technical issue you have, it catches you.”
“I think this is uncharted territory,” he added. “Never in brokerage history have so many people been kept out of the market for so long.”
But Ashminov warned it could also be a test for the multitude of tech firms making an assault on the highly-regulated financial services industry. It’s not yet clear whether regulators are looking into Robinhood’s technical snafu.
“If you look at the bigger picture, I would say that this is another test for the Silicon Valley hyper-growth mentality,” he said.