Dissecting the Free Stock Trading Industry with Freetrade
Today, we’re joined by Viktor Nebehaj, Co-Founder of Freetrade, a free stock trading platform in the UK.
Founded in 2016 and launched to the public in 2018, Freetrade has grown to over 500,000 users in just over two years in the UK alone. For the full backstory, check out our episode with Founder Adam Dodds from February 2019, available at rebank.cc.
In this conversation, Viktor takes us behind the scenes at Freetrade over the past few weeks, during the Reddit-fueled runups in Gamestop, AMC and others, as the company struggled with partner-imposed trading halts and FX throttles. We also discuss payment for order flow, margin lending, rapid user growth and Viktor’s views on the good, bad and ugly of free stock trading.
If it seems like I care deeply about this subject, it’s because I do. Investing is one of the most important things people can do to support their long-term financial well-being, but the industry is characterized by unnecessary complexity, conflicts of interest and information asymmetry that can make it hard for people to get the best outcomes. Companies like Freetrade, Robinhood and others have a tremendous opportunity to break up entrenched industry dynamics and bring access, education and tools to the masses now that they're mainstream in their respective home countries.
Full transcript:
Will Beeson:
Viktor Nebehaj, welcome to Rebank.
Viktor Nebehaj:
Thanks for having me. It's great to be on the show.
Will Beeson:
Yeah, it's great to connect with you. This is awesome. You helped make the connection right before we hit play. I met Adam, your cofounder, who was on the podcast probably a couple years ago now, on a bus in Barcelona as part of a UK trade mission, meeting Spanish banks. And I think you were saying that you were near us talking to some other people, and we didn't make the connection then, but here we are, probably five years later, finally connecting. It's great, Viktor, to finally meet you.
Viktor Nebehaj:
Indeed, likewise. Yeah, it was quite a trip, and it's great to officially meet you, Will.
Will Beeson:
Well, it's been quite the trip for you over the past number of years, and I guess most acutely over the past, what, two, three weeks now? And we can dive into that, but I do want to make sure we set it up with the appropriate context. You and Adam cofounded Freetrade, which is a free stock trading platform in the UK, which I'll let you describe. It has some key differences from other free stock trading platforms that people might be familiar with, some regulatory-driven, based on being in Europe, as opposed to the US or elsewhere, and then some, I'm sure, more strategic or philosophical.
Will Beeson:
But look, to kick off, tell us a little bit about yourself and your background.
Viktor Nebehaj:
All right. Let's go back in time a little bit. I grew up in eastern Europe, in Hungary specifically. When I was growing up, investing wasn't a thing. That would not be a thing that existed under Communism. I grew up in the '90s, which were probably the biggest societal upheaval Europe has seen in a while at the time. All the countries changing political systems, people ending up very poor as a result, and some other people picking up government assets on the cheap and becoming what some people describe as oligarchs. But there was nothing in between really, and you had to be really entrepreneurial to get by. I guess I'm a little bit of product of that.
Viktor Nebehaj:
Thankfully, the Hungarian government, there is state-supported tertiary education, so I attended university with social support, and I was able to graduate. And then, one of the things I felt really passionate about was actually learning languages. I became really fluent in German and in English as well, and I started to build my blog. The internet was kind of new at the time. The other pivotal thing that happened at the time, we joined the EU in 2004, and I was like, "This is fantastic." I could go and work in Sweden, the United Kingdom or Ireland without permission to do so. I liked Ireland the most and there was little just-IPO'd company, little bit of a startup, scale up at the time, a company called Google that was setting up in Dublin, and all my peers at the university, they wanted to work at banks. I never really understood that, and I was like, "I want to work with the internet."
Viktor Nebehaj:
I applied at Google and after some 10 interviews, they got back to me. They said that my profile is a little bit more technical than the average, whether I'd join a very secretive team which turned out to be Search Quality Operations. That team would review the algorithms that guide Google search rankings. I built a career there. I spent time in California, Mountain View. India as well. It was a great time, and after seven years I felt my learning plateaued. I was a small cog in a very big machine. I went and lived in Asia. I was leading a digital marketing agency in Hong Kong. I did an MBA. We moved back to Europe with my now fiancee, and I ended up in London because she joined Google again. She left Google for me, and she joined Google in London. She's sitting quite pretty as head of Android Strategy here in London.
Viktor Nebehaj:
I was a little bit jobless here and one of the first things that I discovered was Crowdcube. I saw a tube advertisement here in London for Crowdcube, and I was like, "This is fantastic." You can be an angel investor. You don't need to have hundreds of thousands of pounds, you don't need to have your own solicitor, you don't need to have your deal flow. You can pretty much just go on the platform and do it. I went ahead and I invested in the very first crowdfunding round of Monzo that summer, and then Revolut as well. And my third investment was the best investment I ever made, which was Freetrade. And as soon as Freetrade popped up on my Crowdcube homepage, I was like, "This is fantastic. This has to exist." It was pretty much a dynamic speech deck, and I thought to myself, "This is amazing. How much money do I have?"
Viktor Nebehaj:
I looked across my bank accounts, across all the counties I lived in, Ireland, Hong Kong. I pooled all the money I had, thousands and thousands of pounds available. I invested it all in Freetrade. I was left with 15 pounds. My girlfriend had to support me until the end of the month, and it turns out I was the first investor who invested a meaningful amount, over £1,000, and wasn't a friend or family member, so Adam reached out to me, or I reached out to him. I just wanted to shake his hand, really, the guy who was starting to build this thing. And one thing led to another and I joined him as his co-founder, and I'm heading up marketing here at Freetrade.
Will Beeson:
What an amazing backstory. If memory serves me, when Adam was first describing the concept to me, it was not brand new, because Robinhood already existed. And I'm trying to place it now, but it was maybe 2016 when we connected. Robinhood already existed, and there was something... I remember my reaction at the time was like, "Okay, I get it. I still don't understand how the economics are supposed to work of a totally free retail brokerage offering." I don't think I fully understood payment for order flow back then, margin lending and various other ways that some free trading platforms make money. But the two things that Adam outlined for me were one, that there was a kind of philosophical aversion to some of the more arguably nefarious, or at least potentially conflicted ways of making money, and that anyway in Europe you couldn't sell order flow, so that revenue line was kind of off the table. And then secondly that the opportunity, if it was going to work, how do you offer free brokerage and make it work, is that you basically have to build amazing technology and get the right authorizations all the way down. It's not just build, skin some sort of existing B2B platform and launch a business. You basically have to nail efficiency all the way down.
Will Beeson:
I remember last time I was talking to Adam, he laid out... in the podcast episode that we did a couple years ago now... he laid out everything that you guys had built to date, and even some of the direct connectivity into clearing networks, and firstly it was amazing that it had been built. Even more amazing because I think the only funding that had been raised at that point was crowdfunding, and I think you guys have raised more money since then. But catch us up a little bit. From these early conversations I was having with Adam, the time you invested on Crowdcube to today. And I guess, I don't know, more specifically the last couple years. How has Freetrade evolved, and what's the business model?
Viktor Nebehaj:
Yeah, absolutely. To give you a little bit of a backdrop view, when we started. We were a little bit discounted, I think. It was all about neobanks, and definitely the media has a tendency to celebrate VC funding quite a bit more than crowdfunding, although in my mind crowdfunding trumps VC funding. It's just a lot more interesting when there are thousands and thousands of people behind you. Yeah, I feel we were a little bit discounted, so definitely that American, I guess, peer company that they often compare us to, that existed. And we never felt kinship with that company or any of the other upstarts, because payment for order flow, in our minds, it's not something that we ever wanted to do. We never want to sell your data, period. We are a European company, very local, with an aversion to playing with your data, selling your data.
Viktor Nebehaj:
The other very important point is early on we made a decision, almost on day one, that we would never do margin lending. We think it's a toxic product. If you think of the CFD industry in the UK and how many people end up financially worse, having been consumers of those products, CFD consumers, about 80% of them lose money, and on average they lose about £2,000 per year. This is FCA data. Our mission is to get everyone investing, and part of that is to get people better financial outcomes. We feel very strongly about that. We don't want to structure the company in a way that goes against our clients' interests.
Viktor Nebehaj:
Yeah, quite a bit happened. Early on, we also decided that we want to invest in our platform, a proprietary brokerage platform that does the heavy lifting of what a brokerage does. Execution, settlement, all that sort of stuff. And that was a little bit of a contrarian decision because a lot of the fintechs that we'd see around us, they tend to be a thin veneer on top of other companies that power them. And make no mistake, you have to be part of the financial system. You have to plug into the plumbing of financial services, but at the same time, we never wanted to be a user interface on top of another company. But that was a trade-off, right? In order to do that, we allocated almost all our engineers at the time to build the platform, and they did amazing work. As a result, they did not develop a lot of new features for one and a half years, which was tough going because our customers definitely wanted new features coming out often, but we had to tell them no, and this year... actually last year, 2020... really showed why building the platform was important.
Viktor Nebehaj:
We've just seen incredible surge of customer numbers, of trade numbers, and our platform held up really well actually. We saw a lot of established companies sort of kneeling down under the pressure and we did not. That's, I guess, a justification of the strategy that we pursued, which is more, I guess, longterm and more platform-driven, as opposed to trying to partner with someone.
Viktor Nebehaj:
Yeah. The other amazing outcome that we've seen in the last couple of years, and that's probably the final point in the answer, is that I mentioned we were somewhat discounted at the beginning. Investing wasn't really a big thing, I think. It entirely turned around. Early on we had a vision that what's happening now in Europe, all the neobanks and all that focus on banking, in the end the investing is going to there, that it's worth focusing because with this negative rate environment, where we are getting at this point in the UK as well, there is going to be no other place for your money. You have to invest, and it's healthy to invest. It's healthy to have that longterm habit. But I guess for most consumers and the media, they did not really get there on time, so we were quite early building that out. We think of ourselves as being the right company in the right place in Europe. It's an up-and-coming market when it comes to investing. We think we are the right company bldg the right sort of components to service our customers.
Viktor Nebehaj:
That's been the journey, and that this point we have 550,000 registered users. We have hundreds of millions of pounds under administration, and all our numbers are exploding and going up and to the right, so we are really happy and thankful to our customers and our team.
Will Beeson:
Yeah. Well, I believe it, in the current environment. Look, I think the piece we really need to dig in on here and kind of focus the conversation around is your experience over the past call it three weeks. We won't run through the whole context with Reddit and GameStop and various other stocks and hedge funds with short positions, and some moves basically by the "retail investor masses" to exploit some market dynamics and punish hedge funds and potentially make some gains. In the end, that attempt effectively fizzled out because of you could call them guardrails, you could call them artificial constraints, you could call it collusion, depending on how conspiratorial you are. That basically meant that Wall Street won again and retail investors lost. I think there are going to be some government inquiries now, which will be enlightening, I think, and it may even focus on payment for order flow, among other things.
Will Beeson:
With that as context, tell me a little bit about your past three weeks. How did you immediately start thinking about, and in your own mind and as a business leader responding to what was happening with these specific stocks and retail investor behavior more broadly. And then, what immediate impacts did it have on your business? What was that experience like? And then we can get into part three of the question later, which is what are the implications for the industry and Freetrade and the broader fintech space going forward? But starting with your immediate experience. I don't know. Call it the day you woke up and saw all this madness starting to unfold.
Viktor Nebehaj:
Absolutely. Leading to that day, we've actually seen amazing growth, like really aggressive growth throughout 2020, and that growth continued. But just to give you a little bit of context, we've seen our revenue increasing 48 times from the beginning of 2020 to December of 2020. Amazing growth. Could not be happier. And that growth just continued. Then from about 3,000 signups per day, we just saw overnight 30,000 signups per day coming in, so that was a 10X increase. That was definitely-
Will Beeson:
Literally overnight? Or week-to-week?
Viktor Nebehaj:
Overnight.
Will Beeson:
Wow.
Viktor Nebehaj:
It's been increasing. There have been meaningful increases over time, but there was a skyscraper of signups coming in. That's quite an interesting experience, because it definitely tested our technical assistance, it tested our customer service readiness, and we are still working through the backlog of some of the customer contacts, and we actually ended up hiring... we actually ended up doubling the size of the customer service team, which was great. Plenty of people in this country are on furlough, great people, so we actually managed to hire quite a few people on short notice.
Viktor Nebehaj:
But back to the story, we experienced this growth, and one of the first media reports, we started seeing brokerages let's say limiting access to these stocks or managing how available these stocks are. I think there is maybe an under-appreciation of the technical context, because it's fairly technical and basically what we've seen was that what a lot of these brokerages, clearing brokers experienced, you have to keep a certain amount of money with the clearing calls, and that the requirement for collateral multiplied, to the tune of hundreds of millions, billions of dollars. We were not impacted. Thankfully our setup is quite resilient, but...
Will Beeson:
Did you face increased... first, do you support those stocks on your platform? GameStop, AMC?
Viktor Nebehaj:
Oh, absolutely. Absolutely. These are very normal US stocks, fairly common equities. So yeah, we absolutely support them, and early on we made the decision that what's going to guide us is doing right by our customers, treating customers fairly. And whatever happens, unless we are absolutely made to shut down, we are going to keep running, and we are going to keep our systems running and make sure that these stocks and all the stocks are available.
Will Beeson:
Yeah. Did you face increased collateral requirements?
Viktor Nebehaj:
Well, actually, due to our setup, our clearing broker in the US did, and for a couple of hours they had to limit access to the stocks, but that literally lasted up to half a trading day on the following week. There was a bigger issue that we dealt with, which was... I think the big increase was on Thursday, and on Friday we wake up and we get a call from our service provider that does our FX conversion, and basically the gist of the conversation was that they wanted to throttle our bandwidth, the number of conversions they would do for us, FX conversions-
Will Beeson:
Why?
Viktor Nebehaj:
... by 90%. Well, we did not understand at the time, and they were not particularly helpful in terms of explaining.
Will Beeson:
What company is this?
Viktor Nebehaj:
I'd rather not name names. We understand the setup probably will be better now. What basically happened, we kind of broke the banking rails that provide the FX conversion. There were so many conversions coming on line and so many customers signing up. They did not only invest in GameStop, by the way. GameStop is actually a single-digit percentage of the investments. There was all kinds of stocks that people invested in. There was that FX throttling happening, throttling by 90%, and we were like, "Wow. Okay. That's unexpected. We did not get a chance to work with them. We did not get a heads-up."
Viktor Nebehaj:
Basically what we did, we shut off the US market for that day in terms of the buy orders. We kept the sell orders running to make sure anyone... we treat customers fairly and anyone can get out of positions if they have to, if they want to. And basically what we did, the whole company went into lockdown mode, and we worked through the weekend. Our engineers worked on implementing, basically inventing a technical solution that batches our orders and sends our FX conversions in bulk. And the rest of our company was working on customer service. Literally product designers, finance people, would jump on the queues and get back to customers.
Viktor Nebehaj:
And then, we also worked a lot on communications, because the most important thing here is we... I think other companies probably did not think this through quite as much, but you have to treat your customers as adults, and while there is a complicated technical issue going on in the background, you want to keep them informed properly, you want to be transparent. Because if you are not, especially in the current environment, it's just easy to misinterpret the situation, spin up conspiracy theories. Basically we felt we had, we communicated a lot. We described what exactly was happening and we kept our customers updated through various channels. That was really well received. We got a lot of compliments from customers, investors, all kinds of people, which was great. We worked through the weekend, and then there was that Monday where these stocks were switched off for a couple of hours, but basically we managed to go through the whole experience with those only two outages, and a weekend of working. Basically that's how the experience has been with us.
Viktor Nebehaj:
And we have a lot of conversation that revolved around, okay, what is the right decision so we do right by our customers? That what always was the most important aspect of every decision that we made, and it's really helped us guide through this situation.
Will Beeson:
Yeah. Okay look. I want to be respectful of your decision not to name names. A quick Google turns up, I think, both who your FX provider is, well-known FX provider for fintechs, a fintech company itself. And then also, the US brokerage platform that you guys work with. What are going to do differently, if anything, to protect yourselves against the next time something like this happens?
Viktor Nebehaj:
Yeah, absolutely. That's a great question. There's definitely an element of learning, and we have made some technical improvements as a result of that solution that we implemented, and a couple of other platform level improvements that we have implemented, or are in the process of implementing. I think the most important thing to understand, then, I personally believe this was a growth changer. It's not a game changer, it's a growth changer that happened. So many millions of people got switched on to investing. They are not going to go away, definitely not all of them. The vast majority experienced this, and something like this can happen again. The most important thing is, there is definitely improvements that could and should be made on the overall grounding of the capital markets, of which we are part of. And from my perspective, we have to do everything that's within our control that is high performing, that it operates as well as it should.
Viktor Nebehaj:
I think the biggest outcome of this is servicing customers is very, very important. It's always our approach. We have turnaround times. We want to get back to customers and service them really well, but when something happens, something inevitable... if suddenly tens of millions of people decide to buy a certain stock that we would experience something similar, it's very important to communicate correctly and transparently and accurately and honestly with customers, and make sure that even if there are technical issues, we treat them really, really fairly.
Will Beeson:
Yep. Yeah. Quick one for you, and a bit of a challenge question. I'm interested in how you guys think about this. You talked before about people that basically gamble in CFDs in the UK, 80% of them losing money and on average losing $2,000 a year. How do you ensure... you'll see lots of user-level trade data, whether anonymized or otherwise in aggregate type trade and investing data, of users on your platform. It's pretty easy to look back across 2020 and any of the high-flying tech stocks, which I imagine are what people are most interested in on your platform, whether it's Tesla or Square or Apple or Google or Amazon or whatever. They've just skyrocketed, right? I'm sure people are very happy and everyone has paper gains. But how do you ensure that people don't end up, whether it's over the cycle or whatever it is, but basically using Freetrade as a platform to speculate irresponsibly in stocks and potentially create outcomes for themselves that are similar to some of these spread-betting CFD type outcomes?
Viktor Nebehaj:
Yeah. There are multiple levels of how we optimize the platform for the correct behavior, which is absolutely not speculating. It's longterm investing, monthly pound cost averaging. That's what we are providing for our customers. And the number one thing is the product. It's not optimized for day trading. If you look at the feature set, you will get limit orders if you add a loss limiter. That's great. But really it's not optimized. Our pricing refreshes and the feature set and other extra stuff that, let's say, day traders or speculators may want to have, they are not there, and that's a conscious decision. And so it was a conscious decision not to provide that, not to provide margin, because that's how you can amplify your losses, so they are stating amount. Yeah, we could make more revenue, but we reject. We don't want to make that revenue off margin at all.
Viktor Nebehaj:
There is a product-level aspect of this. There is also a very big aspect of this, which is education. There is a lot of good lip service paid to education across the industry, and we don't think a lot of companies do it exceptionally well. What we really focus on is a multi-aspect strategy where we involved our community, so there is peer-to-peer level education. At this point we reached a community size that someone, newbie drops a question about the investing, and they get all sorts of right kind of answers about diversification and all that stuff. But we also run an internal analyst/investment writer team that regularly covers companies. And the trick here is that we are not after covering the Amazons and the Teslas of the world. There is enough content out there. We are covering homegrown stocks, boring stocks such as supermarkets as well. There is a whole mix, and we cover a lot of topics around... kind of like baseline education or stuff such as the different asset classes, volatility, diversification, all that sort of stuff.
Will Beeson:
Yeah.
Viktor Nebehaj:
We actually grew our mailing list quite big at this point, so a fair amount of people receive that education in their inbox.
Will Beeson:
Is there anything in the product... I mean, if I think about retail investing best practices, not to be overly conservative, but it basically boils down to regular investing, time in market and then not trying to time the market. Is there anything in the product that helps encourage people to do those things, and discourage from not doing them?
Viktor Nebehaj:
Yeah, absolutely. I don't know if you are able to use the app.
Will Beeson:
I tried. I'm a US citizen, so I don't think I can use it.
Viktor Nebehaj:
Right. That's based on the accent, so I was being careful there. Yeah. There is an Insights tab. There are four different main screens of Freetrade. There is one about insights, and that provides information about your money-weighted rate of return, time-weighted rate of return, with explanations. And we do something that I honestly have not seen any other apps or providers do. We actually provide you with a benchmark, which based on the FTSE ALL World Index, and we show how your investments performed against that index. It's very important to understand these concepts, because the most important thing for you, as a consumer of a brokerage app, is are you actually doing any better than the market? Do you get the sort of financial outcome that you are after?
Viktor Nebehaj:
That's a part of the app that already exists and we already provide a fair amount of customized, personalized information for you, and we are going to build it out to be even bigger and give you a toolkit that helps you understand how your investing is going and teaches you concepts such as money-weighted rate of return, time-weighted rate of return, benchmarks, all that sort of good stuff.
Will Beeson:
You know what would be interesting, if you could almost build in some automation or functionality which would let users, even passively... like the roundup concept on your spending, like automatically round up and move it to savings or move it to investing. But if you could automatically help users take gains and basically move them into a more diversified ETF portfolio type thing, to make sure that that speculative piece served the really powerful role as an on-ramp into investing for so many people, but then also worked hard to give them tools to convert that, to translate that into positive longterm outcomes.
Viktor Nebehaj:
Yeah, absolutely. I think what you are describing, couple of ideas. I definitely think there is potential in rounding up change. We are not in that kind of business, but overall we will definitely build out a feature set that's going after the mission, right. Getting better financial outcomes for our customers. I think some of the stuff you described is more the lines of limit orders, profit-taking type of features, which we already have as part of the Plus membership.
Will Beeson:
Okay. I want to now dig in a little bit more on what your takeaways are from this recently-lived experience. Not from a Freetrade or strategy or operations standpoint, but much more just like a state of the world, state of the industry, what is this chain of events telling us about the future? Because on one hand, we talked about potential... in fact maybe even confirmed, but at least highly likely... government or regulatory investigations into some of these issues. And I think that, at least the stat I read, was that Robinhood counted 600,000 new customers in a week as all of this was blowing up. You talked about the new signup spike that you guys experienced.
Will Beeson:
In a sense, it's almost like no publicity is bad publicity, and actually even as mangled as this whole episode ended up being, it's actually a huge promo for free brokerage platforms. There's that on the one hand, and on the other hand, there's arguably some indications of deeper-seated feelings or consumer preferences or behaviors which we might expect to manifest in future consumer behavior or customer expectation, the way that the industry goes. I'd love, given your position, to hear you talk through some of that a little bit.
Viktor Nebehaj:
Excellent question. It's almost like an onion, there are so many layers to it, but let me start with the societal/economic backdrop. Ever since the great financial crisis of 2008, there has not been a massive improvement in the economic opportunities of average people, definitely not in the Western world. Coincidentally, my native country is actually doing better and better. There is better and better economic improvement, but that's a lower baseline. In the Western world, there is so much... inequality is a big word, but there is a certain amount of frustration, definitely, that comes with potentially poorer economic opportunity. There is that whole backdrop, and it started with the Occupy Wall Street movement, and since then smartphones blew up as a category. Everyone has one or even multiple, everyone has access to apps such as ours.
Viktor Nebehaj:
Meanwhile, there is all that quantitative easing that's been going on, which is fundamentally government kind of inventing money in computers, sending more money into the system, which results in more money chasing not a fixed amount, but not equally growing number of assets and opportunities. That resulted in the stock market having had a bull market that, other than the COVID drop, it's been an amazing bull market. There is a certain amount of irony of these changing economic opportunities of people, that there is this bull market going on and this amazing amount of wealth creation that's happening. Trillion-dollar companies getting into existence, such as my old alma mater, Google, as well.
Viktor Nebehaj:
There is this disconnect, and one of the things people discovered they are able to do is investing, and that's in my mind, the way I see, that's only going to be more dominant, because that's one of the few places to go in at least midterm. Obviously you have to consider the risks, but midterm, longterm, at least based on historic experience, you would end up with more money. So more and more people will discover that. I don't think we will see any change in the interest rate. If anything, we are going to go down or into negative territory, so there is this huge awakening, sort of big Bitcoin drawn as well a couple of years ago. That was part of that. People-
Will Beeson:
And right now.
Viktor Nebehaj:
And exactly, right now. There is a resurgence, and that's not disconnected in my mind, either. Yeah. There is all this wealth creation happening and what I want is that the average person, the average Joe, so to day, has access to that wealth creation. That level of opportunity is not like always equally distributed, if that makes sense. There are some things that still bother me about the financial system that we have, and hopefully it's going to improve.
Viktor Nebehaj:
One example would be like all IPOs are managed, some entities having access to the book and first day the IPO price pops, and retail investors sometimes only get access once it's popped. We hope we can improve various aspects of inequality in the financial system. I hope other companies are working on that as well. I wish the best of luck to everyone in that, because there is all this societal/economic backdrop, and it can lead to certain outcomes such as unrest. There is no reason for that. There is so much wealth creation and economic opportunity. It is just not equally distributed, and I think the whole GameStop saga sort of switched people on. And while it was a meme, it was a little bit of flash in the pan, but I think it opened people's eyes to what investing is.
Will Beeson:
Hm. Do you know PrimaryBid, Anand?
Viktor Nebehaj:
Yeah, I know Anand and his company. Fantastic company.
Will Beeson:
That's fascinating. We connected with Anand a while ago. It was probably like, again, a year, year and a half ago now, but basically providing retail access to IPOs, which is super cool. I mean, is that something you could do with Freetrade, either directly or via partnership with them?
Viktor Nebehaj:
Yeah, absolutely. That's something we would consider. I think Anand is a fantastic entrepreneur. I think he's building a very valuable solution. Once we catch a little bit of a break after all this and we review our priorities for the year, we will definitely think about IPOs and solutions and partners.
Will Beeson:
Okay. Actually, immediate question for you, which kind of gets to the broader topic of business model, and then brings us back around to payment for order flow. Why do you think that Robinhood, after much publicity, fanfare and even, I think an FCA license, ended up... all of this in preparation for a launch in the UK and Europe... ended up basically shutting that down? And they've gone back to US-only. I think they effectively exited the team in the UK, shut down their presence, didn't decide to go into Europe? Why do you think they made that decision?
Viktor Nebehaj:
Let me zoom out here a little bit, Will, and talk about American companies and expansion and internationalization and the challenges that come in fintech. This company as well, and all companies, they have a certain business model that may or may not be a fit to the regulatory environment we have here in Europe. Particularly, payment for order flow is not allowed in the UK. They've reviewed the market to understand, and we understand in Germany it's allowed, it's an exception, but in the rest of Europe it's not allowed. I think it's very, very important to think local when you try to expand, and try to adapted to the regulatory environment.
Viktor Nebehaj:
In that sense, we invested quite a bit. We actually set up a company in Sweden and we are opening an office there, and that's going to be our European entity. Even during that experience we started mapping out the Swedish market, which is probably a good example of how we think about this issue and expansion. Similar to the UK, where we have our ISA accounts, there are two or three account types in Sweden which people use for tax-sheltered investing/pension, so it's very important to understand whether your business model works in the given country, and how you are going to make money in the given country. And honestly, you have to pay some respect to the country you are trying to expand to and try to consider it from the perspective of if you become local, you can add a lot more value and your probability to succeed increases. That's the way we think about it, and I think probably that sort of thinking was not there.
Will Beeson:
Got it. Okay, so looping back around to the business model, you talking about payment for order flow not being allowed in the UK and then not being part of the Freetrade revenue model. What are the revenue drivers of Freetrade?
Viktor Nebehaj:
We have a number of revenues. I'm going to break them down for you, Will. The number one is FX. When you are UK-based consumer dealing in Sterling, you buy a US equity, that's getting exchanged to US dollars, and we charge a very modest 45 bips on that transaction. Again, tying it back to the local business model, one of the things we have in Europe is a number of different currencies, and there are fantastic businesses that built whole businesses on top of that transfer-wise, but a lot of others come to mind, right? We think that's a very locally accepted revenue stream. We are very, very obvious and transparent about it.
Viktor Nebehaj:
The other big source of revenue is subscriptions. That's our future. That's what we look to as what we want to really develop. We charge a modest three pounds per month for the ISA account, and £9.99 for the Plus membership. And then, there are going to be other revenue streams that we are going to get online. Traditional interest on cash would have been one. With the sort of interest environment we have here in the UK, that's not a meaningful amount of revenue right now, but we are internally discussing further revenue sources as well to diversify further.
Will Beeson:
Okay, yeah. Fascinating, fascinating. Look, this has been comprehensive and enlightening. I think you've brought a bit more context to some of the thinking I was already doing, and I'm sure many, many of our listeners. Any final takeaways? You mentioned before that at the very highest level, you felt that the series of events that we observed over the past few weeks in retail investing have been a reflection of continued economic inequality, which I totally agree with. Any more tangible projections or expectations going forward for what this means for either your business or for fintech?
Viktor Nebehaj:
Yeah, excellent question. I think what it means is that we have this externality. The tide is rising. A number of years ago when we started building Freetrade and, as I mentioned to you, we were a little bit discounted, it was an amazing time to start this business. It's probably the best time to start a business when it's not obvious what the opportunity really is, but you have this insight. We expect this externality to continue for the foreseeable future. We are not foreseeing any fundamental changes or shifts in terms of the economic backdrop and how things are going. We hope that we can be a company that makes the world better by giving this barrier-free access to investing, and an opportunity for people to invest their money and get better financial outcomes, whether that's saving for deposit or education or even a wedding or anything like that. Yeah. That's definitely the direction that we foresee.
Will Beeson:
Excellent. Well, look. Viktor, I really appreciate you taking the time in the middle of this whirlwind. Look, I love what you guys are doing. You're built an amazing company and people really love it and it really meets a need. I think you guys are going about it in the right way, so I wish you all the best, and I'm cheering you on from across the ocean.
Viktor Nebehaj:
Thanks a lot, Will. I really appreciate your kind words. They really mean a lot to us. Thanks a lot. And thanks for having me on the show. I really enjoyed it.
Will Beeson:
All right. Viktor, thank you very much for joining us today.
Viktor Nebehaj:
Thank you.
