WHEN: Today, Thursday, October 21
WHERE: CNBC Disruptor 50 Summit
Following is the unofficial transcript of a CNBC interview with Vlad Tenev, Robinhood Co-Founder & CEO, live during the CNBC Disruptor 50 Summit today.
All references must be sourced to CNBC Disruptor 50 Summit.
JIM CRAMER: Thank you so much, Vlad. I am so glad you’re with us. How have you been?
VLAD TENEV: I’m glad to be with you, Jim. Good to see you again.
CRAMER: Alright, so let’s get the zeitgeist of Robinhood. When I first met you, had a great app, you thought that people would be attracted to, it younger people. Younger people have been completely turned off from the market for years. Where are we now between when I saw you as a disruptor multiple years ago and your current status of business?
TENEV: Well I think it’s fair to say that investing has become culturally relevant. It’s everywhere. People are talking about investing like they do their other financial needs – spending and saving. And Robinhood has grown tremendously. Over 22 million customers use the platform as of Q2 and, you know, despite the growth, we still feel like we’re just at the beginning and there’s so many people out there that are still not investing. Over half of Americans don’t have any investments outside of their individual retirement accounts or 401ks. And nearly 70% of 18 to 29 year-olds have no investments whatsoever, not to mention a lot of people globally who lack access to a functional banking system. So I think the trends are going in the right direction and we see a huge opportunity to continue democratizing and democratizing safely. And we see a world where nearly everyone is investing in some form or fashion.
CRAMER: You and I have both agreed that democratization is the greatest force in finance in this period, but I want to be sure it’s democratizing correctly. You mentioned people are investing. If you looked at your book of business, we learned from Gary Gensler, the Chairman of the SEC, this week average customer 31 years old, median account balance $240. How much of that money, and it’s all hard earned of course, is in option trading, in crypto trading, or investing in common stocks?
TENEV: Yeah, so the bulk of the activity has been investing in common stocks in terms of assets on the platform. Relatively few customers are pattern day traders, I think the number is 2% or so. We have customers trading options, but that’s a relatively small percentage as well. A little bit over 10% on a typical month. So, the bulk of the activity is equities. And, you know, we definitely see an increasing interest this year in cryptos as well as that asset has become a little bit more mainstream. And the philosophy is to allow access to these assets at the lowest possible cost, make it available to people on a level playing field, but also do that safely. You know, it’s incredibly important to provide the customer support, the stability, the high quality infrastructure and the educational content to make sure that the people that are investing, a large portion of whom are first time investors, are in the best possible position to succeed. So we absolutely believe in democratization. And you’ve heard me say this a bunch of times, but it has to be done safely and we recognize that responsibility. We’ve actually spent a lot of effort this year, and all the way through the pandemic, in making sure that we make lots and lots of investments to put our customers in the best possible position to succeed. In fact, just a couple of weeks ago, we announced rolling out 24/7 customer support via voice for everyone using the app and doing that across every issue for logged in customers. And I think it’s hard to overstate how challenging it is to do that at scale, and do it in a high quality way. And I believe we also became one of the first, if not the first, in the cryptocurrency market to offer 24/7 voice support to all customers.
CRAMER: Well let’s talk about, before we talk about the single source of truth and safety, which I know you have adopted to because you had to after what happened in the events in January. We’ll get to those in a moment. How do we, you and I, if we were brainstorming, keep people doing responsible things when it comes to crypto? We’ve got some cryptos that are named after dogs and then we have actually dog variations. There’s mutts, I mean, there’s some of this stuff you put to sleep? I’m against that, I own a lot of adopted dogs. But I am concerned that you and I both know that a market itself could be irresponsible and there’s nothing you can do. You can’t tell people, I don’t want you to buy a slice of crypto. How are you engaged in trying to make people more wise and how much of what you see in crypto would you describe as speculation as opposed to investment?
TENEV: Yeah, I think this is a tricky balance in the business, right. And, you know, a lot of things that end up being quite serious in a bigger and bigger part of the financial system started out being underestimated and, you know, made fun of and ridiculed in some sense. So I think it’s important to have that perspective and be balanced. And the way that we approach it is of course by clearly articulating what our values are. And you’ve heard me mentioned, our value of safety first, our top value. And, you know, the way we operationalize that through the product is to make sure that of the assets we list, we make it clear to customers what the asset is, in certain cases, this year earlier, we launched information labels on certain assets like volatile, exchange traded products, or companies that have entered bankruptcy or companies or products that are undergoing volatility. So it’s important to inform people of what’s going on and give people that information and it’s a delicate balance because some people, a lot of people, actually do understand what they’re doing and they know exactly what these products are, and they’d like to have exposure to them, alongside their other investments. And we have to make sure we allow that and sort of make sure the happy path of people who are responsibly interested in diversifying and having exposure to cryptocurrencies and different assets have the ability to do that through our product and have an excellent experience doing it as well.
CRAMER: Alright, I know that is definitely your duty and you’re fulfilling it. Let’s talk about the report that came out. This is the staff report on equity and options market structuring conditions early 2021. I’m calling it the report. You and I have both read it. I want to dive into my first takeaway is that a lot of people who felt that there was a vast conspiracy of people – Citadel, for instance. You, me. That we were all somehow in on it to hurt people. I think that this report represents a complete vindication of that and if you feel that way, tell me why you think so.
TENEV: Well, of course. You and I probably already knew that. And there’s a lot of people on the internet that are going to be difficult to convince one way or another. I think, misinformation on the internet has been a big issue of our time. Of course, as I said and a bunch of TV interviews around that time and I know you and I have made it into some memes together on the internet over the last couple of months as well. Which, you know, has it’s good and it’s bad, as I’m sure you know. But the sort of cause for these restrictions that we had to impose, along with other brokers, was crystal clear. It was an unprecedented time where you had lots and lots of people that wanted to invest in a small handful of stocks at around the same time. And you know, the market wasn’t really built for that. If you look at the core infrastructure of the market and the clearing and settlement system, and the way that everything works, I’m sure that when everything was built over the course of the past few decades, they just didn’t anticipate social media people getting together and funneling money into a small number of stocks. So, I actually, I’m not really making a value judgment on whether that’s good or bad. I think people should be allowed to communicate with each other and buy the stocks that they’re interested in buying. And moreover I think what’s interesting is a lot of these companies a lot of these meme stocks are companies that have been hit hard by the pandemic. You have, you know, retailers, brick and mortar stores. You had the airlines getting the attention of retail customers in the early part of the pandemic. And you could argue, you know, the government hasn’t stepped in to help them in this difficult time, and retail investors have come in and supplied them with capital and allowed them to grow their management teams. So it is a very interesting thing that I don’t think we’ve entirely unpacked. But I did appreciate that the report mentioned my policy suggestion of shortening the settlement time. I think regardless, that’s the right move for the industry, and the right way to move forward our financial system and reduce systemic risk. So, I was really happy to see that, alongside a number of other policy proposals that Robinhood and myself personally have made.
CRAMER: Now they didn’t really – when I spoke to Chairman Gensler it was clear that he is concerned about two issues we have to speak about. One is payment for order flow and whether people know about it and the other is the game like features. Now I was out last night with a big Robinhood fan. 19 year old gentleman. And I said what draws you to Robinhood? And he said, because the app is so much like Candy Crush. It was not the answer I expected. Is the app too much like Candy Crush, Vlad?
TENEV: No, I think that’s – as someone who played Candy Crush maybe 10 years ago or so, I can tell you that I don’t see any similarities whatsoever. And I will say this –
CRAMER: But the customer can’t always be right. Maybe something needs to be done to dissuade people from thinking this is as easy and as fun as Candy Crush because I’ve not seen people borrow money and lose money on Candy Crush.
TENEV: I think it’s important for it to be easy and accessible, and there’s a big difference between that and so called gamification. And if you look at Robinhood right now, we do pride ourselves on having a simple onboarding, on having pioneered a cost structure and a business model with no account minimums and no commissions that has brought in a ton of new investors, a lot of whom are from diverse backgrounds that otherwise wouldn’t have been even thinking about investing. And that’s something we’re incredibly proud of and we stand behind. I think it’s a very, very powerful force. And there is this notion that you hear thrown around that, you know, when wealthy people or institutions are buying stocks, then that’s investing. But when poor people do it, it’s gambling. And I think we just have to move away from that. I think we reject that. We’re proud of bringing all these new customers in. We’re also proud of the educational content and a lot of the recent features. You know, not just the 24/7 support, but improvements we’ve made in app learning modules.
CRAMER: I could not agree with you more.
TENEV: Go ahead.
CRAMER: I have spent an inordinate amount of time in my life trying to explain to people that just when someone – just because someone who doesn’t have any money is trying to make something of themselves in the stock market does not mean they are fools. That does not mean they don’t know what they’re doing. And until you came along, I felt no one in the industry believed in me. And that’s one of the reasons why I’ve supported you from the day I met you. Because you do want to give people a chance. You do not discourage. Now shouldn’t it be celebratory? I don’t know. Should confetti go down?
TENEV: Amen.
CRAMER: What matters is that you have – you do not look down upon people who aren’t that wealthy. Now sometimes I think, and my wife does too since she met you, think that perhaps it’s because it’s your immigrant upbringing. Some of it is because I think you’re just a good guy trying to get people involved. And some of it is because you realize technology can – a lot of barriers. At the same time, there are issues that the Commission brings up. Issues about like payment for order flow, where to me, it would seem like you’re willing to tell anybody anything. I mean, you’re willing to inform. You have become a person involved with safety and truth. Should you just give everybody a caveat that just says look, you know, there’s other ways to trade, you can pay commission, some people think you get better. I don’t know if you get better. We think you can get better. Something that indicates that the Commission’s issues about this payment for order flow could go away and instead we focus on the fact that there are 22 million people who are trying to make something of themselves.
TENEV: Well, I’ll put it this way. I think that payment for order flow and digital engagement practices are what you call gamification in the report. It was a little bit confusing to me to see it in there because first of all, it had nothing to do with restricting the handful of stocks that were restricted in January. So it was sort of like a policy position that was kind of thrown in there a little bit as an aside with no connection to the restrictions or the underlying issues and I think the rest of the report supported that. I think some of the criticisms of payment for order flow, and the business model, frankly, don’t make sense to me. I mean, you look at what the industry was like three years ago, pretty much all of the large brokerages were charging commissions and making revenue from payment for order flow as an addition, right. And Robinhood forced that to zero. Forced Commission’s to zero and the payment for order flow model has become kind of the standard transaction base model for offering brokerage services in that space. And alongside that, you’ve had the best conditions for being a retail investor ever. By far the lowest cost of execution, across the board, whose spreads have been have been tighter. And I think it’s a great time to be a retail investor in America and there’s actually a lot of competition. Now I will say, I do support – I came out with a policy proposal a couple of months ago about the Sub-Penny Rule, and there has been some criticism about whether our exchanges can fairly compete with off exchange market makers like Citadel securities and Virtu. And I think there are opportunities to make the system better and to encourage more flow to go to the exchanges, and to strengthen the NBBO, and I think we should look at doing that. But I think the –
CRAMER: Well, remember, we don’t want people running ahead. We don’t want rich people running ahead of the people who are trying to make something of themselves, correct?
TENEV: We certainly don’t want to do that, but I think by and large, this business model has helped pioneer commission free trading and make it possible. And certainly what we wouldn’t want is the return to a commission structure in the industry that’ll just keep people out especially those people of lower incomes and less means.
CRAMER: Now how – if you were to look at the breakdown of what kind of common stocks people are buying, how much are these stocks that are say jumping 50% in one day – more than even GameStop – and how much are these days because we don’t get to see them run like we used to. And I used to love that run. Where people are buying the great American industrials or they’re buying the FAANGs, or buying fractions of the FAANGs because they cost too much. What is your – just if you want to break up the mosaic of what you’re seeing, how many people are really investing in America?
TENEV: Well I think a lot of people are interested in buying the stock of companies that they believe in. You know, companies that make products that they use and understand. So you’ll have, you know, the big technology companies, the consumer companies that are among the 100 most popular at Robinhood at any given time. And that’s actually, you know, some information that we provide for customers within the app. There’s also, you know, certain events that happen, so cryptocurrency entering the mainstream this year I think got a lot of people interested in cryptocurrencies and we offer seven different coins on our platform. And from time to time, you will see sort of shifts from one sector to another. When I was on your show last year –
CRAMER: Is bitcoin the most popular? Or are they starting to buy like the dogecoin? The cocker spaniel coin, whatever it is. I mean, where are they – are they buying like the most steady of them? Or you’re seeing people buying whatever is the least — lowest value? Lowest dollar value.
TENEV: You will have a range of activity. I think, generally speaking, people do buy larger companies, especially with fractional shares now making those companies more accessible, you’ll see people investing smaller amounts into these companies, and with some of the tools that we’ve rolled out like recurring investments and drip, you’ll see people automating a lot more of that activity, and actually dollar cost averaging into these names so that they don’t have to watch day to day and keep track of the prices so closely.
CRAMER: Okay, we like that. Are they dollar cost averaging into things like what people are chatting about Shiba. Now I feel somewhat embarrassed to say that they’re talking about Shiba, but that’s what they’re doing. Are you seeing Shiba being traded? Is it on your platform? Or will you recognize it on your platform?
TENEV: Well, I’ve heard a lot of people in that community –
CRAMER: Are you thinking about adding it?
TENEV: We actually don’t offer.
CRAMER: You don’t.
TENEV: We only offer seven coins currently. And I think it goes back to safety first, right. So we’re not generally going to be the first to add any new asset. We want to make sure that it goes through a stringent set of criteria. And, you know, we’re very proud of our cryptocurrency platform, and giving people more utility with the coins they have. As a matter of fact, we rolled out our wallets waitlist. A lot of people have been asking us for the ability to send and receive cryptocurrencies, transfer them to hardware wallets, transfer them onto the platform to consolidate. And you know, the crypto wallets waitlist is well over a million people now, which is very exciting. We see an opportunity to continue growing that business.
CRAMER: There was this bad old days period that fortunately did not last long, where there was kind of a, let’s call it a hate Vlad movement. And I’d like to think that the hate Vlad movement actually peaked on the night that you were willing to go on Twitter and debate Dave Portnoy. Where people thought you would be a no show. People thought that you didn’t feel that safety had become paramount. That you were gamifying or whatever. And you showed. And it pretty much ended. Do you see that the way I did?
TENEV: Well, it’s been certainly an adventure over the past nine months, you know, to put it mildly –
CRAMER: What do you mean? What are you, a diplomat? Give me some old Vlad, will you? Give me some old Vlad. Like the pre-Marc Benioff Vlad. I mean the guy who says yeah well I showed up I was willing to take the heat because I knew I did nothing wrong. What happened to that Vlad?
TENEV: I’m surprised my hair is still dark and I don’t have I don’t have grays or it hasn’t fallen out, put it that way.
CRAMER: Watch yourself. You know, we don’t like that our show. But no I mean, it did peak. And I think it peaked because you recognized that things – you didn’t want things to get out of hand. I remember in the midst in the darkest moment, you were saying, look, no system was built for this. Which is true. That was one of the things that came out in the report. But I think that your democratization got challenged. And you never wavered, but you did have to change what was the most important value. And since you’ve done that Vlad – have you noticed that Vlad Tenev has become and Robinhood have become major I don’t want to say you’re, I hate to say this, but you’re not a disruptor anymore. You’re the norm. Do you mind being the norm?
TENEV: I think there’s always opportunities to continue along our mission, and, you know, I know that a lot of people talk about Robinhood as being a disruptor, and we certainly have been. We changed the industry and people used to be paying commissions and now we’re not anymore, but I don’t think that’s done by any means. I think that, you look at cryptocurrencies, for instance, people are still paying 3%, 4% fees to access that market. You see a lot of opportunities to serve more customers that have even less money, who are even more underserved than the people we have now. So I think the mission has always been to democratize finance for all and to do that safely. And, you know, in some cases that might require disruption, in other cases is just going to be continual improvements to the product and just getting, you know, getting better and better each and every day with things like 24/7 support, improving our educational content, and really just helping customers be successful on the platform. I think that’s a big part of it and we have really made incredible strides. I mean, the team has been working very, very hard to make the platform as reliable as possible for it to stand up to heavy volume and days where customers need us most. And to be there for customers if they need help, specifically for the first timers who can benefit the most.
CRAMER: If you’ve got this set up – you’ve got the robust system, you’ve got 24/7 help, which most people don’t. Is it time to start thinking bigger? For instance, right now we’re hearing that perhaps PayPal is going to merge with Pinterest. But we see what some of the companies are doing – Square is doing. Not willing to be bound by the initial mission. I think that you have 22 million people who want more from Robinhood. Maybe they want to get some of the things that SoFi has, some of the things that Square has, is it time to be thinking about the next big leg up for Robinhood?
TENEV: Well I think that there’s always an opportunity to keep serving our customers and we have been expanding quite a bit over the past few years, especially getting into becoming one of the first to offer cryptocurrency trading, sort of, alongside traditional asset as a brokerage, our cash management product which allows customers to earn high yield and spend. And then, with cryptocurrencies, getting more into cryptocurrencies as a means of transacting with our new wallets waitlist that we announced and are rolling out shortly. So we’re going to continue to do these things. I do think that investing and making people owners of our global economy is an incredibly powerful thing. And despite all the progress that we’ve made, there’s still a lot of people that don’t invest, and we see it as being very, very important to serve those people. I think it’s not just good for them in their wealth building but also important for society. A society where more of us feel like owners in the common enterprise is one that’s just going to be healthier. And I think, you know, we started this company in the wake of the financial crisis, there were a lot of protests, a lot of people were unhappy at the status quo, and just felt like the financial system wasn’t working for them. And hopefully, bit by bit we can improve that and make it an inclusive system and one that really serve the needs of the people, as well as it possibly can.
CRAMER: I know Chairman Gensler was very concerned about suitability. You have 1 million people who are 19. What do we tell the 19 year-olds to be sure that they understand that they’re doing something that is in keeping with their suitability which by the way Vlad, they may not even know the word. How do we get 19 year-olds to be investing what you and I would say responsibly and not blow their heads off on shorting calls?
TENEV: I think it’s the things that we’ve been building and of course suitability is – there’s very strict rules by FINRA and brokerages have to follow them, and Robinhood is always committed to following the rules of the road there. There’s also educational content. You know, I think, investment products are not suitable for everyone. They involve risk, especially when you’re talking about options, and having people understand the risks and understand all of the information of how they work, assuming they’re willing to take those risks and are suitable is something that’s incredibly important as well. So we are continuing to do a lot more in product and through Robinhood Learn to educate people.
CRAMER: Yeah, that’s why we started our investing club here. Right because people don’t get enough. I think that, you know, we do investment club basically just to be able to teach. And I think that you’re doing teaching now and I think it’s absolutely terrific because we need to do that because we don’t, as much as we’re thrilled that you have – the average customers age 31, we’ve got to get this median account balance up to 240. Now how do we do that? And do these people own mutual funds away or index funds which I think is a very responsible way to start investing. And then they use their so called Mad Money $240 with you. Have you seen that grow? I mean, because you know that’s not enough. And we all work hard. I started with $200. I know you started with nothing, which it is terrific to start with nothing. But I do believe that we need to get that balance up and I’m trying to figure out how to make people wealthier. How do we make people wealthy?
TENEV: I think the best way to do it is to have a long term perspective and put aside a little bit at a time and really start young and you’ll see kind of the magic of compounding and compound returns happen over a longer period of time. And I think there’s ways we can continue to make that process easier with recurring, with drip, with fractional shares, we have a lot of the building blocks. And, you know, we’re excited to see more and more people adopting those products and we believe that in the future, they’ll be a larger and growing percentage of the activity on the platform.
CRAMER: Now is the average investor, making I don’t want to call it necessarily progress, but I would like to see the average investor not just suddenly go crypto. I mean are you saying people –people used to be say 90% stock, now 90% crypto?
TENEV: It’s certainly an interesting trend. I think there’s certain advantages that crypto has for especially interoperability, and the ability to be global by default. So, you know, regardless of where you are in the world whether you’re in the U.S. or overseas, you can have a wallet, you can send people cryptocurrencies from that wallet to their wallet. And so there there’s certain advantages that are in the technology that make it kind of global and accessible by default and that makes it very interesting. Now of course, we also have, you know, the equities market in the US has really been where the best companies list over time. It’s been a tremendous source of wealth creation, and there is an opportunity to kind of make that easier and make that more accessible as well. So I, generally agree with you, I think it’s important for people to be diversified, for them to build up portfolios over time and invest for the long term. And you know what that specific mix is, I think, you know, we can probably debate, but crypto certainly is here to stay as an asset class, and the ease of use and the global nature of it, I think, has made it attractive to lots of people, not just in the U.S. but overseas in particular what you are seeing is very interesting.
CRAMER: But Vlad, people are starting to come back to work. It’s also football season, which is a DraftKings FanDuel situation. Are you seeing fewer people sign up? Is the app going down in popularity at all? As people then switch to football gambling, we know that – we’re not saying that they’re doing Robinhood gambling with the football game, but these are various ways that people want to be able to make money. And the return to work means that most people can’t sit there and trade or invest during the day. Are you seeing those two trends which is gambling and back to work, cutting into the growth of Robinhood?
TENEV: What I’ve always said and, you know, I think in our last conversation you’ve heard me say this as well. We’re not paying too much attention to short term trends. The way that we’re going to make progress and serve our customers and go after this opportunity of making as many people long term investors as possible is by focusing on the products. And so we’re going to continue to roll out new products, improve the service, make sure that it’s as easy as possible for first time investors to become long term investors and get all the support that they need. So, you know, whether short term fluctuations, Covid, reopening not something that we’re going to spend too much time commenting on.
CRAMER: By the way, did you see former President Trump’s SPAC today? Up 40 points. Do you follow any of these trends that some of the younger people really get a kick out of, too?
TENEV: I heard about the product, the new social media platform. But I haven’t been watching the stock too closely.
CRAMER: No, no, it’s a what I call a newer public offering, so to speak. Definitely newer. Well Vlad, look. I think you’ve come through Hades and back. I love the theme that I know you do care about passionately is safety. Any last words for people who are young who are watching who are thinking about taking the so called plunge into common stocks?
TENEV: Yeah look I think that it’s important to invest for the long term and to be educated. And we want to make sure to meet our customers where they are, and especially for young people, a lot of that educational content has to be contextual. It has to be in the form that customers expect. And we’re going to continue to provide that through Snacks, on Snap and in in-product, which is our podcast and newsletter. We’re going to continue to increase the tools and the functionality and the support that’s available to customers. And we’re going to continue to roll out products that democratize finance safely by giving you the lowest possible cost that we can offer, and the lowest barriers to entry with a great experience. So that’s what Robinhood is all about and over the coming decades, I think we’d like to see more and more people globally become investors and we’d like to be a part of that and really driving that transition to where everyone becomes an owner of our economy and our society.
CRAMER: Well I want to congratulate you for everything. For being 2021’s top disruptor, for the journey you have taken, for the maturity that we all had to have because so many new people have come in. And for your advice and counsel, particularly as far as I am concerned, in light of what happened at the end of January, shows that you never lost the flame. Some people thought you did. The report vindicates you. And I’m thrilled that you came to our Disruptor conference and to Mad Money. And it’s always good to see you, Vlad.
TENEV: It’s always a pleasure. Thank you. Thank you for the time, Jim.
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