Robinhood CEO Affirms the Endurance of Payment for Order Flow

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Robinhood CEO Vlad Tenev remains confident that the payment for order flow (PFOF) model, a market-maker routing practice used by the company in the U.S., is not facing imminent threats, despite calls for its prohibition from consumer trading advocates and regulators.

Defending PFOF in an interview with CNBC, Tenev stated that it is “inherently here to stay.” PFOF involves routing trades through market-makers, such as Citadel Securities, in exchange for a portion of the profits. Tenev argued that generating transaction revenue is a fundamental aspect of a business, and the conflict arises from the incentive to encourage more transactions.

While critics view PFOF as controversial due to potential conflicts of interest between brokers and clients, Tenev cautioned against dismissing transaction-based revenue entirely. He suggested that the issue has been politicized to some extent. In the U.K., PFOF is banned, but Robinhood plans to launch there soon. The U.S. Securities and Exchange Commission (SEC) considered banning PFOF but ultimately decided against it. In contrast, the European Union has implemented a blanket ban.

Despite PFOF accounting for a small portion of Robinhood’s current revenues, Tenev emphasized the company’s diversification into other areas, such as net interest income from user balances, securities lending, margin, and subscriptions. In the second fiscal quarter, transaction-based revenues, including PFOF, decreased by 7% to $193 million.

Tenev acknowledged that Robinhood’s commission fee reductions triggered a broader industry shift, with competitors slashing their fees to zero. This trend led to major acquisitions, such as Charles Schwab acquiring TD Ameritrade for $26 billion and Morgan Stanley purchasing E-Trade for $13 billion. Tenev highlighted Robinhood’s transformative impact on the industry in the U.S., forcing other brokers to eliminate commissions and prompting consolidation.

While challenges and criticisms persist, Tenev asserted that Robinhood’s diversified business approach positions it well in the evolving landscape of financial services.