"The Race Is Over" Webull's CEO On The New Stakes In Pursuit Of Zero Commission Fees

Since the emergence of fintech and the proliferation of online banking and investing tools, the conversation surrounding the retail trading space has centered on luring in a new class of trader, one that values the convenience digital platforms provide, but is also wary of the risks inherent to investing in financial markets.

For years, the core approach among brokerages in enticing this new, typically younger generation of traders has been removing as many barriers to entry as possible: creating online platforms, enabling mobile access, offering free paper trading, etc.

Apart from all the online window-dressing, the great white whale of this pursuit has always been zero- commission, no-fee trading, what commentators have often dubbed “the race to zero.” However, after a decade of fintech innovations that have resulted in the emergence of online dozens of trading platforms and several options for zero-commission trading, the finish line still seems obscure, with no clear winner in the much-vaunted race.

The Race Is Over

It’s a phenomenon not lost on Anthony Denier, CEO of online trading platform Webull, which itself boasts zero-commission trading.

“I was at an online broker summit in Chicago,” said Denier in a recent interview for Benzinga’s Fintech Focus podcast. “We had TD, Schwab, Fidelity there on a platform with the mediator and the first thing the mediator said to kick off the discussion was: ‘OK guys we have to get this question off the table, it's the elephant in the room—the race to zero.’ And immediately the first thing that comes to my mind is what race? The race is over. It's been over.”

Denier pointed to Webull’s success, as well as the success of competitor platforms like Robinhood as proof positive that no-fee is, and will continue to be, the standard. What’s more, the burden is now on traditional brokers to adopt if they hope to continue drawing in new clients.

“A lot of them are starting to come off commissions as their backbone sort of revenue model. Schwab's done a great job of that, Interactive Broker has done a great job. But you look at TDA, you look at E-Trade, there's still 65%, 70% of their revenue still based on commission. They have a very large staff and it's tough for them to get off that.”

The Money Question

Denier concedes that there he still hears many questions among trader about the current model for no-fee platforms like Webull. However, he also posits that there is a lot of misinformation about how zero-commission revenue works.

“There's a lot of things that are said about zero commission that are just not true,” Denier said. “We never take the other side of a trade. You are getting the best execution as mandated by FINRA rules.”

Denier pointed to order flow as the primary way most people believe no-fee brokerages make money. However, Denier continued to run down the list of revenue streams that all brokerages capitalize on.

“We're making money by lending out the stock that you have in your portfolio to other such short sellers, that's called fully paid for stock lending. Every other broker-dealer has that system in place. We make money on the uninvested cash you have in your account, which every other broker does as well. Fourthly we also make money on margin lending on the Webull platform. You can take leverage without a fee on your positions and you pay 6.99% and lower for that,” Denier said.

Moving The Finish Line

If the race to zero is less a race and more of an inevitable march to the goal, what then is the new benchmark for success in the new no-fee future traders find themselves in?

According to Denier, the difference-maker will lie in which platform can attract the most users now, and that will come down to how well brokerages enable traders to take advantage of the zero-commission framework, both monetarily and with the tools that are at their disposal.

“We sit in a very, very unique spot where a lot of our users are people that I'd like to say are graduating from a Robinhood or a simpler no-fee platform because they're just looking for more. They enjoy trading and they want to learn the craft of trading,” said Denier. “Then you have a lot of people on a more sophisticated platform, whether it be a Merrill Edge or a TD Thinkorswim, and they're just tired of paying the $5.95 a trade and we have all the same tools and advanced order types that they offer. So they come to our platform as well. So we sit in a really good spot.”

For its part, Webull has leaned on leading the no-fee conversation by way of the features and capabilities the app provides, which include tools like paper trading and a stock screener, but also comprehensive charting tools, technical indicators and advanced order types. IThe process toward incorporating all of these features involved taking feedback from users, which denier indicates is the primary source of Webull’s current pace of client acquisition.

“If you look at the average and any app this isn't just you know a Fintech app but you look across any app store and you look at our updates and we update our app basically every single week and that's including better UI, that's bug fixes. It's just a constant, constant, constant race to make our app the best it can be. We constantly say we're going to win the scale of users because our app is just going to be better.”

Webull is a content partner of Benzinga.