Robinhood stock trading app pummeled by both rich and poor

The online trading app Robinhood got in the middle of the biggest PR crisis since Occupy Wall Street. While I think they’re going to get through it just fine because of the number of people who are now using their platform, I don’t think they did as best as they could have done to thwart the Crisis PR matter if they had just thought about all of the scenarios they may encounter as they were building up their business.

If you don’t know Robinhood, go look them up. They are a unique online trading platform that offers, at least at the low end of their freemium pricing structure, free stock trades. Now the reason they can do that is they’ve got a unique and possibly very untoward revenue model, at least if regulators have something to say about it in the future. While claiming to be a disruptor in the financial services sector, the company had to get an infusion of almost $3 billion to cover margins that clearinghouses wanted in response to the amount of trading that occurred for the likes of GameStop, AMC, BlackBerry, and others. Individual investors wanted to stick it to the “big man” and make what they call a “short squeeze” event occur that forced big hedge fund investors to cover their costs. They were successful in doing so, but Robinhood had to then stop the ability for investors to trade those particular stocks while the hedge fund could still do so.

Herein lies the problem for Robinhood. While they claim to be a disruptor in the financial services sector, their business relies on partnerships with the establishment to clear all of the trades that occur through their app, and also in regulators permitting their model to exist. The current GameStop short squeeze event put Robinhood clearly in a negative spotlight with investors who couldn’t have access to specific trades when they wanted it, with regulators who are now questioning the revenue model, and with clearinghouses that made them put in a lot more money to continue operations.

Planning for all of the “what-if” scenarios of your brand reputation will help you mitigate and potentially avoid crisis PR events Like the one Robinhood is facing right now, Hindsight’s always 20/20 in the background. But in this case for Robinhood, it might have been blinding.