Charles Schwab and Robinhood have different revenue generation models. Charles Schwab makes a significant portion of its revenue from interest on its users' accounts and account management fees. In 2020, interest from users' accounts contributed to 50% of its revenue. On the other hand, Robinhood generates 80% of its revenue from payment for order flow, a process where Robinhood receives compensation for directing orders to different parties for trade execution.
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Now for some weaknesses. The average Robinhood user has around $5,000 per account vs the average Charles Schwab user, which has around $100,000 per account. The Median amount in a Robinhood account is even lower at $240. This limits Robinhood's resources to grow. By contrast, Charles Schwab makes 50% of its revenue purely off interest from its users' accounts, which reached as high as $6.1 billion in 2020. Another way Charles Schwab makes money off account management fees, while Robinhood makes 80% of revenue from payment for order flow. This payment structure is also an external threat against Robinhood, as the SEC recently fined the company $65M for misleading users with the process.
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