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The average account balance is significant in Robinhood and Charles Schwab's business models as it impacts their revenue generation. Charles Schwab, with an average account balance of $100,000, makes 50% of its revenue from interest on users' accounts. The high average balance allows it to generate substantial revenue from interest. On the other hand, Robinhood, with a lower average account balance of $5,000, relies heavily on payment for order flow, making up 80% of its revenue. The lower average balance limits Robinhood's resources for growth and its ability to generate revenue from interest.
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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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