By Spencer Jakab

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A recurring theme in business is the plucky upstart seeing the future and taking on industry dinosaurs. Years later, when the challenger has grown fat and happy, it faces a nimble new competitor and the cycle begins again.

It's a nice story, but investors in brokerages are getting way ahead of themselves. Until last Friday's Trash Crash in the stock and crypto markets, app-centric trading platform Robinhood was on its way to overtaking Charles Schwab, the original discount broker, in market value.

Schwab, which gave an upbeat fall business update today, is no Blockbuster Video to Robinhood's Netflix. The two have different core customers, and Schwab's are a lot richer.

When Schwab took on huge wirehouses like Merrill Lynch in the 1970s, changing rules and technology paved the way: Fixed brokerage commissions were scrapped in 1975 and a "bet the firm" investment in computerization allowed it to be faster and cheaper than competitors.

It's no longer a transaction-based business, though. Pressured by Robinhood, Schwab and its peers scrapped most commissions six years ago. Now, Schwab makes money from the prodigious assets of its brokerage, banking and retirement customers-a fairly dull business.

The same can't be said for Robinhood, which filed to list its shares after a starring role in 2021's meme-stock mania. Its average customer has barely $11,000 at the company yet was active enough to generate revenue of $141 in the past 12 months, largely through cryptocurrency and options trading.

Schwab would be ludicrously profitable if it could make as much from its $11.23 trillion in client assets. But Robinhood's model is also much choppier. Between the bubbly second quarter of 2021 and the same period in 2022, when Fed rate hikes took the air out of tech stocks and crypto, average revenue per user fell by half.

Maybe the current trading boom will get even wilder, but Robinhood also has more competition than Schwab did decades ago. That includes direct competitors like weBull, Tastytrade, eToro and SoFi as well as crypto brokerages like Coinbase.

And, with the lines blurring between securities trading and outright betting, such as prediction markets, Robinhood has to compete with the likes of Kalshi and even DraftKings for the attention of its most reckless and profitable customers.

Robinhood is wisely investing much of today's windfall in more stable businesses like retirement accounts and credit cards while staying true to its roots. It also has millions of Robinhood Gold subscribers who pay for better features.

But the circle of corporate life doesn't always repeat. Even if it does, becoming this generation's Schwab will take a while.

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October 16, 2025 09:15 ET (13:15 GMT)

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