Robinhood is facing a brand crisis. It was a company built on the promise of giving the average person access to a financial system dominated by the wealthy. And within seconds, it broke that promise in the eyes of its customers. As a result of its lack of transparency and authenticity, Robinhood betrayed its mission and purpose, leading to severe mistrust and a furious customer base.
But let’s go back to the beginning.
Individual investors from Reddit began to drive up the price of GameStop’s stock, which had been shorted by institutional investors. The Reddit investors were able to push the share price up to incredibly high levels, causing catastrophic losses for short-sellers. They continued their endeavor by pushing up other shorted stocks such as AMC and Blackberry. This resulted in severe losses for institutional investors such as Citadel, D1, and Melvin Capital.
Robinhood, a brokerage app that built its brand on “democratizing finance for all,” was one of the companies at the center of this dynamic, as it enabled individual investors to conduct these stock purchases. However, in what customers believed to be a betrayal of its mission, Robinhood announced soon after that it was “restricting transactions for certain securities to position closing only, including $AMC and $GME.”
This announcement was followed by outrage. Users accused Robinhood of protecting institutional investors, who had lost a significant amount of money. By restricting transactions, Robinhood betrayed the very foundation on which the company was created. And when it was time for the company to address the public and explain its actions, it undermined everything it once stood for.
Below are two quotes from the email Robinhood sent to customers in an attempt to explain its actions:
“As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits. Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today.”
“The past year in particular has shown us that the financial markets are for everyone—not just institutional investors and hedge funds. We’ve seen a new generation enter the market, and they’re sparking conversations about what it means to be an investor. We stand in support of you, our customers. Democratizing finance for all means giving more people access, not less.”
This is where everything went wrong:
Robinhood failed to answer the basic question customers were asking, “Why can’t I invest in GameStop and other companies such as AMC and Blackberry?” Instead it resorted to “corporate speak” and further ostracized its customer base.
The Robinhood brand was built on creating a platform the average consumer could navigate and understand. Its communication and messaging has always been straightforward and easy to digest. However, in this situation, Robinhood shifted tone and shrouded its reasoning behind phrases the average customer doesn’t understand, such as “SEC new capital obligations and clearinghouse deposits.” It stuck to this language and justification in interviews as well, despite being called out for it.
This kind of talk consumers expect from Wall Street, lawyers, and politicians — not from a brand that promises access and the democratization of finance. This corporate language only enhanced the new perception users had about the company — Robinhood is simply another corrupt entity that exists to serve Wall Street.
Robinhood concluded its emailed statement with the line “we stand in support of you, our customers,” but at this point, the consumer still doesn’t have a clear answer to their only question: “Why can’t I invest in GameStop and other companies such as AMC and Blackberry?” So why should they believe this?
This is what Robinhood should have done:
Authentically acknowledge what is happening
Provide regular updates to keep the public consistently updated
Let’s dive deeper.
Authentically acknowledge what is happening
In a crisis there are many flames to put out, so being vague at first is okay. A company can simply acknowledge what is happening and promise a speedy update. This allows for time to align on the best path forward.
The next step is essential. The company must continue to stay on brand. In Robinhood’s case that meant being transparent and using simple language that everyone can understand. It failed to do either of these things.
Now, the explanation for why it restricted certain stocks is actually quite easy: Robinhood simply couldn’t afford the numerous transactions occurring on its platform.
Perhaps this explanation would have caused some skepticism towards the organization, but it would have also protected the brand and prevented the high number of users pulling their money from the platform.
Robinhood’s comms were so bad, that people on Twitter, such as Sheel Mohnot, wrote their own version of the press release. And most of them were significantly better.
Provide regular updates to keep the public consistently updated
This is PR 101. If you don’t control the narrative, the news and social media will do it for you. Because of the lack of narrative, Robinhood now has several challenges it has to face:
A class action suit claiming Robinhood rigged the market
A furious customer base whose perception of the company will forever be tarnished
Powerful figures who are demanding answers
If the company had taken control from the beginning and provided regular, authentic updates to its customers, many of these concerns would have been addressed. Perhaps there would have been some speculation and finger pointing, but not nearly to the level that Robinhood is currently facing.
Let’s look at Public who also had to announce the same restrictions to its customers:
Public took an empathetic, transparent approach that reassured customers that it is on their side and is doing what it can to resolve the issue. It followed up with updates to ensure that its customers were kept in the loop and were aware of what was happening.
And now Public is profiting from Robinhood’s loss. With Robinhood users pulling their money and deleting the app, Public has been quick to roll out new incentives for users to join its platform.
Today, claiming to have a purpose is simply not enough. Customers demand action and authenticity, especially in a time of crisis. Robinhood failed at this. Rather than responding to the crisis authentically and transparently, it resorted to “corporate speak” which only left customers feeling angry and betrayed. And when a brand, especially one targeted towards younger audiences such as Robinhood, betrays that trust, it is not easily forgiven, and it is never forgotten.
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