Turn Your Competition Biggest Strength Into Their Biggest Weakness

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Prior to the launch of Robinhood, an average commission for stock trading could be anywhere from $4.95 to up to $10. The transaction fees from stock trading represented a significant part of the total annual revenue of brokerage firms.

In 2015, Robinhood, a commission-free stock trading launched in public beta. Over the last few years, when the incumbents started losing customers, they were forced to offer commission-free revenue. Robinhood was the first one to own the “commission-free stock trading” that has helped it acquire over 12 million customers.

As of December 2019, the top asset management firms hold a combined total of over $20 trillion assets under management, with an average management fee of about 1%. This translates to $200 billion in annual revenue. The high fees under management are the primary source of revenue for all asset management firms.

High AUM fee was their biggest strength, Wealthfront figured out how to make a sustainable business by charging only a fraction of the fees.

All in all, the top 15 largest banks now hold a combined total of $13.7 trillion in assets. The average interest rate for a savings account is 0.06%. Revenue from deposits is a big part of the bank’s revenue. 

N26, Monzo, Varo are challenging incumbents by building a fully digital bank without branches or human tellers. This enables them to offer a competitive savings rate that is 5-10 times higher than the national average rate offered by incumbent banks.

Blockbuster’s biggest revenue source was not the rental fees but it was the late fees. In 2000, Blockbuster made $800 million in collected fees, making up 16% of its revenue. According to the Land of the Giants Podcast, they made up 70% of its revenue at one point.

Netflix decided to change the business model to a subscription model that allowed customers to pay a flat monthly fee and rent as many movies as they wanted — with no late fees. That got traction.

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