Online stock trading platforms like Robinhood have made headlines in recent weeks because of increased scrutiny by regulators and the public alike. But Public.com is making our headline for another reason altogether today.
The New York-based digital investment platform recently tapped Sruthi Lanka as its Chief Financial Officer where she’ll oversee the company’s finance, data and people operations. She has been in the role for about two and a half months.
Lanka joins the company from MoneyLion, the challenger bank where she previously worked as VP and Head of Strategic Finance, according to a Public.com blog post. Lanka was brought on as MoneyLion’s first finance hire in 2017.
Public.com provides a platform where its members can own ETFs, fractional shares of stocks, follow other investors and share ideas.
Recently, Public.com raised $220 million in a Series D funding round, raising the company’s valuation to $1.2 billion.
On Feb. 1 Public.com said it got rid of the Payment for Order Flow (PFOF) from its business model, “a practice where brokerages are paid to route orders to market makers for trade execution, creating a potential conflict of interest between brokerage and customer,” the company said in a blog post. The PFOF practice has been under increased scrutiny by regulators in recent weeks and has also been seen as an important part of many low-cost / no-fee trading business models.
Lanka spoke with FinLedger about moving away from the PFOF model, her new role, the GameStop controversy and growth opportunities ahead.
FL: How has it been transitioning into your new role as CFO at Public.com?
Lanka: As I thought about my next opportunity, I felt like there was a big piece of the puzzle that no one was solving, which was education around the financial market and finance in general. Everyone was solving for access, so everything’s free, everything’s fast in beautiful apps. But, no one was successfully solving for education. This community-based approach that Public is bringing, is honestly I think, the only one that I’ve seen that’s worked so far. You can see that in the fact that we’re bringing people into the market that are not on other apps. [There are] a lot of first time investors, I think 40% women and 45% people of color — all of this is pretty unique to us. It shows that this education strategy is working. That’s part of why I was so excited about joining Public.
FL: How does moving away from the PFOF model impact your business model?
Lanka: I mean directly, it takes something that was a revenue line, the PFOF, to a cost. We have the cost of executing now against these exchanges. But it does also open up new revenue streams that have been seen in other financial services, but not really in trading before — which is the tipping business model. This comes back to the idea that, you as a customer, if you are not paying for the product, likely you are the product. This is a sentiment that’s been expressed by others, which is exactly why we want people to pay what they want — they could pay zero if they wanted. It’s an optional tip.
FL: Could you expand on the tipping model and why this is important?
Lanka: We believe that it will offset any revenue losses from the PFOF side. It’ll be one of several revenue streams to the company… We have a write up on the website that tells you all the ways that we make money. We will have more, like I said, subscriptions that will come out in the future, which again, will continue down the same path which is, you as the customer can choose to pay and choose to be part of the subscription or not, choose to tip or not. It all fits into the same broader model.
FL: The Gamestop controversy raised a lot of questions about broker dealers and trading platforms having the ability to execute trades and not halt orders in scenarios where a trade goes viral in a r/wallstreetbets scenario. How does Public.com mitigate this type of risk?
Lanka: Our positioning around GameStop has been very clear. We did not want trading to halt. Our focus, again, is to equip everyone on the platform with the education to make the right choice for themselves. What that means is, if you go into the app, and there’s a very thinly traded stock, you’ll see a label that tells you exactly that. Or if you see a stock that has shot up in price, that could be seeing a lot of high volatility, all of those show up as markers. You’re not going into the situation blind.
When the GameStop thing was happening, there was a little pop up, which basically said ‘This stock is experiencing high volatility. Do you want to proceed?’ Our customers responded well to that, and it puts the decision back in their hands, but with the right information to do what’s best for them. Going forward, I mean, I hope we don’t have to do trading halts. That is philosophically not consistent with what we want. But of course, we have partners, there’s multiple parties at the table. Our clearing firm also has to be aligned with that. We will continue to focus on more education, more labels, more information to put the decision back in the hands of our customers.
FL: Going forward what growth opportunities do you see for the company?
Lanka: The decision to move away from PFOF and to tipping, took people by surprise. I think that is likely to happen in other ways, we have things coming out that maybe others are not working on…
We have to remember that Public is actually a relatively young company. We have to roll out crypto, there’s a number of features within the app that we would like to offer the full set of products for our customers… From a growth perspective, we talk a lot about traders in the market — but even Robinhood, even of our largest competitors, still only have less than 10% of the overall market. There’s a lot of eligible Americans who are not in the markets. What we found is typically, it’s because they don’t know where to begin. This comes back to the point around education. Our growth comes from people who are not otherwise engaged with the markets.
This Q&A has been edited to read clearly and concisely.