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Hi y’all, Cokie here.

Hope everyone had a great week. On Thursday, I went on a long walk with Julie’s dog Tux (Julie and Eli were there too, but whatever) and felt totally revived afterwards. There is just nothing like spending time with actual human beings outside of my apartment.

With the unprecedented (this word is forever cursed) action by the members of r/wallstreetbets to frontload GameStop and other noteworthy stocks, I feel like I’ve been zapped back to my capital markets days. With Julie’s encouragement, I’ve decided to lean into my sordid past and talk to you about Public’s monumental decision to cease Payment for Order Flow.

Public considers itself a social media platform first. Unlike any other brokerage, Public offers a timeline of sorts, allowing users to pontificate to their heart’s desire. Otherwise, Public functions much like other e-brokerages, one can buy and sell stocks -- but now, with bragging rights. For instance, if I were to sell my holdings in PTON, it would show “Cokie has sold Peloton and made 17%” or if I finally gave up on some of my losers. “Cokie has sold a loser and lost 95%.”

For those that might have missed it, Public announced that it would no longer generate revenue from Payment for Order Flow. Julie explained what this means on Wednesday, but let’s recap with a quote from Public’s press release: “This is 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.”

Ok. In English this time:

Brokerages (Robinhood) are paid to route orders (trades you place) to market makers (people who set prices) for trade execution (when your trade is fulfilled -- buy or sell), creating a potential conflict of interest between brokerage (Robinhood) and customer (you).

From this definition, the conflict of interest isn’t actually apparent. However, one of the many paradoxes that took form in the last several weeks developed from the potentially questionable relationship between Robinhood and Citadel. On top of being sued by industry watchdogs over failing to ensure best execution for its customers, this particular instance with GameStop presented additional issues. You see Citadel, which gets a lot of order flow from Robinhood, had shorted GameStop. This understandably caused consumers to question the perhaps wry irony of the name “Robinhood.” It was not a good look.

Public took a different approach, which I got to witness first hand as a user. Shortly after APEX (Public’s clearing house) ceased $GME order fulfillment, Public issued a user-wide notification stating that it disagreed with APEX’s decision and was working to rectify it. I paused. A public, verifiable criticism of a partner in fintech? In the words of Grantaire from Les Misérables, “I am agog, I am aghast.” Unbeknownst to everyone, Public had chosen a side: the customers side. As a new founder myself, I really admired this.

Public had $GME back online in swift (no pun intended, I swear) order. Public left it to the customer to make their own decision about $GME and other high-risk stocks and to lean into the community for support or concerns.

The founders of Public have relentlessly delivered messaging that it is a social media company first. No amount of messaging can beat this. It didn’t flash it, it didn’t even mention it, and yet, it validated its community product in a monumental way.

I’ll admit, when I joined Public, I did not expect to find any joy in the community. During an interview a few months ago, co-founder Leif Abraham assured me that it was monitored, it was safe, and most of all, it wasn’t chalk full of investment banking bros. I kept my Robinhood account open mostly due to laziness but found when I looked at it, I missed the conversation. The community had become a source of, I don’t know, comfort almost. It was strange. I liked knowing I wasn’t alone, I wasn’t the only one confused, I wasn’t the only one taking a punt.

Going forward, Public will replace Payment for Order Flow with a tipping model. Julie discussed some of the shortcomings of tipping (read her article here), and mentioned that she agreed with Public’s decision to make it impossible to tip more than 5% of the order. I am concerned that Public could become even more dependent on VC, but tbh, that doesn’t seem to bother any of the other fintechs. There are also questions over how users will react in the long term and whether or not regulators will take issue with this new model, but I'm glad Public is willing to shake things up.

While many sat and questioned the wisdom of Public’s decision and of tipping, my takeaway was entirely different. Public put itself in the shoes of the customer. It took a stand on behalf of those it seeks to educate and encourage.

Unanticipated disasters are make or break in any industry, especially for companies still in their relative infancy. However, skillfully managed unanticipated disasters make billion dollar companies. (Before you ask, I started the offboarding process at Robinhood this week. Long Public.)

I do want to caveat this though: it shouldn’t have ever come to the individual brokerages to make a determination on their own -- that’s why we have regulation. Robinhood wouldn’t have stumbled so much if this space provided far more consumer protection, Public wouldn’t have had to take a firm stance.

There is neither good nor evil in banking, only regulation. And that, my friends, is a wrap.

Peek Behind the Paywall

On a completely different note, Julie and one of our other FTT experts, Michael Jenkins, are publishing a big report on the state of play in the Buy Now, Pay Later space. It'll give you a history of the largest players, a simplified look at how they make money, as well as how we can expect the industry to evolve in the future. If you haven't already signed up for our premium newsletter, you can do so here to make sure you don't miss this.

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