How Can Double Make A Business on $1/month?

When we launched Double with a radical $1/month subscription, people understandably had questions. Can a business built on such a low fee actually survive, let alone thrive?

In this memo, we will pull back the curtain on the economics of public online brokerages and share our current thoughts on our long-term path to profitability. We will also discuss how the brokerage industry is changing rapidly and how we see brokerage revenue evolving over time.

Now, full disclosure, Double is not a broker-dealer as of early 2025, though we do intend to become one. Most of these revenue sources are only available to broker-dealers. This means we do not yet have access to all the revenue streams I will be talking about.

How Brokerages Really Make Money

To understand how this all works, let's look at three major players: Schwab, the established giant; Robinhood, the commission-free pioneer; and Interactive Brokers, the global powerhouse. We dug into their latest financial reports, and the results might surprise you.

The real king of brokerage revenue is something called Net Interest Revenue (NIR). Think of it like this: when you put money in a bank, the bank does not just let it sit there. They lend it out, invest it, and earn interest. Brokerages do something similar. They earn interest on things like margin loans (loans to investors) and uninvested cash. Of course, they also pay some interest out to some customers too. The difference between what they earn and what they pay is their Net Interest Revenue. This is a huge part of their income. Even Robinhood, the app known for something we cover next called Payment for Order Flow (PFOF), makes 43% of its money from NIR.

But NIR is not the whole story. Trading revenue is another big part. This includes commissions (fees for buying and selling stocks), PFOF, and something called principal transactions. Schwab, for example, still makes 9% of its money from commissions, even though they offer zero-commission trading.

Then there is asset management. Schwab, in particular, makes a hefty 31% of its money from fees on things like ETFs (exchange-traded funds), mutual funds, and advisory services. This is not a major way that Robinhood or Interactive Brokers make money right now.

If we average it all out, brokerages typically earn around 49% of their money from NIR, 33% from trading, 10% from asset management, and 7% from other sources. The other category varies by company but includes Robinhood Gold, IKBR data fees, and Schwab bank deposit fees, among other things.

Double's Path to Real Revenue

So, how does Double plan to make money with a $1/month subscription model? Like the large brokerages in business today, we think we’ll take a multi-faceted approach that leverages the revenue streams I've outlined above.

Net Interest Revenue (NIR): This will be a cornerstone of our revenue model, just like it is for other brokerages, and we expect this to be about 50% of our revenue. We'll generate NIR through:

• Smart Cash Management: Earning a spread of interest on uninvested cash and potentially lending out securities (with your permission first, of course).
• Margin Lending: Offering competitive rates on margin accounts, and earning interest from customers on this lending.
• High-Yield Cash Programs: Partnering with banks to offer attractive cash sweep programs, sharing some of that revenue with our users.

Trading Revenue (PFOF & Commissions): We know there is some controversy around PFOF. However, we believe it can be a valuable tool that can help us give our customers better prices while keeping trades commission-free. We will be transparent about how we use PFOF. We will make sure our practices align with our customers' best interests.

If you’re interested in learning more about PFOF, we’ve found this article from Alpaca helpful to understand why it’s become an industry standard for U.S. Broker-Dealers. Two quick takeaways that we feel are not well known about on PFOF:

1. Regulation NMS requires your order to be filled at a price equal to or better than the National Best Bid and Offer (NBBO), which is the best available displayed price across all exchanges. PFOF trades usually result in better execution than the NBBO.
2. Frontrunning is illegal in the United States.

We don’t think we will monetize our PFOF quite as highly as Robinhood due to the more passive nature of our orders and transaction frequency. But we expect PFOF to be ~20% of our revenue long term.

Asset Management Tools & Services: We'll offer a suite of asset management tools & services – think retirement planning, research tools, or estate planning services – all at fair prices. We believe these revenue streams will generate ~20% of our revenue.

Subscription & Other Revenue Streams: While our $1/month subscription fee is low, it will provide a steady stream of recurring revenue that will contribute to our overall profitability. We believe our subscription & other revenue streams will generate ~10% of our revenue long term.

Our Goal: Get to Scale

Businesses need cash, not just percentages, to thrive. Our focus here at Double is to be an attractive place for consumers to bring their assets. We will need to achieve a large quantity of diversified Assets Under Management in order to thrive. This is our sole focus.

As of this writing (Jan 2025), we have more than 2 years of runway and are backed by some of the best investors in Silicon Valley.

Our $1/month, 0% expense ratio index investing claim is bold, and is achievable by understanding brokerage revenue models. We eventually plan on utilizing standard industry practices to generate revenue through things like net interest revenue, payment for order flow and asset management fees. These revenue streams, common in the financial sector, should allow us to grow our business sustainably, allowing us to pass the savings to you via exceptionally low fees.