Web and app performance (speed, availability) has emerged as a top customer service criterion in the digital age. The Robinhood outages show that for financial services, it is critical.
In the quarter-century transition from physical to digital services, performance has become a primary factor dictating success for business. Just ask any e-commerce site that went down or slowed during the last Black Friday/Cyber Monday period. Costco’s online problems that weekend, for example, lost them an estimated $11 million. Even though consumers got disgruntled, venting on social networks, the net business impact was temporary.
The Robinhood outages on March 2 and 9, however, are an entirely different story.
When it comes to their money and control over it, investors and active stock traders will experience downright panic when they are disconnected. This is what happened to Robinhood users when the free trading app went down on March 2, a day the Dow rose over 1200 points amidst huge volatility. Then on another, even bigger, stock and options trading day on March 9, Robinhood went down again; this time for only about an hour.
Robinhood admitted that “…the cause of the (March 2) outage was stress on our infrastructure—which struggled with the unprecedented load. That in turn led to a ‘thundering herd’ effect—triggering the failure of our DNS system.†On March 9, the problem has, as yet, been unidentified.
Admittedly, these outages occurred on historically high trading days, but in the financial services world, there is no room for error – particularly on days like these. Robinhood’s servers went down precisely when they were needed the most. Other trading platforms like Fidelity, Vanguard, Charles Schwab and (its acquisition target) TD Ameritrade experienced sporadic unavailability the week of February 24, but all were short-lived.
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One thing for sure, this outage will be costly for Robinhood.
It’s unclear what will be the long-term financial impact. We expect it will be significant, perhaps permanently damaging. While many users (after losing thousands of dollars) scoffed at Robinhood’s initial recompense gesture of $15, it later said it would compensate each trader on a case-by-case basis. In addition, lawsuits (2) are beginning to sprout. The FINRA and/or SEC could also fine Robinhood for not having appropriate back-up plans in place.
Perhaps the biggest financial impact will be the credibility and reputational damage. High-flier Robinhood had been regarded as one of the most successful fintech startups, disrupting the competitive landscape by eliminating trading fees. Now according to the New York Times (3), customers are saying, “the moment (Robinhood) gets up I am going to try to get out and switch out to someone else†and “I am definitely never using them again.†The press coverage was brutal. A Motley Fool article (4) stated “Why Robinhood Shouldn’t Exist Today.â€
The social media anger was also fierce. One user posted screenshots of options positions that would have netted enormous gains if he was able to trade. The social sentiment was so scathing that some competitors actually voiced sympathy for Robinhood, as reported by CNBC (5). New sign-ups are likely to be very slim for them in the coming months.
From a technical perspective, what was different about these outages?
As Robinhood said in an email to customers: “In this day and age, an outage due to overloaded servers is not a feasible excuse in any industry, though especially not in financial services…â€
I applaud Robinhood’s transparent comment that overloaded servers is no excuse. When I heard that was the cause on March 2, I was shocked. I deal with hundreds of organizations, helping them to identify issues that could result in slow or unavailable services, and the typical reason for such a problem in 2020 tends to be third-party service glitches, network issues or cloud slowdowns. But overloaded home servers? That’s a factor most companies have figured out.
There are two plausible reasons an organization doesn’t have a handle on capacity: first, they may not be conducting sufficient load testing. Unless they make a move to a scalable hosted platform, they are likely doomed for repeat failures. A second reason is that organizations may not have proper back-ups in place, whether a cloud bursting scenario or a duplicate infrastructure. These strategies require added investments, but they are well worth it.
Robinhood’s customer contract states it will not be responsible for “temporary interruptions in service due to maintenance, website or app changes, or failures†and isn’t liable for “extended interruptions due to failures beyond the company’s control.†It further notes it “does not warrant that these channels will be available and error-free every minute of the day.†While this may provide some legal protection for Robinhood, the damage is already done.
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Established competitors can now differentiate based on pinnacle performance.
Robinhood had a chance to disrupt the trading industry, but by calling its reliability into question, it just helped the larger players it was trying to unseat. With trust in Robinhood now disrupted, these competitors can now distinguish themselves based on trust and stellar customer service; that is – near perfect speed and uptime.
The lessons here are clear: critical services, particularly in the financial industry, must have stress plans in place to help them ramp up capacity when needed. All such plans should factor in extremes of load like what occurred in the last two weeks. The reputational damage of such an outage can be too severe to risk.
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