Investing social network Public.com is changing its business practices, ending a controversial practice brought to light by the rapid rise in GameStop Corp's GME valuation.
What Happened: Public, which has celebrity backers like Will Smith, Tony Hawk, J.J. Watt and The Chainsmokers, is ending payment for order flow.
Most online brokers are paid by market makers to send trades to them. This practice had been harmless, but according to Public, is now being abused by some competitors.
Due to a higher standard of transparency, Public will eliminate this practice and instead route orders directly to exchanges. This practice will be more expensive for Public, but the company said it believes it is necessary.
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Why It’s Important: Public could be the first of several companies to change the practice of payment for order flow.
Public is losing a revenue generator for the company. The company will still make money through interest on cash balances and securities lending. Public may also introduce paid subscriptions in the future.
The newest revenue generator for Public will be tipping, which could be adopted by other brokers in the future.
Members can add an optional tip after placing an order. The non-mandatory tip can be for a varying minimum amount up to the maximum of 5% of the order value. The tip amount is a way for users to reward Public for its new business practices.
Photo courtesy of Public.
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