Could Charles Schwab get over regulatory hurdles and its own reticence to follow Robinhood into gambling contracts?

Charles Schwab Corp. customers may soon be able to ‘own their tomorrow’ by betting on their futures – literally – through the company's app.

The Westlake, Texas, brokerage and RIA custodian is sending signals to the marketplace that it is actively assessing its potential role in the digital gambling market – initially through chairman and founder Chuck Schwab and granddaughter Samantha Schwab. 

Most recently, the corporation itself divulged it is officially assessing the opportunity to take online bets.

“We’re monitoring the space and regulatory landscape closely, but we don’t have any plans at this time,” a Charles Schwab Corp. spokesperson told InvestmentNews, in a June 4 email.

Schwab declined to answer what would have to take place for it to move from “monitoring” to launch, or if, like its slow-walked entry into the cryptocurrency market, it is waiting for a shoe to drop before it acts. See: Rick Wurster puts hard(er) date on Schwab spot bitcoin launch.

The publication did not indicate what prompted the query. It did mention circumstances that suggest the keen interest of its founder and granddaughter and his eponymous company's broadcast network. 

“People like trading stocks … [but] people are also very plugged into the world … [they] want to trade on things they care about,” Samantha Schwab said in a July 2024 ‘Schwab Network’ interview. 

“You can put your money where your mouth is,” she adds. 

Predictive markets

Samantha Schwab gave an example of how people like to make Taylor Swift-related bets and how it can be predictive. “Taylor Swift has massive implications for the economy,” she says.

Charles Schwab Corp. previously acquired Motif in the belief they could make the things-people-care-about niche investing mode more mainstream. See: To leapfrog ahead in direct indexing, Schwab to buy Motif technology and hire Hardeep Walia and much of his staff

The Samantha Schwab statement contains echoes of upstart rival Robinhood co-founder and CEO Vlad Tenev's statements about the appropriateness of mixing betting with investing.

Tenev rationalized the combo and promoted his own firm's launch of gambling on his investing website. See: Robinhood's surefire 'RIA' play -- custody and robo-advice -- just got shakier as its 'betting' ambitions go full bore and eight states throw up resistance.

He argues that prediction markets act as a form of “news faster” about public sentiment and what may happen next, and that it can be done responsibly as part of broader investing and trading practices.

But dozens of industry analysts have slammed prediction markets in recent months, and several insist that Robinhood is playing with fire by trying to combine betting and RIA custody inside one company. 

Bigs move in

Meanwhile, Chuck Schwab has already bet on digital betting by participating in Kalshi's $30 million 2021 "A" funding round. 

Kalshi is a regulated exchange and prediction market where investors can trade on the outcome of real-world events through the sale and purchase of “event contracts.”

Samantha Schwab spent a year and a half as a business development executive at Kalshi, which is the platform that Robinhood private labels. She is currently deputy chief of staff, U.S. Department of the Treasury.

Though "Chuck" has not spoken publicly about Kalshi, company co-founder and CEO Tarek Mansour said last month that “most” big brokers will have “access” to betting through his company.

“Within the next year and a half … most mainstream financial brokerages … will have access to Kalshi’s products or prediction markets,” he told his audience at the Solana Accelerate conference in May.

For Schwab, it could represent a significant source of revenue, and it could also attract younger investors because digital gamblers skew younger.

It may also need to wait for the regulatory air to clear. 

Brokerage growing

Kalshi is involved in disputes with a number of states over the legality of its service, which is regulated by the Commodity Futures Trading Commission (CFTC). See: Robinhood pushes back, with force, after CFTC's 'shocking and stunning' rejection of its 'contract' betting bid.

Trading has become a bigger part of Schwab's business since acquiring TD Ameritrade (TDA), although its equity trades are for the most part commission-free.  

TDA had a large following through its thinkorswim trading system, and it was one of the softwares that survived the merger because it was so clearly superior to Schwab's legacy option. See: Charles Schwab had an easy decision to keep afloat TD Ameritrade's thinkorswim platform, but Veo and Veo One are more likely to be scuttled post-merger