Micro-investing is the latest fintech disruption
Micro-investing is the latest fintech disruption democratizing the money world… this is not old school Wall Street.
WHAT’S UP: Micro-investing is on the rise. This movement is bringing financial literacy and empowerment to a more diverse (and younger) audience.
Investing & saving money is the latest to get micro-sized. Micro-investing describes the process of depositing, saving and investing small sums of money. Apps like Acorns, Stash and Robinhood are fueling the movement — they are platforms that remove barriers to entry such as trading fees and account balance minimums. Like other “micro” trends, micro-investing is low mass (awareness) but high velocity (high in engagement) — taking something that is normally out of reach (like the stock market) and making it relevant, personal and easy to get into.
Micro-investing is gaining velocity because it is making it easy for “non-money” people — including women and younger generations — to understand, get engaged and get their foot in the investment world door.
Velocity for micro-investing is driven by 5 key factors.
Disruptive Micro-investing apps: With tactics like allowing users to invest their spare change — Acorns, Stash, Robinhood and other fintech startups are turning saving into an easy to do, daily habit that puts people on the path to financial health. Not necessarily a sustainable long term investment plan, but effective in getting people started.
Our perceptions of investing are being shifted — instead of an intimidating and exclusive method of wealth generation limited to men with means, now, investing is being taken up as an easy, everyday activity by women and younger age groups.
- Stash is a “hand-holding” approach to micro-investing, helping users build their own portfolios using layman’s terms, diversified recommendations and personalized advice based on their chosen risk level. Stash aims to help people become investors.
- CEO and co-founder of Stash, Brandon Krieg and his co-founders David Ronick and Ed Robinson created Stash to simplify diversified investing “backed by personalized advice” and education, aiming to sidestep “short-term speculation and day trading.”
- Acorns, on the other hand, uses a “hands off” approach, managing users’ portfolios for them. Created in 2014, Acorns was the first micro-investing app. Acorns’ approach helps people who struggle with saving on their own to invest in a more passive, easy way. Acorns’ builds portfolios ranging from aggressive to conservative, with aggressive portfolios being more invested in stocks, and conservative ones being more heavily invested in bonds.
- Acorns’ goal is to enable financial wellness and bring financial literacy to the mainstream. To do this, Acorns “simplifies investing and rewards positive, long term behaviors,” says Noah Kerner, CEO of Acorns.
- Both Acorns and Stash offer debit cards that will automatically round up your purchases and invest the additional money in ETFs or fractional shares of stock.
- Robinhood, which recently IPO’d, says it is designed to be “investing for everyone” — committed to helping customers “build sustainable, long-term financial success and to offering a variety of educational tools.”
- Retail trading apps like Robinhood have done well at making investing more interesting and appealing to young people… key in terms of them starting in growing their wealth early in life.
Innovative Finfluencers (financial influencers) driving FOMO: Social media financial influencers are the new breed of money gurus, making it fun to learn about finance and investing. By keeping the content bite size and entertaining, they are appealing to a younger generation of digital natives.
The success of the influencer lies in their ability to speak to others like them in a non-condescending way. Finfluencers, many of whom are women, are able to meet people where they are, speaking from similar experience.
- Fintech companies like Klarna, Moneybox and Snoop have partnered with finfluencers on TikTok, sparking debate about the positives vs. risks of finfluencers.
- Klarna recently created a council aimed to deliver clarity for consumers, brands, influencers, and advertising bodies regarding what is and isn’t acceptable for advertising financial products and services online.
- In April 2020, Haley Sacks — the Instagram influencer known as Mrs Dow Jones — announced a new eight-week program to help gen Zers navigate and manage their finances during the pandemic. Weekly themes included jobs, personal finance, healthcare and taxes. “There’s so much interest for financial information from people who normally ignore it,” she said. “There’s so many questions about the future of people’s careers, and how they will make money, and how to manage the money they have now.”
- Having already amassed an impressive net worth of $100,000 at just 26-years-old, Sydney-based Aleks Nikolic (@brokegirlwealth) is the perfect example of this. Her journey to financial freedom is profoundly inspiring and while she recognizes that we all start our financial journeys at different places, her Instagram page is dedicated to helping other women better understand budgeting, investing and building wealth.
Polarizing — Low risk for the crypto curious: The micro-investing movement is enabling the risk averse to experiment with new and alternative investments like crypto, trading cards or digital art. The ability to invest small sums of money lets them dabble without draining their bank account.
Sticky because micro-investing is for a specific purpose — foot in the door model, not the long term strategy: Micro-investing should be used as a foot in the door to investing — a way to start learning and building healthy financial habits that stick — rather than a long-term strategy.
SOCIAL IMPACT via Equality & Inclusivity: Financial inclusivity in the stock market is bringing financial freedom and power to people of all economic and social backgrounds.
Companies have tried to lure women into investing in the past… but most over indexed on making the experience TOO female forward or lure younger generation in by making it TOO gamified.
Micro-investing platforms and influencers that are seeing success are taking a gender neutral approach. Financial opportunity doesn’t need to be too female focused or too gamified… it just needs to be accessible to more people than the Warren Buffets of the world.
One key critique of Robinhood: “It’s not really a democratization if it doesn’t involve minority groups, if it doesn’t also involve women, and people of color and other members of other minority groups,” Dunlap said. “Yes, it’s, like, appealing to younger people, but it’s not straight white male hedge fund managers, it’s just straight white male ‘finance bros.’”
Why is micro-investing booming now?
The gig economy and social media have also made it easier than ever for young people to earn extra income. Rather than letting that cash stagnate in a savings account, micro-investing lets those with a side hustle make their money work harder for them while they sit back and count it.
On top of that… the pandemic made us realize it’s never too early to start saving — you never know when your world will change and you’ll need that nest egg.
WHAT’S DOWN: Having and making money is no longer just for people with lots of it.