High customer acquisition costs have slowed growth and hurt the bottom line at a number of independent robo advisors. Now, microinvesting apps may be feeling the same pinch too.
But there may be additional pain, since their customers are only investing by the thousands instead of hundreds of thousands, possibly making their customer acquisition cost even more expensive.
It’s one reason why Acorns will likely need to burn through another round of funding, says Phillip Klein, North American digital wealth and wealth management strategy lead for Capco.
“This is why Betterment and Sigfig moved from B2C to B2B models,” Klein says. “When the price of customer acquisition is high, it makes sense to white label their solutions with incumbent wealth managers to improve assets under management.”
With the news that the microinvesting app may be looking for $100 million in funding at a $700 million valuation, Klein believes that the company is looking to remain separate from any incumbents.
Acorns declined to comment.
To keep clients with Acorns and away from new millennial-focused offerings from incumbents such as JPMorgan Chase, the fintech will need to expand both its customer base and product offering.
“The current B2C fintech startups are focused on re-bundling banking, investment and payments while building out millennial-friendly brands,” says Lex Sokolin, global director of fintech strategy at London research firm Autonomous Next. “Acorns certainly has a shot at that story in
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Compared to banks, Acorns is not concerned with regional competition focused on cash flow-first thinking. It wants to create a national brand that picks up a large amount of customers and breaks through the noise.
“With Acorns, the gap is that average account sizes are small, there's no demonstrable track record of expanding share of wallet, and no clear way to convert into a broader financial advisory relationship intermediated by a robot,” Sokolin said. “This is the hard work of the next decade, and firms like JPMorgan and Goldman are not far behind.”
Expanding into credit products would make sense for the app’s young users, said James Sagan, managing partner of fintech lender Arc Labs. “Acorns has tremendous amounts of data available to them,” Sagan said. “They can risk and price much better because of it.”
Doug Rivelli, founder of startup research firm Nucleus195, believes Acorns should provide more ways for customers to educate themselves and make more informed investment decisions.
“Providing people access to the market is a commodity that is no longer extraordinarily unique,” Rivelli said. “For robo advisors or microinvesting platforms, access to high quality information would be the next logical step.”
