Will Stash stay on Craig`s list as a market leader?

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Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

The closing of the Motif and the $112million funding of Stash, have sparked interesting conversations. It is clear that there was affection in the market for Motif. Maybe towards the founder or because they started with an innovation that didn’t catch on (Motifs never became a household name) or because they persisted for nearly 10 years or because maybe their timing kept being wrong. Too many pivots whose timing didn’t work out, like launching an offering for advisors and an institutional offering with structured products around 2017. See more in my post from 2 weeks ago, Digitization in the brokerage business is shrewd – Motif investing is closing

Craig Iskowitz weaved a rich coverage of Motif`s story on May 1st with lots of data and back flashes on how Motif was perceived along its journey. 13 Roboadvisors That Might Become Victims of the COVID19 Crisis is a great read for anyone in wealth management. In the last part, he shares a robo-advisor ranking in an effort to start thinking about who will not survive in these markets. The Ezra Group divided 38 providers into to three groups: Market Leaders, Up & Coming, and Watch List.

I`ll just pick on the first group `The Market Leaders` only because it contains Stash who definitely has us all looking at why it was able to raise this large amount of funding (Series F) in these market conditions.

Craig includes in `The Market Leaders` the big old names of Vanguard and Schwab that are pure investing giants, along with micro-investing apps like Acorns and Stash and MoneyLion (which is more focused on banking and lending).

He makes a point about the large number of paying clients that these three apps are serving. 15+ million customers compared to 30 million Vanguard clients. These are numbers as of January 30, 2020. This month we should be getting updated numbers as Q1 2020 from Backend Benchmarking which will definitely show an increase, as we have unofficial evidence already of a spike in account openings across all digital offerings. In the #ItzOnWealthTech Ep. 46: The Mad Rush into Digital Advice with Bill Capuzzi, Bill Capuzzi CEO of Apex Clearing mentioned that they saw a 200% increase in new account opening in March.

For Stash to stay on Craig`s list and to not disappoint their investors, they need to execute well on their re-bundling. They cannot afford to stay only in investing like Schwab and Vanguard. They already started their re-bundling in 2019 and effectively their roadmap to becoming a fuller stack. They used their Series E funding to partner with Green Dot`s Banking-as-a-Service and introduce a debit card. After one year they have acquired 750,000 banking customers and continue to pay up to acquire more (see Tearsheet sources below).

With Lending Tree as one of its key recent investors, they must be planning to add credit to their services. With the dazzling choices of Baas and Saas offerings, there is no secret sauce for almost anything. The trick is the go-to-market strategy that can create network effects. And this is where maybe Stash has a first-mover advantage. Is the optional `Stock-Back` reward program that they also introduced last year something that has actually worked for them?

On May 1, Pulse 2.0 reported that `nearly $10 million Stock-Back rewards have been earned by Stash customers since the launch of the debit rewards program almost a year ago.`

 Stash customers earn `0.125% Stock-Back rewards on all of your everyday purchases and up to 5% Stock-Back rewards at certain merchants with Stock-Back bonuses`.

If all $10million stock-back rewards were earned at 0.125%, then that translates to Stash having processed $8 billion in payments through their debit card. That is an average $10,000 per banking customer per annum. If all purchases were at merchants included in the Stock-Back deal offering clients an average of 2.5% stock-back, then it translates into $400million in payments and around $500 of purchases per customer.                        Is all this worth the Stock-Back patent?

Stash actually keeps investing in it Stock-Back program. They introduced 200 more stocks for 2020. Their digital design allows them to change easily the amount of the reward and offer special deals for certain periods and target different groups of subscribers. For example in May, they increased their rewards for CVS, Netflix, Hulu, Spotify, Disney to stock-back rewards of 2% from the usual 0.125%. (Details here). Their picks obviously are the best way to build customer loyalty, as all these are top choices for most people during the lockdown. They also offered 3% for two food delivery stocks, Seemless and Grubhub only for plus subscription customers.                                                                                         This kind of customizable service is definitely Fintech innovation.

It would be good to know what percentage of Stash customers actually opt-in the Stash Stock-back reward program. And then, what is the actual distribution of rewards that were paid out amongst the individual stocks like Amazon, Starbucks, Walmart, and the diversified fund which is paid out as a reward when you make purchases at merchants that are not publicly traded and on the Stash list.

Are business analytics of Stash customer behavior confirming that once a customer receives a reward in a stock of a company whose products or services they consume, they actually become more familiar with the company and allocate more investment funds to the company? This is the narrative that Stash is floating around as they report that they are seeing an increase in customer deposits. Stash is hinting that there are network effects from the Stock-Back Rewards into their investment business.

It is worth monitoring Stash to see

  • Number of Banking customers growth
  • Average account size growth through follow-on investments
  • The Stock-Back reward program growth
  • Follow-on investments of stocks in the Stock-Back program
  • What value there is in the Stock-Back patent they refer to
  • Any new smart credit offering

Sources-

Tearsheet reports that Stash reached $1 billion in AUM in February 2020, with 4 million customers on the platform (not clear how many are paying any subscription which ranges between $1-$9 per month with $0 minimum). However, only 750,000+ are banking customers.

Nerdwallet April 2020 comparison shows that the customer acquisition cost for Stash is very high. They are still paying a lot to lure new customers.

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Digitization in the brokerage business is shrewd – Motif investing is closing

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019.

MOTIF Investing, one of the earliest innovators in the digital investing space in the US, is shutting down. Apparently, the communication hasn’t been that great, as some advisors found out from a tweet. Motif portfolios will be moved over to Folio Investing that has been competing with Motif.

At Daily Fintech we started covering Motif as early as 2014. The company is 10yrs old and its retail arm `Motif Investing` allowed DIY investors to invest in customized thematic portfolios for $9.95. It was not a social trading platform. It was a regulated broker-dealer in the US whose product offering was low cost but active, as individuals could change weights in each Motif.

In mid 2017, I had picked and covered the `Digital Dollars` Motif that had a 30% one year performance. It was an example of a thematic, fully transparent and customizable motif, with a fintech focus. In that post I was comparing alternative structured product offering exposure to the same thematic.

`What is more important is that Motif offers an optimization algo that allows users to take stocks that can be considered players in the mobile payments space (which are 26 US listed stocks) and optimize (holdings and weights). This is a great tool for DIY thematic investing.` excerpt from my 2017 post

 Motif Capital was the other part of the Motif business launched in 2016 as an investment advisor of all institutional dealings. Through that business, Goldman Sachs had a partnership with Motif, which created in 2019 thematic indices and ETFs, the Goldman Sachs Motif Next Wave of Innovation ETFs.

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In 2015, Motif had also struck a unique deal with JP Morgan, through which it would offer Pre-IPO access to retail. A strategic investment happened but unfortunately, the market never saw anything actually happen.

Motif was clearly a fascinating early innovator. They even added direct indexing, fractional investing capabilities, and a growing offering with ESG thematics. Seems like they were doing everything right.

They were backed by Goldman Sachs, JP Morgan, the UK based VC is Balderton Capital and the Chinese social network company Renren Inc.

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Source: Crunchbase

Motif had raised $126million over the past 10yrs. When I spoke to them in 2016, they were already concerned about a Chinese copycat site MotifInvesting.net that had launched with the same even dashboard. And of course, about being leapfrogged by incumbents.

Fast forward to today, and the Robinhood effect killed them.

Folio Investing (a 20yr player) had already `copied` Motif Investing with their Ready-to-Go-Folios and a much cheaper price. Motif had to fold its business and investors using the unlimited plan will be getting a very similar offering with a 30% lower subscription.

`Investors will be transferred to a Folio Investing Unlimited plan by May 20 and charged $19.95 per month, a discounted fee from the usual $29 negotiated by Motif. ` Source

The sentiment in most online media is one of sadness, as an innovator is killed or stopped because of the price wars. WealthManagement reported that As of late March, Motif Investing’s wholly-owned subsidiary, Motif Capital Management, had $868 million in assets under management, according to regulatory filings.

Motif`s data-driven business that was behind the customized indices and the white papers around investment themes, will also suffer from this sad event.

The vision that Motif had to expand to China, the birthplace of Techfin, will not become reality.

The brokerage business is in danger to stop innovating, simply because commissions have gone to zero and the Schwab`s of the world have caught up with fractional ownership offerings, direct indexing, low cost financial advice and more.

Some say that Motif never found a product market fit. I say, that Motif was in the low-cost active space during a time that low cost passive outperformed. And it was not bought out 3-4 yrs ago from a large broker, like Interactive Brokers bought Covestor in 2015.

Notes: InvestorJunkie review of the Folio investing product and pricing

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The post Digitization in the brokerage business is shrewd – Motif investing is closing appeared first on Daily Fintech.