Fintech

Consumers can buy stocks everywhere. Is that a good thing?

Amid a bull market, many financial apps have added stock-trading features in hopes of drawing in new investors.

Square's Cash App is among many banking and payments apps that have added investing features.​

Square's Cash App is among many banking and payments apps that have added investing features.

Photo: Tech Daily/Unsplash

Retail investing is taking off in the U.S., with daily trading volume in January double what it was a year ago and much of the increase attributable to individual investors.

It's more than just the Robinhood effect: A number of companies are making it easy to tack on investing alongside other financial services, and a broader range of apps now feature stock trading as a result.

The spread of stock trading in apps originally designed for borrowing, saving or paying has big implications. It could lure more people back into the stock market: The percentage of households owning stocks dropped after the dot-com bust and the 2008 financial crisis, and has only recently started to recover. That, in turn, has meant that the stock market's gains in recent years have only benefited some families.

But just adding a "buy stocks" button to an app won't reverse years of worsening income inequality by itself. Easy access to the markets could hurt some novice traders if apps lure them into risky, rapid-fire trading.

For startups looking to challenge the finance establishment, one-stop shopping is another way to attract customers and keep them once they're there with more options to save or invest.

Square's Cash App lets people get paid back by a friend for beers, and then turn around and plow it into shares of BUD. People who use Revolut or MoneyLion for banking can move money from savings into investing. Stash even offers a Stock-Back Card that pays customers for shopping with fractional shares of the retailers they frequent. Several apps promise free stock, often in familiar brand names, for making your first trade.

Online brokers have often marketed themselves to people who are already trading. Apps where trading is an add-on are more often trying to attract customers who are new to the markets.

"There's a big paradigm shift from a brokerage mentality to an embedded finance mentality," said Bob Cortright, CEO of DriveWealth, which has 90 partners with close to 10 million accounts, including Revolut, MoneyLion and Square.

Time for investing

There are arguments for getting consumers started with investing sooner. Starting to invest while people are young can compound into much larger savings in the future. Especially if consumers invest for the long term — and avoid cycling in and out of stocks in search of short-term profits — these relatively small investments can turn into much larger retirement savings over time.

Younger Americans targeted by many of these apps generally invest less, said Brian Graham, a partner at Klaros Group. That's in part because they have less money to save: Wages stagnated after the 2007-2008 financial crisis and student loan debt has skyrocketed.

"We see this whole divide and accessibility problem," said Yoshi Yokokawa, CEO of Alpaca, which provides trading services for financial apps.

It's not clear how many users of these apps are new to investing. More than 2.5 million customers have bought stocks using the Cash App in the 10 months since launch, Square said in its third-quarter 2020 earnings report. Many of those users originally came to the app for peer-to-peer payments. Square now includes dollar-cost averaging options to address market volatility.

With features such as gamification, hyper-targeted customer segmentation and low or no trading fees, embedded investing in financial apps should draw more first-time investors, but there is a danger if apps focus on short-term trading, not longer-term investing, Klaros' Graham said.

"It'll expose people to financial services in a more integrated way. It has enormous potential to do good. It also has enormous potential to do bad," he said.

"A very small portion of American society actually invests in assets. Our customer base has historically been left out," said Dee Choubey, CEO of MoneyLion, whose customers mostly make between $50,000 and $100,000 a year. "Our mission is to create financial access."

Moving money

Smashing banking and brokerage services together isn't a new idea. Following passage of the Gramm-Leach-Bliley Act in 1999, brokers and banks literally merged. Citigroup emerged from the $70 billion combination of Travelers, Salomon Smith Barney and Citibank, while E-Trade bought Telebanc for $1.8 billion. At the same time, the dot-com boom lured retail investors into the market to trade online.

What's different now is that you don't need billion-dollar deals to put banking and brokerage services together. All you need is an API that can route trades from an app to the market. Companies such as DriveWealth, Alpaca and Parkside offer backend trading services for a variety of customers.

Now, there's renewed retail interest in investing with a bull market that roared back after the pandemic crash last year, and low interest rates often don't provide meaningful savings. All-in-one financial apps make moving cash and buying stocks as easy as ordering an Uber — not something that requires expertise or even downloading a separate app.

Some companies offer education for new investors. MoneyLion asks for a customer's financial goals and provides a caution flag if they seek to invest in something that is outside of their risk profile. Square has a digital "My First Stock" slideshow complete with sharks and crocodiles to illustrate risk. Robinhood bought MarketSnacks, a financial media company, in 2019, and now calls it Robinhood Snacks.

Some, following Robinhood's lead, offer commission-free trading, while others like MoneyLion offer managed baskets of stocks for a fee. "It's philosophically different than stock trading apps out there," MoneyLion's Choubey said. "Our customers start out with $1,000 to $10,000 of investable assets. To start off you really should probably not be buying a fraction of a single stock of GameStop. You really should start in a managed way with your goals."

Others use card rewards to get consumers interested in stocks. Stash customers have earned about 25 million stock rewards via the Stock-Back Card, the company says. And 35% of customers who received a stock through the card later invested their own cash in that company. Stash spokeswoman Vera Hanson calls the program a "gateway for customers to explore and discover new investments."

But the common theme is that placing stock-purchasing next to other financial products such as banking or lending is a way to drive increasing interest in investing.

"That consumer behavior is tied to the investment behavior," Cortright said. "It's a way to get young people thinking about investing for the long haul. Sometimes they're not using their own money. It's a reward back for behavior. If every time there's a transaction you generate a lot of financial literacy, powerful things can come out of that over time."

Entertainment

Niantic is building an AR map of the world

The company’s Visual Positioning System will help developers build location-based AR games and experiences; a new social app aims to help with AR content discovery.

VPS will allow developers to build location-based AR experiences for tens of thousands of public spaces.

Image: Niantic

Pokémon Go maker Niantic has quietly been building a 3D AR map of the world. Now, the company is getting ready to share the fruits of its labor with third-party developers: Niantic announced the launch of its Lightship Visual Positioning System at its developer summit in San Francisco on Tuesday. VPS will allow developers to build location-based AR experiences for tens of thousands of public spaces, Niantic said.

Niantic also announced a new service called Campfire that adds a social discovery layer to AR, starting with Niantic’s own games. Both announcements show that Niantic wants to be much more than a game developer with just one or two hit apps (and a couple of flops). Instead, it aims to play a key role in the future of AR — and it’s relying on millions of Ingress and Pokémon Go players to help build that future.

Keep Reading Show less
Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

Sponsored Content

Why the digital transformation of industries is creating a more sustainable future

Qualcomm’s chief sustainability officer Angela Baker on how companies can view going “digital” as a way not only toward growth, as laid out in a recent report, but also toward establishing and meeting environmental, social and governance goals.

Three letters dominate business practice at present: ESG, or environmental, social and governance goals. The number of mentions of the environment in financial earnings has doubled in the last five years, according to GlobalData: 600,000 companies mentioned the term in their annual or quarterly results last year.

But meeting those ESG goals can be a challenge — one that businesses can’t and shouldn’t take lightly. Ahead of an exclusive fireside chat at Davos, Angela Baker, chief sustainability officer at Qualcomm, sat down with Protocol to speak about how best to achieve those targets and how Qualcomm thinks about its own sustainability strategy, net zero commitment, other ESG targets and more.

Keep Reading Show less
Chris Stokel-Walker

Chris Stokel-Walker is a freelance technology and culture journalist and author of "YouTubers: How YouTube Shook Up TV and Created a New Generation of Stars." His work has been published in The New York Times, The Guardian and Wired.

Workplace

Why it's time to give all your employees executive coaching

In an effort to boost retention and engagement, companies are rolling out access to executive coaching to all of their employees.

Coaching is among personalized and exclusive benefits employers chose to offer their workforce during the pandemic.

Image: Christopher T. Fong/Protocol

Executive coaching has long been a quiet force behind leaders in the tech industry, but that premium benefit, often only offered to the top executives, is changing. A new wave of executive coaching services are hitting the market aimed at workers who would have traditionally been excluded from access.

Tech companies know that in order to stay competitive in today’s still-hot job market, it pays to offer more personalized and exclusive benefits. Chief People Officer Annette Reavis says Envoy, a workplace tech company, offers all employees access to a broad range of opportunities. “We offer everyone an L&D credit that they can spend on outside learning, whether it's executive coaching or learning a new coding language. We do this so that people can have access to and learn skills specific to their job.”

Keep Reading Show less
Amber Burton

Amber Burton (@amberbburton) is a reporter at Protocol. Previously, she covered personal finance and diversity in business at The Wall Street Journal. She earned an M.S. in Strategic Communications from Columbia University and B.A. in English and Journalism from Wake Forest University. She lives in North Carolina.

Enterprise

Microsoft thinks Windows developers are ready for virtual workstations

The new Microsoft Dev Box service, coupled with Azure Deployment Environments, lets developers go from code to the cloud faster than ever.

Microsoft hopes a new cloud service will address one of developers' biggest challenges.

Photo: Grant Hindsley/Bloomberg via Getty Images

Microsoft hopes a new cloud service will address one of the biggest challenges that developers have raised with the technology giant over the last several years: managing developer workstations.

Microsoft Dev Box, now in private preview, creates virtual developer workstations running its Windows operating system in the cloud, allowing development teams to standardize how those fundamental tools are initialized, set up and managed.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Enterprise

Okta CEO: 'We should have done a better job' with the Lapsus$ breach

In an interview with Protocol, Okta CEO Todd McKinnon said the cybersecurity firm could’ve done a lot of things better after the Lapsus$ breach of a third-party support provider earlier this year.

From talking to hundreds of customers, “I've had a good sense of the sentiment and the frustrations,” McKinnon said.

Photo: David Paul Morris via Getty Images

Okta co-founder and CEO Todd McKinnon agrees with you: Disclosing a breach that impacts customer data should not take months.

“If that happens in January, customers can't be finding out about it in March,” McKinnon said in an interview with Protocol.

Keep Reading Show less
Kyle Alspach

Kyle Alspach ( @KyleAlspach) is a senior reporter at Protocol, focused on cybersecurity. He has covered the tech industry since 2010 for outlets including VentureBeat, CRN and the Boston Globe. He lives in Portland, Oregon, and can be reached at kalspach@procotol.com.

Latest Stories
Bulletins