If your money sits in the bank, your bank makes money, not you. This is why WealthTech exists. It helps you save, invest, trade, manage and grow your wealth at your fingertips. Wealthtech may also provide tools for real-time stock prices, portfolio management, charting, market news, reporting, simulator, etc.
For example, people can buy/sell stocks, options, and IPO shares online using Robinhood. Public.com lets you invest in stocks and see other people’s portfolios. You can buy and sell Bitcoin, Ethereum via Coinbase or Binance. You can also use Wealthfront to automate savings and investment.
Today, we’ll examine companies that provide for personal wealth building. If you want to build something in consumer FinTech, keep reading because we’ll unlock exciting whitespace where new players can enter and win.
1. Key trends
(1) Wealthtech is growing rapidly:
Wealthtech funding hit $20 Billion in 2021, up from $9.2 Billion in 2020.
Digital wealth management will become a $16 Trillion dollars market by 2025 according to Financial Times.
Being digital natives and tech-savvy, many of them adopt newer investing platforms such as Robinhood, Acorns, Public, and Ellevest. Reasons: faster, better experience, lower fees, and transparent pricing.
40% of them own crypto, which signaled the popularity of digital assets among the young demographic.
(7) Automate wealth creation:
Newer platforms exist to automate personal wealth including saving, investing, and reporting.
Acorns helps you invest spare change automatically.
Betterment allows you to set recurring deposits, investments, and automated tax strategies to optimize taxes.
Ellevest creates and manages a personalized investment portfolio for you.
(8) Payment companies are venturing into wealth management services:
New platforms are offering “fractional shares”. With limited cash, you can buy “partial stocks”, e.g. a portion of Tesla stock instead of a full share. Example: WeBull helps you invest in your favorite companies and ETFs with as little as $5. Bumped turns your everyday spending into investing while you shop from online brands.
(5) Eliminate administrative hassles:
Taking out the manual work behind the savings, tracking, investing, monitoring, and portfolio management.
Most robo-advisor solutions solve this problem, e.g. Wealthfront, Betterment, Interactive Advisors, Personal Capital, M1 Finance.
4. Business models
How does the commission-free model generate profits? Here’s the catch: Free isn’t really free. Brokers can profit even though they don’t charge for trading. Instead of relying on transaction revenues, they monetize through various revenue streams:
Payment for order flow (PFOF)—primary income source. Brokerages get paid for sending their customers’ buy/sell orders to market makers
Interest—earning interest by loaning out cash on the uninvested assets in clients’ accounts. Schwab made $265 billion interest earnings in 2018; TD Ameritrade had 23% of its $5.4 billion net revenue in 2018; ETrade had 64% interest revenues of $2.8 billion net revenue.
Rehypothecation—use client securities to support other financial activities.
Margin lending—loaning out cash for customers to buy stocks on margin.
Premium features—upgraded features such as full market data, research tools, analytics, and deep insights. For example, Robinhood Gold charges $5/month for premium features as an additional income source.
Optional tipping—Public introduced a Tipping feature and stopped accepting PFOF. Users can add an additional $1 to their trades.
Cryptocurrency exchange platforms typically monetize through:
Trading fees—primary income source. A service fee is incurred when customers buy and sell crypto through the exchange.
Deposit fees—when you deposit fiat currency on the exchange.
Withdrawal fees—when you transfer cryptocurrency to your wallet.
Fractional investing will appear in different niches, not just owning partial stocks.
Robowealth allows users to invest on behalf of others, i.e. to invest for one’s parents, or for children.
Think about “alternative micro-share ownership” in other areas. For example, investing in someone’s educational fund, employee shares, makers/developers fund and get a percentage of returns when the asset appreciates.
(2) Embedded investing:
We’ve seen companies making investing offerings with native design in mind. Bumped turns your everyday spending on favorite brands into investing. Wise makes it easy to switch the money in your Wise account from cash to stocks.
Solutions that help businesses integrate investing services natively into existing products will emerge.
For media business, you could read an article on IPOs news and get prompted to buy the shares.
For e-commerce sites, you could transfer your e-wallet balance to fund your investment portfolio without leaving the shopping sites.
As newer crypto asset classes are emerging, more solutions are needed to make access to new assets as frictionless as possible.
Ideally, new NFT marketplaces can differentiate by solving these huge pain points: reducing scams, gas fees, plagiarism, false transactions, etc.
(4) Automation → customization:
While robo-advisors and automated investment are leading the wealthtech trends, personalization of investment will become an important aspect for consumers.
Ellevest, which recently closed a $53M Series B focuses on this direction– by offering one-on-one sessions with financial planners and money coaches to help women reach their financial goals.
One potential whitespace is a marketplace of vetted financial advisors. Users can book online consultations with experts to increase financial literacy, plan their financial goals, learn about investment approaches, etc.
(5) Connected device meets wealth management:
Adoption of connected devices (e.g. Amazon Alexa, Google Nest) is rising and it’s projected to reach $156.6 billion revenue worldwide by 2028.
While most smart devices are applied in consumer electronics and smart home gadgets, there could be applications in the fintech space.
Potential use cases: (1) using audio search to summarize market trends and finance news, (2) voice-based commands, “Siri” for trade execution, placing buy and sell orders.
(6) Self-paced → community-driven investing:
Investment club has its root back in 1898–a group of people can pool their money to invest together, share investment studies, and make investment decisions by upvoting.
As investing is becoming social, more solutions can be built to help people start a small-scale investment fund, buy/sell collectively, collaborate on investment portfolios, and pair non-accredited with accredited investors on deals.
Web2 investment club example–Voleo is a social stock trading app for investment clubs focusing on student and younger investors.
Web3 investment club example–Syndicate allows you to start an investing DAO (decentralized autonomous organization), onboard members and deposits, invest together in tokens and NFTs, and monitor your portfolio.
(7) New companies will continue to democratize investing knowledge:
Consumer wealthech are creating successful exits because they focus on lowering the barrier to building personal wealth. Education, content, and media play an important role in unlocking such access.
For example, younger investors are following creators on TikTok, Reddit, and Instagram for investment tips. This trend signals a demand for money knowledge and people are spending their time to search for it.
New startups could build something at the intersection of EdTech and FinTech. Potential product category: (1) On Deck Angels model but for Gen-Z investors, (2) Knowable but focuses on financial knowledge where users can subscribe to audio-based lessons and learn from top experts.