Zoe Chew

May 30, 2022

Personal Wealth Creation: Trends & Opportunities

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Issue #15

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:

  • Capital Markets
  • Payments
  • Wealth Management
  • Digital Lending

(2) Wealthtech that went public evidence that consumer-facing solutions are creating clear winners :

(3) Rise of social investing:

  • Companies are taking a “social” approach to online investing by providing social networks, user-generated content, and community learning components to help investors succeed.
  • Public is making investing in stocks more social. Users can follow each other, see what they invest in, share their portfolios, and create chat groups with friends and communities.
  • TradingView is a social platform for traders and investors. Users can discover charts, broadcast trading activity live, or publish analysis as a video idea.
  • Fractional allows you to co-own real estate with friends and investing communities.

(4) Rise of alternative investing platforms:

  • Companies are helping everyday consumers to invest in alternative asset classes (i.e. other than typical cash, stocks, and bonds).
  • Blockfi helps you buy, sell, and trade crypto.
  • Republic lets you find and invest in  startups, real estate, video games, and crypto.
  • Fundrise allows non-accredited individuals to invest in commercial real estate projects.

(5) E-commerce companies are tapping into “culture investing”:

  • Culture (e.g. fashion, sports, and music), commerce, and investing come together.
  • NTWRK, a live video shopping platform launched NTWRK NFT, a marketplace where you can purchase crypto assets from world-class creators.
  • StockX, an online marketplace of sneakers, streetwear, trading cards, and watches—launched Vault NFTs, where users can invest in NFTs that are linked to their physical sneaker counterparts.

(6) Gen Z and millennials are the next-gen investors:

  • Younger generations earn more, save more, and invest more than the previous generations.
  • 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:

  • Square renamed as Block in 2021, innovates beyond payment tools by offering investment accounts (Cash App).
  • Affirm innovates beyond B2B “buy now pay later” solutions by offering Debit+ Card where consumers can shop anywhere, and choose to split eligible purchases over $100 into 4 interest-free payments.
  • Wise collaborates with BlackRock (a global equity fund) to offer stock investing in multi-currency from users’ Wise accounts.

(9) Rise of new digital asset classes is producing new category players:

  • Companies are helping creators and curators to turn their ideas into publicly tradable items. As a result, people have access to buying, selling, trading, and owning alternative assets.
  • OpenSea offers wide-ranged digital collectibles.
  • NBA Top Shot helps fans collect/trade influential “Moments”.
  • Rares is an alternative asset marketplace for collectible sneakers.
  • Fractal by Justin Kan is a marketplace for gaming non-fungible tokens. 
  • SuperRare, Foundation focuses on digital art collectibles.

2. Market players, competitors & databases

👉 View the database here

👉 View the database here

3. What problems do they solve?

(1) Eliminate brokerage fees:

  • Online brokers typically charge transaction, administration, management, or ticketing fees. 
  • Platforms like TD Ameritrade, E*Trade, Fidelity, Schwab Mobile, Robinhood, Public, eToro provide commission-free, “$0 commission trade” for stocks, ETFs, options, etc.

(2) Investing is risky & intimidating:

  • New platforms are democratizing investing knowledge. 
  • Public.com lets you see what people invest in and learn from others in the feed.
  • TradingView users can learn from other traders through live broadcasts or technical analysis videos shared by others.

(3) Access to alternative assets:

  • Previously, only the pros, rich and well-networked people have access to property investments and private equities. 
  • Companies like Fundrise, Republic, and Cadre democratize investing and make it accessible to everyday people. 
  • You don’t need to be an accredited investor to be qualified for investing in commercial real estate and startups.

(4) Lower the barrier to investing:

  • Taking out the pre-requisite of “you need a lot of money to start investing”. 
  • Betterment and Ellevest require a $0 minimum investment to start. SoFi lets you start from $5 deposit. Acorns lets you deposit spare cash to fund your investment portfolio, starting from $3/month
  • 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.
  • Listing fees—listing an ICO (initial coin offering) token on a cryptocurrency exchange, typically cost between $1 million and $3 million

5. What are the next big things?

(1) Micro-investing will explode beyond stocks:

  • 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.

(3) New ways to own crypto assets:

  • Asset classes are expanding beyond cryptocurrencies. OpenSea, CryptoPunks, Rarible are where people buy and sell non-fungible tokens. Fyooz and BitClout are where people buy and sell social tokens (fungible tokens). 
  • 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.