- Overview and Origin:
- Origin and history:
- Trends in the industry:
- The competition:
- Core metrics to compare competitors
- Acorn vs its competitors
- Investors and the capital base:
- Acorns revenue and cash streams:
- Target customer base and its characteristics:
- Business Impact:
- Technology behind Acrons:
- Recommendations
- Conclusion
- Reference
Launched in 2014, Acorns positions itself as a technology-based driver of automated micro-investment and savings, using principles of behavioural finance: Acorns’ CEO Noah Kerner describes the company as a “financial wellness system” . The company enables its subscribers to invest their spare change using a system it calls "round-ups." It tracks ones bank account and automatically invests the change from your daily purchases, thus lowering the pain of investment and savings decision making. Today, members can open an investment account, a savings (both for adults and children) account, as well as an IRA account while saving money through the company’s cashback program. Recently the company has also made forays into retirement planning.
Today, Acorns straddles the domains of "save and micro-invest” and Robo-advisory services. The company was conceptualized and launched in by Walter Wemple Cruttenden III and Jeffrey James Cruttenden in 2014. Jeff is Walter's son. This father-son duo were inspired by the aim of improving long-term financial well-being of millennials, the Gen-Z and other gig-workers who face numerous barriers to investing (like high fees of investment, high minimum balance requirements, psychological barriers to regularly committing to the investment pool and the lack of expertise in time to actively manage their pool). The "set it-forget it system" is purposely kept very simple. A subscriber's “spare change” from a linked credit or a debit card purchases is rounded up to the nearest dollar and then invested in seven different funds, based on ones risk tolerance. It’s a confidence builder, especially if one just beginning to invest or is wary of brokerage houses or has limited free cash or resources to set aside for investing pruposes.
The founders were impressed by the idea of 'Nudge', proposed by behavioural economists like Nobel laureate Richard Thaler. They combined it with the power of FinTech to make it an effective choice architect for helping people make small, seamless and painless investment decisions. The idea, as Jeff Cruttendedn sum it up, is to make the process of investing money is “automatic and mindless".
There are a group of services that are growing concurrently in the market for small savings, demand must run deep. Acorns’ investing service, like most robo-advisors, is based on Modern Portfolio Theory created by Dr. Harry Markowitz. It has five optimized portfolios to choose from and automatically rebalances your portfolio and reinvests all dividend payments regularly.
The Robo-advisory Services Market is expected to register a CAGR of approximately 50% during the forecast period (2020-2025) with North America being the largest market in terms of AUM. Further, amidst the global coronavirus outbreak, lockdown, and market uncertainty, a surge in B2B Robo-advisors, Digital investing, financial advice and portfolio management is witnessed globally. Several companies have reported an increase in digital investing activities by the investors in the first quarter of 2020 as compared to 2019. For instance, Betterment LLC reported an increase in the number of account openings by 25%, while Wealthfront Inc. reported an approximately 68% rise in digital investing activities since the market downturn.
The Roboadvosr and microinvetment space is probably the most disrupted one after the payment space. WaelthFornt, Betterment, Stash, SigFig, and Robinhood are all competing for the same cleint base.
Since the the whole point of going with a Robo-Advisor is the ease of use. Thus, all of them allow users to simplify their investment decisions. However, by variosu Unlike Acorns, which actually does the investing for you, Stash Invest simply makes investment recommendations, leaving it up to you to do the actual investing.
Features Unique to Acorns: Web Access — With Acorns you can not only access your account via an app on your mobile device but via their website as well. Found Money — Save money on items you purchase. Acorns is currently beta testing partnering with certain brands, including 1-800 Flowers and Dollar Shave Club, with more on the way, in which the merchants will also invest in your Acorns account.
In addition Acorns is also moving into retirement saving and tax filing space.
The industry observers and the investors normally use the following two metrics to measure the performance of a company in this FinTech sector:
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Assets under management (AUM) is the total market value of the investments that a company or entity manages on behalf of clients Valuation.
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Number of clients using the services. As a FinTech the user growth number is also a key metric for measuring the prospoects of a company in its growth stage.
Acorns is not as big as its other competitors when it comes to AUM or employee size: Wealthfront is, with Betterment, the largest independent robo-advisor, are Acorns’ primary competitors. Wealthfronts, with over $24 billion in assets under management, is slightly larger than Bettermen, which has almost $21 billion in assets under management. Betterment is also the original Robo Advisor.
However, even with a fraction of assets under management, Acorns tops these two industry competitors at $ 860 million valuation, more than $700 million for betterment and $ 500 million valuation for Wealthfront. This can be understood by looking at Acorns and the competitor from a different perspective than mere the AUM figures.
This is in contrast to technology startups like Acorms, who measure value on the size of their user base. Acorns’s AUM, as pointed above, is paltry $73.6M as compared to its competitor, It’s their user growth that deserves attention.
Another advantage with Acorns is that it is not claiming to provide the same range of services at Wealthfront or Betterment and is focussed on first-time, small-scale micro investors. Another advantage that is powering Acorns growth is the user friendly and seamless website and mobile app experience. This is keeping its ahead of its competitors like Stash.
Acorns has 7 ETF’s (exchange-traded funds) and when one signs up, it uses algortihms to select one for the user depending on the risk level you select. This limited when compared to a wider buffer of choices that are available with Betterment. However, where Acorns really scores it the ease of use of its application. UX designers have consisitently used its mobile app as a case study.
Thus overall, once can say that Acorns has placed itself in a nice and whithin that niche, it is placed itself comfortably. This strenth is recognized by investors and is reflected in its constantly growing valaution figures.
The company, widely seen as an emerging unicorn, has, since its launch, received 12 rounds of fundings.
It currently has, as investors, giants like:
- PayPal
- Blackrock,
- Bain Capital, along with from celebrities like
- Ashton Kutcher
- Jennifer Lopez, and
- Dwayne Johnson
In the latest publicly declared E-series funding in January 2019, the company attracted $105 million in cash from a host of investors like:
- Comcast Ventures
- NBCUniversal
- TPG’s Rise Fund
- DST and
- Michael Dell’s MSD Capital, among others. Today, NBCUniversal, is Acorns’ biggest shareholder as of now. After this round of funding, the latest valuation of the company stands at $860 million.
Acorns has three major streams of revenue.
- The biggest is the money that comes from charging users a monthly subscription fee. The company offers three plans, namely Lite, Personal, and Family: For $1 a month Acorns moves extra pennies from your debit and credit card purchases into investment portfolios of ETFs; for $2 a month, Acorns adds an IRA account; for $3 a month, it adds IRAs plus checking and debit card.
- Another stream income come from the annual management fee for accounts above $5,000.
- Acorns is providing debit cards as a part of its $3 per month service, which includes its normal savings program (called “Acorns Core”) and its retirement account service (“Acorns Later”), it is earning money from the interchange fees.
The average Acorns customer is around 32 years old with an income between $50,000 and $60,000. They are focussed on catering to the investment and savings needs of the millennials and the up and coming Gen-Z. Economists agree that the millenials and the gen Z users are the most underprotected when it comes to savings and investments
Unliken many of its cometitiors Acors is very focussed on whom it is targetting: For now it is targetting to enroll firs-time savers who have small capital base and almost not nest-egg. This saves it from directly competing for consumer base that might have some savings and experience with investment and would idealli like to have more flexibility and control over the way their money is grown. Acorns amangement seems to recognize this fact that its consumer base, because of its low capital base, is fickle and more services might be needed to lock them in. As a result of this recognition Acorns has rolled out services like retirement savings (Acorns Later) and savings for kids (Acorns Early).
Acrons is serving a tech-savy cusotmer base that keeps demanding ease of use and exceptional services. So far, Acrons seems to be doing well on both these parameters.
Acorns currently serves 8.2 million customers and has over $3 billion in assets under management. It has encourgaed financial wellbeing of one of the most financially unsecure generation.
Acorns, being FinTech a firm, banks on the seamless web-based and mobile app safety and experience.
Acorns uses Java, Scala, and Python for major development purposes.
For big data and cloud operations it uses Hadoop, Spark, Kafka, and AWS. For the purposes of information encryption. Acorns uses the industry standard 256-bit encryption for its mobile app and website. This means your personal and financial information can only be accessed by you and Acorns.
What can new areas Acorns can move into?
Acorns is still primarily a saving and micro-ivesting platform. Although in recent year it has taken steps to expand its offerings by venturing into reitrement savings (Acorns Later) and investmentment for childern (Acorns Later), it has some distance to go. It would want to hold on to its cusotmers, who tend to migrate to other brokers once they have build a big enough nest egg, by offering them a premium service with a fuller control over their portfolio. Acorns is also best positioned to make a foray into offering non-conventional short-term, personalized and micro-insurance products.
In addition there is a huge unmeat demand for such services outseide the US, Acrons should look at expanding its global prsence. This will shore up its doemstic operations while expnading the suer base.
Why wiil these services benefit the company?
The core consumer base of the company is millenials and gen Z, both of them are the most underinsured of all generations. On the other hand due to the advent of technology, they are put-off by the conventional insurance and claim processing system. With its
What technologies would this additional product or service utilize?
Pretty much all of these offerings can be made using the current technology available with Acorns. However, upcoming technologies like Blockchain can help Acorns in making foray into peer to peer transaction and can grow into a full fledged financial institution.
Why are these technologies appropriate for your solution?
All the technologies in Acorns stack are scalable and flexible enought to help it expand its offerings.
Currently Acorns is placed in a safe niche with no immediate threats. The growth of its customer base is growing and that in turn ins fuelling its growth. However, the small size of its typical client's holdings and the limited flexibility of its current investments options can be a strain on the sustainablity of its business model. Thus, it is high time Acorns shifts gears and boldly embaraces new areas of growth and leverages new technoolgies to grow domestically and internaltionally.
Acorns has
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https://www.stlouisfed.org/open-vault/2018/march/millennials-not-investing-stock-market
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Blackrock.com
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wsj.com
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https://www.moneyunder30.com/how-we-save-jeff-cruttenden-acorns
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https://kwhs.wharton.upenn.edu/2019/01/acorns-jennifer-barrett-5-facts-fintech/
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https://grow.acorns.com/covid-financial-reset-for-millenials-gen-z/
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Wikipedia.com
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https://www.mordorintelligence.com/industry-reports/robo-advisory-services-market
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