Acorns has taken the world of investing by storm with its innovative approach to micro-investing. By allowing users to invest their spare change, the platform has made it easy for anyone to start investing, regardless of their financial situation.
But how does Acorns make money? The answer lies in their subscription model. Users pay a monthly fee to access different features and products, allowing Acorns to finance its business and continue to offer its services to millions of investors worldwide.
At first, these subscription fees may seem daunting, especially for those with small account balances. However, as your account grows, the fees become increasingly insignificant in comparison to your overall investment and bank balances on the platform.
In this article, we’ll delve deeper into the world of Acorns and explore how they have managed to encourage millions of people to invest their money, often without even realizing it.
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What is Acorns?
You’ve heard of the old adage: “From little acorns, mighty oaks grow.” Well, Acorns, the mobile investment platform, is turning that adage on its head by showing us how small acorns can grow into a mighty investment portfolio!
Established in 2012, Acorns has taken the US by storm with its innovative approach to saving and investing. Their platform is designed to help users make the most of their spending by offering savings, investment, and IRA accounts, all from the comfort of their mobile device.
But that’s not all – Acorns also partners with retailers to offer cashback programs, helping users save even more. And the best part? Acorns charges a small membership subscription fee and management fee on accounts with balances over $5,000 – making it an affordable and accessible investment option for anyone looking to grow their wealth.
How Does Acorns Work?
This innovative fintech company provides users with multiple options for saving and investing, without having to compromise on their daily coffee or avocado toast.
Acorns’ flagship product, aptly named “Invest,” offers a unique micro-investing platform that allows users to invest their spare change into managed portfolio investments. The process is super simple – users create their investment portfolios in just a few seconds with a simple click. They can choose from a range of custom investment strategies that align with their risk appetite, from conservative to aggressive.
Here’s where it gets interesting – Acorns links its platform to your debit card or credit card and bank account. So, every time you buy something, say a cup of coffee for $3.69, Acorns rounds up the purchase to $4 and allocates the $0.31 to your micro-investing account. It may seem like a small amount, but over time, these tiny contributions can add up to significant wealth growth.
When your savings total reaches $5, the app automatically starts investing your funds into a mix of exchange-traded funds (ETFs) determined by your risk appetite. So, without even realizing it, you’re building a diversified investment portfolio tailored to your financial goals and preferences.
And that’s not all – as your wealth grows, Acorns offers you the opportunity to shift some or all of your portfolio value into an IRA product. This feature ensures that your investments are optimized for tax efficiency, providing an additional layer of financial security.
So, what about security? Don’t worry, Acorns takes that seriously too! All client accounts are FDIC insured, ensuring that your hard-earned money is protected. Plus, you can download the Acorns app on your Android or iOS device, giving you instant access to your investment portfolio anytime, anywhere.
How Acorns Makes Money: Subscription Revenue, Referral Fees, and More
Subscription Revenue: The Foundation of Acorns’ Business Model
At the core of Acorns’ business model is its focus on recurring subscription revenue. By bundling its products into different subscription tiers and offering them on a monthly basis, Acorns ensures a steady stream of income from engaged customers who are unlikely to churn. The Personal tier costs $3 per month, while the Family plan costs $5 per month and can be activated for as many kids as one wants.
Generating income via subscriptions offers several benefits. For one, customers who are willing to pay for something on a monthly basis are generally more engaged with the product. This allows Acorns to cross-sell into ancillary services, such as debit cards or browser-based coupon extensions, which can generate additional revenue.
Referral Fees: Earn While You Shop
Acorns also earns referral fees whenever its members buy something from one of its 15,000+ brand partners, such as Nike or Walmart. The referral fee is a percentage of the purchase price, which is disclosed upfront. Acorns then shares a portion of that referral revenue with the member by either transferring it directly into their account or investing that money on their behalf.
Acorns has vastly expanded its referral business over the past few years, introducing a Honey-like Chrome extension that grants customers access to bonus investments. It has also partnered with ZipRecruiter to offer a Job Finder section, attracting job seekers and earning referral fees in the process.
Interchange Fees: A Common Monetization Tactic
Like many other FinTech startups, Acorns generates revenue from interchange fees. Users can apply for a checking account that comes with a free debit card, issued in partnership with Visa. The account is FDIC-insured and offers free ATM retrievals and built-in smart deposits.
Interchange rates vary depending on a variety of factors, including the type of card, location, and what is being purchased. Visa interchange rates in the United States are typically around 0.50 percent + $0.10 in fixed fees.
Management Fees: Choosing the Best Investment Opportunities
Acorns charges an annual management fee of 0.25 percent for accounts larger than $5,000, covering the time and effort it takes to choose the best investment opportunities for each user. For accounts with less than $5,000, customers pay one of the subscription fees mentioned above.
The fee is in line with competing products like Betterment and Wealthfront, which also charge 0.25 percent. By offering low management fees, Acorns makes its investment services more accessible to a wider range of customers.
Interest on Cash: Incentivizing Users to Save
Acorns, like any normal bank, uses the unused cash residing on its user accounts to generate interest income. It deposits the cash into interest-bearing bank accounts and incentivizes users to keep their cash in its cash accounts by paying interest.
Acorns utilizes various techniques grounded in behavioral economics to encourage its users to save more, such as saving smaller amounts every day rather than larger sums on a monthly basis. The more cash balances grow, the more income Acorns can derive from interest fees.
Acorns’ Growth Engine: Expecting a 10 Million User Base by 2025
Acorns, the investment app that has already amassed 4 million users, is not slowing down any time soon. In fact, the company is expecting explosive growth in the coming years. With plans to expand its customer base to a whopping 10 million users by 2025, Acorns is positioning itself as a force to be reckoned with in the investment world.
One of the key factors driving Acorns’ growth is its appeal to younger investors. With an average customer age of just 34 years old, Acorns has the opportunity to retain customers for years to come. This means that as these customers mature in their investment capacity, Acorns can provide new tiers of investment that cater to their evolving needs.
But that’s not all. In May 2021, Acorns announced that it will go public in the second half of 2021. This move is expected to generate significant funds, which can be dedicated to providing new products, strategic acquisitions, and global expansion.
As part of its expansion plans, Acorns is partnering with the Rise Fund, founded by TPG Capital. This partnership promises to offer Acorns users competitive financial investment strategies with outstanding returns. With the support of the Rise Fund, Acorns can continue to develop its platform and product offering, ensuring that it stays at the forefront of the investment industry.
So, whether you’re a young investor just starting out or a seasoned pro looking for a new way to invest, Acorns is poised to be the growth engine that propels your portfolio to new heights. With plans for global expansion and a commitment to providing top-notch investment strategies, Acorns is a company to watch in the coming years.
Acorns vs. The Fintech Pack: Competing for Millennial Investments
Acorns has been at the forefront of the fintech revolution, helping millennials save and invest their money. However, as with any pioneer, Acorns has found itself surrounded by competitors eager to capture the same market.
In recent years, a number of investing and wealth management apps have flooded the market, all with their sights set on the coveted millennial demographic. This has left Acorns competing against a slew of well-funded and innovative startups, including Robinhood, Betterment, Stash, Wealthfront, SigFig, FutureAdvisor, and Personal Capital.
While these fintech firms all offer similar services to Acorns, the company has managed to maintain a competitive edge thanks to its established reputation and widespread user base. With more than 9 million users and $3 billion in assets under management, Acorns has firmly established itself as a trusted player in the fintech space.
But with the competition continuing to heat up, Acorns will need to remain vigilant and innovative to stay ahead of the pack. Whether it’s through new product offerings or innovative marketing campaigns, Acorns will need to find new ways to appeal to the ever-evolving needs and preferences of its millennial customer base.
