By Efi Pylarinou, Investech expert
A cool Fintech gift to consider for these holidays comes in a festive electronic form or in a retail physical gift card format. For your children or grandchildren, your nieces or nephews, your godchildren or any Gen Y that is on your gift list this year; give each of them a FRACTIONAL STOCK SHARE for as little as $20.
SparkGift is a Fintech founded by ex-Google wallet employees. The gift giver can pick a favorite stock investment (Apple stock, Tesla stock, Google stock, …) or a Vanguard classic (Vanguard’s Total Market Index Fund (VTSMX) and the amount ($20, $50, …).
No need to worry about picking an amount that is a multiple of the stock investment or any KYC process and paperwork to open an account for them. SparkGift givers are charged $2.95 for gifts up to $100 and 3 percent for gifts above $100. SparkGift, offers an easy UX for the receiver of a gift e-card. Minors can then open account that will be managed by their parents and the trade(s) will be executed from the online broker firm Folio Institutional. Folio Institutional was founded to serve advisors and other professionals with tools that lower costs, offer broader flexibility in allowable minimum investment sizes, and focus on optimizing after-tax returns and transparency. Two main differentiating services are their infrastructure for those building Private Placement platforms or engaging in Private Placement offerings, and their fractional shares trading services for single stocks and ETFs.
Fractional shares are offered in more mature markets because they serve financial inclusion and lower cost. Blue chip shares that trade at prices of few hundreds ($200-$400) become inaccessible for young savers and for those in dollar cost averaging. They can also help in educating a younger generation that has no income but can spare change or invest sporadically their cash gifts in stock shares that they could forget for a couple of decades. Accorn, is a free Fintech app, that allows you to invest small change from larger purchases (e.g. from an Amazon order of $59.23, the $0.77 rounding change is directed to Accorn via your credit card or Paypal) and then Accorn automatically invests when $5 are accumulated. The app is free to download but there is an annual fee of $12 to use the service; so one’s online purchases need to be frequent (not large amount necessarily) in order to cover the $12 fee and start building a nest. They design a diversified portfolio from ETFs form Vanguard, BlackRock, and PIMCO.
In the US, fractional shares are also brokered at Loyal3. Investors can buy fractional shares for as low as $10 with NO fees (a la Robinhood). Loyal3 is also brokering private placements and allowing pre-IPO participation for as low as $100, similar to Folio institutional online broker.
Another US Fintech, that is in the fractional stock investing space, is the app StashInvest. David Ronick, CEO and co-founder, says New York-based app was created to address a need: “Our nephews and nieces are in their 20s and they don’t invest at all”. ETF investing typically requires minimum around $1000. Through Stash one can invest as low as $5 in ETFs and choose from 30 types of thematic investments; for example, iShares Global Clean Energy Fund, First Trust Dow Jones Internet Index Fund, SPDR® S&P® Retail ETF.
Stash charges a $1 fee per month for accounts under $5,000 and 25bps for those, above $5,000. The clearing and settlement is done through Apex Clearing, who is enabling many Fintech companies through their technology and API.
The other gift option for fractional stock share giving this holiday season is also in the US and is fueled by Sequoia Capital, Mayfield, and actor-investor Ashton Kutcher ($15 million Series A funding). Stockpile, is a brokerage platform that wants to make stock investing as easy as buying any consumer product.
You can buy a physical card like a retail gift card, with a stock chosen by the gift giver. The Stockpile gift cards are sold at stores like Kmart or shipped by post. The receiver of the gift card, can opt for another investment or keep the cash. They peel the sticker off the card and login online (minors need adults). The fee for the gift at purchase is $4.95 on top of the investment amount. The gift receiver can trade the fractional shares for 99 cents per trade.
In the US programs for saving and auto investing small amounts have been around for more than 20yrs and discussed with their pros and cons in Seeking Alpha “How can I give the gift of stock”. Stockpile and SparkGift, are easy ways to offer small denomination investment gifts as if they are mugs, socks, and chocolates for these holidays.
They are enabled by the fractional shares brokers, like Folio Institutional and Loyal3. They are targeting the gift shoppers instead of those self-investing, like Accorn and StashInvest.
I view them all nibbling for market share in the fractional shares investing space. They are partly educating, building good investment habits for the young generation, and offering a platform to apply the “marshmallow experiment” of delayed gratification.
Happy Holidays and consider offering a stock for a gift. Pick your favorites. Remember, that when investing in fractional shares, the investor does receive the dividend but doesnt have any voting rights and cant transfer these shares to any other broker. SparkGift is wrapped in a festive e-card. Stockpile is like an itunes physical card. Unfortunately, they are both only operating in the US. Stockpile has plans for moving into Europe later. Enablers in Europe for fractional brokering are only Degiro which already operates in 17 countries offering retail institutional fees.
Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Efi Pylarinou specializes in disruptions, innovations and trends in investments and capital markets.