Democratizing Wall Street
Social media has opened the door into a financial world that many knew existed but few actually understood. Although the power of social media is evident, it was still a shock to see a stock trading community on Reddit disrupt the financial market using a trading app, Robinhood.
Robinhood, valued at $11.7B, had the first mover advantage in stock trading apps and became the market leader. However, they are also the first to experience what can go wrong in this space. This gives other solutions the opportunity to become major competitors. For Uber, it was Lyft. For Robinhood, it may be Public.com, a commission-free stock and ETF trading app, recently valued at $1.2B.
Public’s competitive advantage is the social networking feature that allows users to follow friends or prominent investors on the platform, which leads to a network effect. This community-based experience reduces intimidation, which is a top reason young people do not invest.
As the stock market becomes increasingly popular among average income earners, financial advisors are seeking ways to capitalize on this opportunity. Goldman Sachs, one of the top investment management firms, typically targets investors with over $10 million in assets. As of recently, they launched Marcus Invest, which has a minimum account balance of $1,000. Marcus Invest is a robo-advisor that automatically makes investments based on a set criteria, without the input of a human advisor. Robo-advisors allow investors to participate in the financial market with guidance from a professional. There are companies like Betterment and Wealthfront that are vastly cheaper than Marcus Invest. Nonetheless, Goldman Sachs’ attempt to acquire this lower income customer segment reveals that major legacy players are following the trend towards democratization of financial products.
As the GameStop frenzy exposed an untapped market of people interested in investing, there is an opportunity for creative fintech solutions, specifically those that focus on financial literacy. In the coming months, it would be interesting to see how Public fairs against Robinhood and if a new fintech is able to successfully enter the investing space.
-Kiswana