The ability for remote laborers to transfer cash to each other by texting a few digits on a dumb phone is transforming entire economies in emerging nations. It’s simple, efficient and cheap. Meanwhile, in Silicon Valley, engineers are designing more advanced breeds of money apps, platforms that seek to transform the way a different demographic saves and invests.
Mobile banking has been around for years now; long before smartphones were en vogue, banks situated on the cutting edge enabled patrons to send and receive cash using SMS. Transferring funds from one account to another, as it turns out, is just the start. With the explosion of online trading portals such as Scottrade and ShareBuilder, coupled with interest in new wave budgeting programs like Mint, we’ve found ourselves primed for what’s next. And what’s next is a generation of apps that make terms like “compound interest” and “annual percentage rate” seem a lot less baffling.
The Fee-Free Investor
Prior to the Internet, day trading in your pajamas wasn’t really a thing. Nowadays, there’s access to dozens upon dozens of reputable online trading services that’ll happily handle the buying and selling of stock on the open market…for a nominal per-transaction fee. Most of these services get away with charging between $5 and $10 per transaction, which adds up to a cringe-worthy amount for even amateur traders. For years, these fees have largely been viewed as the price of doing business.
Robinhood’s founders claim that they’re trying to “democratize access to the markets”; and with no commissions and no account minimums, they’re doing a fine job of that.
Robinhood just turned that entire notion on its head. The app, which has hundreds of thousands of folks using it and another 200,000 on a waiting list, enables users to buy and sell stock with no fees. Robinhood’s founders claim that they’re trying to “democratize access to the markets”; and with no commissions and no account minimums, they’re doing a fine job of that. The company makes money from those who choose to upgrade to a margin account, and it also “accrues interest off of customers’ uninvested cash balances.” But unlike E*Trade and its other rivals, the revenue stops there.
The company’s own Jack Randall pointed out that the app represents something far greater than a cheaper way to invest. “Before Robinhood”, said Randall, “there was a genuine lack of interest in the markets and a huge distrust of Wall Street among millennials. By eliminating commissions and account minimums, along with offering a mobile app that is people-friendly, we believe more people will want to invest and participate in the market.”
What we’re witnessing is the race to the bottom in the world of online stock trading. Just as cloud storage prices are rapidly approaching zero, so too will fees associated with the buying or selling of stock. Think about it: If you’re reading this right now, how likely are you to ever give Schwab another $8.95 to procure a few shares of TSLA? Not likely at all.
The Passive Investor
For those who don’t fit the mold depicted above, there’s apps like Acorns. Put simply, it’s an app designed to make investors out of even the most financially illiterate of us. It accounts for every purchase you make throughout the day, and if you opt-in, it rounds up all of those purchases and places the difference into a variety of investments. Even if you’re entirely unprepared to make educated decisions on what stocks, bonds, or mutual funds to invest in, Acorns asks you a set of far simpler questions to get at those answers. Essentially, you answer a series of questions, set it and forget it. With a few taps, you’ll soon be tossing pocket change in the direction of the stock market, and as any economist will tell you, you’re apt to be mighty appreciative of those nickels come retirement.
Even minuscule amounts of money can amount to substantial gains when given ten, twenty, or forty years to grow. Between natural rises in value, inflation, compounded interest and reinvestment of dividends, a few pennies here or there could turn into a new car once you’re over the hill.
If Snapchat has the power to turn all of our teenagers into visual comedians, perhaps Acorns has the power to convince even the worst budgeters to save for retirement.
The Savviest Saver
Your unborn child’s tuition. A diamond ring to commemorate 25 years. A new HVAC unit when you least expect it. Far too many things in life simply aren’t attainable with the funds that you bring home on a monthly basis. For some things, you need to save. Saving, for many, is hard. Like, really hard. Those who weren’t raised to obsess over saving and hate the process can easily find themselves in a paycheck-to-paycheck cycle, and history has shown that it’s fairly hard to break out of that once you’re in it.
Given America’s inauspicious reliance on credit, there’s clearly a need for a new source of education when it comes to spending more carefully and managing one’s money.
Enter Digit. Engineered to make saving something that requires no effort whatsoever, the app intelligently monitors your spending habits, then yanks a few bucks here and there from your checking account into a savings account. It’s done behind the scenes, which means that you only need a single burst of willpower — enough to actually create an account and give it permission to transfer funds. After that, it’ll sneak in and grab a fiver here, or perhaps $50 there, and slowly build up a savings account that you’d otherwise never think to amass.
Savings, of course, can be withdrawn at any time without penalty, which makes it a lot more flexible than apps like Acorns. Your money won’t grow in a spectacular fashion as is possible in the stock market, but at least it won’t be spent haphazardly. If nothing else, Digit has the power to make you live on less, which is the key to nixing lifestyle creep as well as socking away funds for larger purchases that would otherwise require a loan. You probably wouldn’t take Dave Ramsey’s word for it, but if the same logic is wrapped up in a beautiful app…well, let’s just say that saving becomes a lot easier when it’s made to be sexy.
All told, apps like these are opening the eyes of everyday people to the wonders of saving, planning and investing. Given America’s inauspicious reliance on credit, there’s clearly a need for a new source of education when it comes to spending more carefully and managing one’s money. In our conversation, Robinhood’s Randall added: “Many of our younger customers have said that they are now engaging in the market by learning online and reading articles about company earnings reports. [It] has inspired a new generation to participate in the markets, and we couldn’t be happier.” Sure trumps the “beat ‘em over the head with historical charts and lectures” approach, huh?
Editor’s Note:For most of us, the wide world of technology is a wormhole of dubious trends with a side of jargon soup. If it’s not a bombardment of startups and tech trends (minimum viable product, Big Data, billion dollar IPO!) then it’s unrelenting feature mongering (Smart Everything! Siri!). What’s a level-headed guy with a few bucks in his pocket supposed to do? We’ve got an answer, and it’s not a ?+Option+Esc. Welcome to Decrypted, a weekly commentary about tech’s place in the real world. We’ll spend some weeks demystifying and others criticizing, but it’ll all be in plain english. So take off your headphones, settle in for something longer than 140 characters and prepare to wise up.