Investing apps seek a new spin

Hello readers!

The past few weeks in the UK have been a rollercoaster ride, economically. It’s not often that a “mini” Budget leads to the mortgage market melting down and the Bank of England having to step in with a £65bn measure to calm markets. (Owen Walker, Emma Dunkley and I got the inside view from lenders last week).

I’ve also been looking at the small-to-medium enterprise market, an often underloved sector in terms of media attention (except when things are going very wrong, such as earlier in the year when there were fears of rising energy costs shutting down struggling pubs). More excitingly, last week the UK’s Payment Systems Regulator announced new rules which could help businesses save thousands of pounds a year in card payment service charges.

For consumers, it’s a case of just tapping to pay. But for businesses, offering these tools for payments can mean taking out lengthy, costly contracts. The PSR’s new rules include requiring contracts for point of sale terminals to run for no more than 18 months.

The pressure on SMEs to reduce operating costs will only become more marked as inflation rises and economic conditions worsen. Such measures will reduce some of the burden.

Latest news

• India’s biggest payments deal has collapsed after South Africa’s Naspers scrapped its agreement to buy the country’s oldest payment gateway, FT’s Joseph Cotterill and Chloe Cornish report.

• Managed futures funds, which take both long and short positions in futures contracts, have avoided some of the sharp losses which have hit the rest of the market, reports Steve Johnson, with equities, bonds and real estate all underwater this year.

• Fintechs say UK credit card companies are costing consumers millions by restricting access to their own data, Emma Dunkley and I report. Their calls for greater information sharing come four years after open banking, a framework for allowing customers to access and share financial data with third parties, launched in the UK.

Retail trading 2.0

The tale of the retail investing boom is by now well-known — though opinion is split as to whether it was an uprising by the unwashed masses or simply the natural consequence of meme culture, Covid boredom and limited avenues for spending.

However, the generation of retail trading superstars which rode high on pandemic powered bets have shown less than stellar outcomes in recent months, as consumers’ disposable income has been hit by rising inflation. Robinhood announced it was cutting 23 per cent of its staff in August.

Yet new fintech entrants are still betting that they can win over consumers by building on the path forged by the one-time coronavirus winners.

“The current generation of retail investing apps have managed to build an efficient trading utility but have lacked a social experience where users are connected together on a networked platform with a community of investors that can help shape and educate them about the world of investing,” said Harjas Singh, co-founder and chief product officer of Shares.

Shares pitched itself as an alternative to traditional investing platforms, which lacked a social function and relied on users congregating on platforms such as Reddit, Discord and Telegram.

Its “communities” feature essentially supports a kind of social media experience within the app, where users can post memes or compare the shares they own.

“Retail investing has traditionally been a lonely and single player experience,” said Singh, adding that Shares envisioned consumers bringing on board close friends to turn trading into a much more social activity (the app, which launched last year, has 200,000 users).

Other investment fintechs have taken a different approach. Mintus, which fractionalises contemporary artwork to open them up to a wider market, has an average investment of about £18,000 although the minimum is around £2,500.

“We’ve seen US competitors going after mass retail, but we’ve gone for a more mass affluent focus,” said Tamer Ozmen, founder and chief executive of Mintus. “Our target audience is mostly coming from the financially savvy investors that want to go into art but previously couldn’t get into it as an investment class [because of the cost].”

There are storm clouds on the horizon for these platforms, much like their precursors in the broader retail investment space — the outlook for consumer spending is sobering. But at a time when it is more important than ever for fintechs to differentiate themselves on functionality and not simply price, the new guard have a shot at catching some of the appetite unlocked during the pandemic.

Quotable

“The most recent data from FCA is that half of the population have some [financial] vulnerability of some kind, which means every household in theory. I think we have a role to play as a fintech to ensure our digital services are as accessible as possible.” — Jerry Young, chief executive of fintech ieDigital

I’ve touched on the role for fintechs in mitigating the rising cost of living — and the double-edged nature of the sector — in a previous newsletter, but the turmoil in the mortgage market has brought me back to the subject.

Data from the Lloyds Consumer Digital Index 2021, a study of digital skills across the UK, estimated that 5 per cent of the population are digitally excluded in some way.

That can vary from only having access to a limited range of devices — an older smartphone, which may not be able to access a number of newer budgeting tools — to distrusting digital banking due to fear of scams and hackers.

The digitisation of finance, accelerated by the pandemic, has continued apace even as lockdowns have been lifted. So it is now more important than ever for fintechs to engage with “non-traditional” audiences who risk being locked out of 21st century financial services.

Recommended reading

What investors are chasing in the downturn Amy O’Brien in Sifted has a great piece looking at what fintech funding can tell us about investor sentiment. What are the standouts? Insurtech has overtaken payments, Italy has overtaken France and B2B is in.

Railsr (formerly Railsbank) raises $46mn Ingrid Lunden in TechCrunch reports that the embedded banking start-up Railsr has raised a Series C round led by Anthos Capital — although as she notes, chief executive and co-founder Nigel Verdon indirectly confirmed it was a down round from the nearly $1bn valuation the company secured last year.

India’s central bank prepares for digital rupee pilot Finextra reports on the Reserve Bank of India’s “concept note” on a central bank digital currency, in which it says it is considering both a wholesale and retail CBDC.