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Acorns’ growth fueled by super-low CoA

Acorns in Australia, a micro-investment app provider, can challenge banks thanks to an incredibly low cost of customer acquisition.

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Acorns Grow Australia, a popular micro-investing app, has not yet broken even but its CEO, George Lucas, is confident it will thanks to its incredibly low cost of customer acquisition.

The tab comes just north of A$6 (US$4.5) per new customer.

That compares very favorably to the A$250-A$300 that a bank pays to onboard new depositors, or the A$1,200 for a new mortgage customer.

It’s one reason why Acorns has onboarded 75,000 users after its first 12 months of operations, having launched in Australia in February 2016. Lucas told DigFin the business would need 180,000 users to break even.

Acorns Grow Australia is a 50-50 joint venture between Acorns Inc., a US company that launched the micro-investing business in 2014, and Instreet, a retail structured-products broker in Australia that’s been around since 2007; Lucas is managing director there, but he envisages a day when Acorns will be the bigger business.

The reason Acorns wins new clients so cheaply is because its target audience of millennials understands it intuitively, and Facebook advertizing and word of mouth do the rest. For a monthly fee of A$1.25 and a minimum account size of $A5, a person can agree to transfer loose change from everyday purchases – such as rounding up that A$3.43 cappuccino to A$4.00 – and putting the extra into an investment account. Acorns allows users to select among a range of ETF-driven portfolios. It’s become a way for people in their late 20s to begin investing, take an interest in markets – and avoid banks.

“It’s a virtual jar for loose change,” Lucas said of the service.

Facebook marketing versus bank brands
The aversion to banks may be cultural, but it also reflects difficulties that many young people have accessing traditional financial services. A typical funds account in Australia requires A$5,000 to open, along with paperwork.

Banks in Australia’s oligopolistic market initially tried to block Acorns out of fear it will erode their ability to win many of these customers as they get older. Lucas was happy to engage in a public relations battle with Commonwealth Bank of Australia, when CBA emailed customers warning them of potential fraud if they shared their bank account data with third-party fintechs. CBA has since stopped trying to intervene directly but has stood by its argument that it wouldn’t be responsible in the case of a fraud.

Lucas says he wants a guarantee from the regulator, the Australia Securities and Investments Commission, that banks must honor customer requests to share their data.

That isn’t forthcoming for now, although in Singapore and Hong Kong, banks such as Citi and HSBC have opened APIs to third-party fintech companies in order to develop apps that the bank might deliver to its customers.

Lucas told DigFin he’d welcome a similar outcome in Australia, arguing that Acorns’ multi-factor authentication means it is secure.

In the meantime, he is planning to ratchet up the pressure against established players. As his audience enters their 30s, they will be looking for additional financial services, from loans to debt consolidation to insurance. Lucas says he wants Acorns to be in a position to offer these, relying on its tech, its unified database, and prompts based on machine learning techniques.

“We can create good deals because our cost is low if we offer it through Acorns,” Lucas said. “We’ve acquired a young set of customers. If they have a good experience with us, we can grow with them. Car loans may not be that far away.”

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Acorns’ growth fueled by super-low CoA