Acorns’ Walter Cruttenden sows the seeds of micro-investing

Fewer and fewer people are using cash to pay for things these days, but that doesn’t mean spare change is becoming extinct. In fact, one U.S. startup has built an app that takes virtual spare change and channels it into the stock market. Acorns, as it’s called, promises to grow veritable oaks from these micro-investments.

Acorns is a simple, easy-to-use app that links to a user’s credit cards. When he or she purchases an item, it rounds the cost up to the nearest dollar and invests the difference. When you buy a hamburger for $4.50, for instance, Acorns will round up to the nearest dollar, and invest 50 cents into the customer’s investment account, which is then invested in portfolios of varying risk, including exchange-traded funds (ETFs).

That doesn’t sound like much, but the service is targeted at people who just want to invest passively – and often. Users can also invest lump sums and recurring sums. The fee is $1 per month.

“The cost of investing and transferring money has been going down and down, so there was an opportunity to see micro-investing as a way to help millions of people, not just in the U.S. but around the world, to save and invest in ways that were never possible before,” Walter Cruttenden, chairman and co-founder of Acorns, told attendees at the Rakuten FinTech Conference 2016 in Tokyo.

Cruttenden sold his own securities businesses to major players before founding Acorns with his son in 2012. The rounding up idea had also been used by Bank of America, but in that case the spare change was directed to savings accounts.

“Investing is a big decision, but this makes big decisions small.”

“We thought, ‘What if you could round up from any card?’ and it would go into where you would get real market returns – yes, there’s more volatility, but for young people with a 40-year time horizon, you want the risk because you’ll get a better return,” Cruttenden said in an interview on the sidelines of the conference. “Investing is a big decision, but this makes big decisions small.”

Acorns has quickly drawn interest, investments and financing. Two to three thousand new accounts are opened every day, according to Cruttenden, and total customers recently topped 1 million. The app launched in Australia in February and has grown even more quickly than in the U.S. In April, meanwhile, the Rakuten FinTech Fund joined PayPal and other groups injecting a total of over $35 million in venture funding into Acorns, raising the startup’s total funding to over $62 million.

The Acorns team wants to build on that momentum. A new feature of the app is Found Money, which allows brands to reward shoppers with discounts. For instance, a Mother’s Day offer allowed users to get $15 off when shopping at 1-800-Flowers.com. The $15 was invested through Acorns.

“If you think about dividends on stock, you’re being paid for loyalty. Same thing with the brands,” says Cruttenden. “If you have $1,000 invested in the S&P 500, it will get about 1.8 percent a year. But our customers who did 1-800-Flowers have probably already doubled what they would have got on the S&P 500. We’re showing the customer better yield.”

Cruttenden thinks micro-investing will evolve in unexpected ways as it grows in popularity, including possible discount programs in retail, gaming and other industries. He believes that 50 percent of all investments will come in the form of micro-sums in about 20 years. But key to that is slashing costs.

“It’s like a super highway – to get an economy going you need infrastructure, highways, internet and you need low-cost money transfer. Let that money circulate,” says Cruttenden.

In terms of rewarding shoppers with discounts, Cruttenden says Japan is farther along than in the U.S. and offers “a terrific opportunity to introduce a product like Acorns that appeals to the youngest customer that securities firms appeal to right now.”

Read more posts from the Rakuten FinTech Conference 2016 here.