Today and tomorrow I have a double whammy of tech stuff. Today I’m focusing on the go-go world of financial apps, tomorrow crypto. Anyway, two apps that have caught my attention are Coconut and Freetrade. Both speak to what I think is a mega opportunity.
First up SMEs. Whatever one says about most small business owners – a disparate bunch – I think we can all agree that they dislike high street banks. There may be some residual brand loyalty amongst consumers to the big high street outfits, but that is not true for business owners. I always thought the main market offerings were uniformly awful with only Santander doing a half decent job for its digital offering.
This widespread dislike of high street banks helps explain why the challengers have attacked this space aggressively, with Metro and Handeksbanken leading the charge. The first is a proper high street alternative with good tech and decent prices, the latter an off street brand with high service level offerings 9and pretty awful tech).
There is though an opening in the market for a proper app based offering. A no frills service that costs a minimal amount and offers great functionality. Call it the Starling of SME banking (more on that in a mo). The first proper challenger was and is Tide. On paper, this looks interesting but on my first impressions it seems more than a bit expensive and lacking in cool functionality. What do I mean by that last comment ? Most business owners intensely dislike having to use online digital accounting and data management tools and would love a service that analysed your P&L and cashflow, linked into tax reporting and also allowed to properly monitor spending. Tide doesn’t really offer this and is I think expensive.
Step forward an app called Coconut. This seems to do everything that I suggested. Its early days and the initial free offering has limited functionality (especially around issuing invoices) but it’s a great first stab (and is free!). In effect, one could use this account as a business debit card account, with day to day card transactions run through this banking app. Crucially it also offers proper accounting level accounting reporting and the ability to link into tax reports.
Now for the very obvious problem. The service is really only offered to free lancers, sole traders and those with a limited company with one main beneficiary. Which means that I suspect 80% of SME owners can’t access the service. Which in my book is a real draw back. Coconut says it will be offering a service to these SME owners but that’s the same line that’s been used by Starling and its own take on business banking. I love Starling and its functionality but again, it’s account is only available to simple limited companies and sole traders. And thus about as much use as a chocolate teapot. Which is a pity because I think the market for a SME banking app is HUGE. And one could easily integrate all manner of other services said offering – not just accounting and reporting services. There’s also the potential for cash management, business credit cards and invoice handling.
Whoever cracks the obvious on boarding, AML and KYC challenges will make a fortune.
Which brings me to Freetrade. Again, I think the potential for a low cost or even free share trading service is huge. We’ve already got great services such as DeGiro which have aggressively crunched costs and have dealing rates of a few pounds per deal. But these low cost offerings lack tax wrapper functionality. Enter Freetrade which does offer a cheap £36 a year ISA wrapper plus a limited range of main market shares. It’s still early days but this could be a UK version of US peer Robin Hood.
Crucially Freetrade could provide real competition to the robos, with a much simpler digital proposition. That could be very attractive to the millennial generation. The obvious question then is whether those younger investors are actually that interested. The answer from Freetrade seems to be a tentative yes. I noticed a tweet yesterday from Asam Dodds from Freetrade which shows the age profile of the first 10,000 customers. Millenials, especially around ages 26 to 32 seem to dominate. My only question is whether this is just a head count distribution or an asset weighted distribution?
Histogram showing first 10,000 customers ages
What do the invest in ? Again, Freetrade also released numbers on what the most traded US shares were on the platform – this US service only launched a few days ago. Here’s the top five stocks:
Apple and Microsoft strike me as canny investments whereas Tesla and Snap seem to be based largely on hope and expectation.