The app has gotten to market ahead of Revolut, but the digital banking giant is coming.
In the race to get a commission-free stock investing service to market, Freetrade has placed first. But the real race, to scale, is about to begin.
Freetrade – which is often compared to US stock investing service Robinhood – has already raised more than £4.3m across three fundraises on equity crowdfunding platform Crowdcube. The first of these rounds closed in August 2016, the most recent in May of this year.
Now, after months of careful tweaking and testing, the app is officially opening, in batches, to its waiting list of over 60,000 people.
Freetrade’s proposition is simple enough. It allows users to invest in a range of stocks and tracker funds (ETFs) at the touch of a thumb, without charging them commission on trades, and without a minimum investment.
Its stock universe features around 100 individual UK-listed stocks as well as 19 curated tracker funds, which follow an index or business sector. Ultimately, the app wants to give its users access to all stocks, on all exchanges, from small-cap to FTSE 100 companies. It plans to add big US stocks from the New York Stock Exchange and NASDAQ soon, after which it may look to the Hong Kong Stock Exchange.
Freetrade is also letting its customers call for certain stocks or funds to be brought onto the platform. It recently added a robotics tracker, for example, following rampant demand from its user base.
Although the app doesn’t charge commission, there are still fees. Freetrade offers two accounts: ‘basic’ and ‘alpha’. The first is free to open, but users will incur certain charges through usage. Basic trades will be free (hence the name), but instant trades will cost £1 a pop. Freetrade will also charge £3 a month for a Stocks & Shares ISA account. Various other perks come free, including custody, live data, and outgoing bank transfers. But same-day bank transfers will cost £5 and foreign exchange will be executed at the interbank rate plus 0.5 per cent.
The ‘alpha’ product slashes more or less all of the above charges to zero, with the exception of instant trades in the UK, which cost 50p, and FX, which will cost the same as in the basic account.
For the signature non-instant free trades, the app’s mechanism is to queue up orders to be executed once a day, at whatever the market price is come 4pm. This method, it claims, reduces costs for users and makes the model sustainable. Orders can be cancelled any time up to 4pm.
Freetrade also clarified for AltFi that it does not bake any fees into the bid-offer spread.
“We go out to market to get the best price we possibly can for customers. Every investment firm is under strict regulatory obligations to do this (i.e. get the best price possible), but it’s difficult for retail customers to know whether or not it has been complied with, because of the opacity of exchange data and how fast markets move. It really comes down to trust. There is nothing more important to us than user trust, as you can see in the radically transparent approach we’re taking,” said Adam Dodds, founder and CEO of the business.
Freetrade now employs 15 people and describes itself, in Heikenen-like terms, as ‘probably the leanest retail stockbroker in the world’. Having said that, it plans to hire an additional 20 people by year-end, primarily engineers and customer service team members.
While a 35-person team would arguably rank Freetrade as a mid-sized business, a far larger business is soon to enter the market.
The firm is renowned for its speed of execution. Since launching in 2015 as a foreign exchange app, Revolut has morphed at breakneck speed into a full-blown consumer and business banking alternative, with everything from loans, to travel insurance, to crypto-trading attached. Today, the app has more than 2.5 million customers globally. It raised $250m at a valuation of $1.7bn in April, bringing its total fundraising to $340m. It is live across Europe and has plans to launch in US, Canada, Singapore, Hong Kong, Australia and New Zealand before the year is out.
How does Freetrade hope to compete against one of the fintech sector’s few true behemoths?
“In a way, because big players are big,” said Dodds. “Startups that put growth before customers risk creating an unsustainable model, without really fulfilling the promise of fintech. You need to have a sincere dedication to changing the current market.”
“We do one important thing, and we intend to do it really, really well: building the world’s best investment app. Every morning we wake up and think how can we make investing better, easier and more rewarding. We don’t care about winning Twitter for the day or entering a market just to add a slide to a VC deck.”
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.