Raiz-ing the savings bar with a virtual coin jar

With the relentless march towards a cashless society, the days of loose change jars and coin-laden car centre consoles appear to have been consigned to the rear-vision mirror.

And while the rapid decline in people using actual money brings a share of heartache to buskers and hopeful youngsters with streetside lemonade stalls, an online investment platform provided by Raiz Invest is a virtual coin jar that is helping hundreds of thousands of Australians prepare for a more sturdy financial future.

Raiz Invest is helping hundreds of thousands of Australians prepare for their financial future.

By downloading the Sydney-based company’s app, customers then attach their credit or debit card details and apply an algorithm that allows purchases to be rounded up to as much as $3, with the extra sum being deposited into an investment portfolio that can then be allocated to a defined package made up of shares, ETFs, residential property or Bitcoin.

It sounds simple – and so is its genesis.

Back in 2012, United States finance sector identity Jeff Cruttenden – whose father Walter founded the investment banking unit of the Morgan Stanley-owned online broker E*Trade – was bemoaning the fact that he did not have enough money to quench a thirst.

“He was sitting there one day in the pub and they couldn’t afford a beer,” Raiz managing director Brendan Malone told Bulls N’ Bears.

“So, he came up with a solution, his dad helped him take the concept to reality and Acorns was born. It’s all about small amounts over time because small amounts consistently over time add up.”

Acorns is an American financial technology and services company that Raiz joined in an Australian joint venture (JV) in 2015, forming the basis for the latter’s build to currently some 308,000 active customers.

‘In the end, I want to have a whole cradle-to-grave type of mentality.’

Raiz Invest managing director Brendan Malone

By enticing a raft of high-profile celebrities including entertainment icon Jennifer Lopez, baseball great Alex Rodriguez and U2 frontman Bono to invest in Acorns, the company has taken an exponential growth path, with more than nine million users and US$15 billion (AU$23 billion) invested through its platforms.

Piggy-backing on that success – and with an enduring and perpetual licence covering the world, excluding the United States – the Raiz Invest app was launched in 2016 as a 50:50 JV with Acorns and new investors. The company then floated on the ASX in 2018, initially providing online micro-investment and superannuation services to its customers in Australia, Malaysia and Indonesia.

The foray into Asia, however, proved a bridge too far and with costs spiralling, the company reluctantly beat a retreat in late 2022 to drive cost reductions and set a sole focus on the Australian market. The move proved seminal, with a quarter-on-quarter drop in operating cash burn of 88 per cent and although customers numbers effectively dropped by 50 per cent at the time to 287,000, the company has since increased funds under management by 40 per cent to $1.4 billion.

Furthermore, the company’s recent financial results show that quarterly revenue is growing strongly – up 28 per cent on the previous corresponding period to $5.5 million. Management says the business has now delivered four consecutive quarters of positive operating cashflow and is expected to keep the momentum growing in the first half of the current financial year.

According to Malone, part of what is driving growth is a strong tailwind from customers who are increasingly looking at savings strategies to combat the global cost-of-living crisis.

In the end, I want to have a whole cradle-to-grave type of mentality where the Raiz kids move into their late teens and early 20s and there is a superannuation product to take them through their accumulation phase,” Malone said. “And we hope to build a pension or retirement income strategy so the accumulation phase can roll into the pension phase.”

As a software as a service (SaaS), Raiz’s business model includes a $4.5 fee per month for technical maintenance, an account management fee for balances of more than $20,000, advertising revenue from a unique Raiz Rewards cashback program and a netting fee.

Once the company – which is operating under a general advice license from the Australian Securities & Investments Commission (ASIC) - receives funds from a new customer, it presents a selection of nine diverse exchange-traded funds (ETFs). The ETFs span a range from conservative to aggressive, catering to various risk profiles.

After the customer decides what their preferences are, money is automatically drawn from their nominated bank account with each purchase and allocated to the chosen portfolio once daily. But possibly the most interesting part of Raiz’s business model is its connection to retail brands and their loyalty programs.

Online savings through investment is the cornerstone of Raiz Invest’s offerings.

Throughout the years, loyalty programs offered by retailers have ranged from points – think Woolworths with its “Everyday Rewards” or Coles with its “Flybuys” scheme – to discounts on future purchases with privilege cards that progressively offer higher discounts the more a customer spends … and everything in between.

Raiz, on the other hand, offers its customers the opportunity to transfer that loyalty into cash, which it then invests on their behalf in their portfolio.

Typically, retail brands offer a discount on a purchased item that then comes off the price at the point of sale. However, if the retailer signs up for the Raiz program and the customer is already signed up to the investment platform, any purchase in-store or online using their allocated card will trigger a payment of that saving to their online coffers. For example, with a $10 saving, $3 is retained by Raiz and the remaining $7 goes to the customer’s account for investment.

Raiz now has more than 1300 signed-up retailers under its belt. The payoff for the brands lies in improved customer loyalty, with increasing numbers of businesses preferring the deal to other schemes as it provides their customers with a tangible cash reward for buying at their stores.

Additionally, Raiz has more than 85,000 followers across various social media platforms, giving it an invaluable insight on buying habits. That information then allows the company to provide retailers with more targeted online advertising – for a fee, of course.

Part of Raiz’s appeal lies in its ability to empower even the lowest-paid individuals to establish a forced savings plan without requiring extensive prior knowledge in how to invest safely in the equity market.

The company also offers a straightforward withdrawal method. Even though it adheres to the ASX’s two-day settlement period and isn’t instantaneous, the process is smooth and allows customers to access funds quickly for urgent, unexpected expenses.

With an annual revenue of nearly $23 million and substantially fewer costs than two years ago, the business certainly appears to be moving in the right direction to show up on investment radars and deliver shareholders with a maiden profit before too long.

The essence of the old saying, “mighty oaks from little acorns grow” is first attributed to English poet Geoffrey Chaucer. So, if it was good enough for him, the Cruttendens and Raiz thought it was also good enough for them … and now also a growing band of investors.

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