Online e-wallet and payments processor PayPal have made a move into the robo-advised online investing market through a tie-up with U.S. provider Acorns. PayPal recently led a $30 million investment round for the five-year old company that was one of the first robo-advisor start-ups to take off in the U.S. The company is now linking its website and mobile apps to Acorns, allowing users to make payments directly into robo-advised investment portfolios. Acorn investment accounts will also be able to be monitored and managed directly from the PayPal app.
The new tie-up is being introduced in phases with a first batch of users being given access to the new functionality from next Monday and all U.S.-based users from early in the new year. Acorns specialises in ‘micro-investing’, a trend targeting millennials with smaller disposable incomes. Purchases are rounded up to the nearest dollar with the change invested in stock market portfolio put together to reflect the holder’s personal financial situation, investment aims and risk appetite. PayPal will give customers the option of change from purchases made through the service going towards an Acorns account.
With PayPal having 218 million active customer accounts to Acorns’ 2.4 million, it is a huge opportunity for the young company.
Robo-advisors are most associated as tools that help with investing for beginners or those who simply don’t have the time to actively manage their portfolios. They automate the service traditionally provided by human financial advisors by profiling retail investors based on their finances, investment budget, risk tolerance and appetite, investment timeline and aims.
Based on that an appropriate portfolio of diversified investments is created that the users pays into either in regular instalments or when they feel they can afford to. Or, in the case of Acorns and other micro-investing-focused robo-advisors, by rounding up purchases and using the change. However, whereas a traditional investment advisor charges between £150 and £500 an hour to do this, robo-advisors make their money through monthly or annual charges which typically compare favourably with those of cheaper investment platforms.
Investing online through robo-advisors is also a quickly growing market in the UK. Nutmeg is the biggest name in the industry on this side of the pond and insurance and investments management giant Aviva recently acquired Wales-based robo-advisor start-up Wealthify. If the Acorn tie-up proves to be successful in the U.S., we can expect PayPal customers in the UK to also soon have a similar service provided. This could either be via Acorns itself, were it to make a move to obtain FCA-regulation to operate in the UK, or in partnership with on the British robo-advisor brands.Risk Warning:
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