Can I pose a question to you? Do you stay away from investing because:
• You cannot make sense of the stock market?
• You consider investment – in the stock market too risky?
• You do not have time to study it &, therefore, void it completely?
• You feel you require large liquidity to even take the 1st step in investment?
Acorns realised these pain points of ‘non-investors’ & invested resources in developing an App that reduced if not completely eliminated these pain points.
This is how Acorns App works:
A user can download the Acorns App even as she continues to use her Credit Card / Debit Card – as she normally does.
Periodically, Acorns will download the purchase history from your linked Credit Card / Debit Card and add up the spare change from the payments made.
This means that if you paid $4.55 with your Debit card – then the App will automatically round up the payment to $5 & accumulate $0.45 cents. This process of accumulation will continue till the accumulated capital reaches a princely sum of $ 5 – when it will automatically withdraw this amount & invest it in a ‘Personalised Portfolio’ drawn up by the App user.
Yes, the User has to draw up her Personalised Portfolio.
I can sense a concern on your mind.
What if the user has no knowledge about the principles of Investing, or does not have time – then how can she draw up her ‘personalised portfolio?’
Acorns has proactively worked on eliminating all these hurdles by inviting Nobel Prize winner, Harry Markowitz, who has gained international acclaim for his sterling work on “Modern Portfolio Theory’ to devise an incredibly simple system which can help every user to draw up her ‘Personalised Investment Portfolio.’
Harry Markowitz, drawing upon his rich experience & borrowing from principles of Behavioural Science has drawn up a list of simple questions which Acorns App user have to answer. Depending upon her answer, the App can develop a ‘Personalised Investment portfolio’ for each user.
A selection of questions posed by Acorns App include:
1. Your investment goals
2. Time frame for achieving your investment goals
3. Your risk Appetite
Take the 3rd question. If a user indicates that her Investment risk appetite is low then the portfolio that will be recommended Mutual Funds who invest in secure Debt instruments – which carries near zero risk.
But if a Users indicates her appetite for risk is ‘high’ then the App will recommend Mutual Funds which invest in equity, where the risk is high & so is the return!
Can a user invest more money than what gets accumulated, by rounding up of change? Indeed, she can invest money from outside in her ‘personalized investment portfolio’
How much does Acorns charge for the services provided? A meagre sum of $1 per month for investment amount less than $ 5000 per annum. And 0.25% of the amount invested if investments amount exceed $ 5000 per annum. But if you are a student or less than 24 years of age then this service is free!
Take India. Did you know that merely 2% of Indians invest in Stock market despite the fact the Saving Rate is 30%? An App like Acorns does have the potential to do well.
Business Lesson For us:
1.
Be user focused.
2.
Identify & Eliminate users pain points- Take investment. The world’s finest brains have been working to eliminating the user's pain point. But no matter how many pain points are removed there will always be a few pain points that can always be identified & a business built around it. As Acorns is attempting to do!
--------
In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous
Strategy with RS posts can be found here
