During the 1900’s, the practice of investing was a somewhat elusive one. Investing has traditionally been a rather exclusive pastime. However, in recent years, a greater focus has been placed on enabling individuals from all economic classes to be able to learn about and begin investing.
Micro-investing is the practice of investing small amounts of money by purchasing smaller amounts or fractional shares of a stock. As micro-investing has grown in popularity, more and more companies have begun to take advantage of the practice and its related technologies.
Major companies, such as Freetrade or Acorns for instance, have recognized the growing interest and market demand for micro-investment services. In this article, we will discuss the rise of this new form of investing and what it means for the wider banking and financial industry.
What is Micro-Investing?
Micro-investing has become increasingly popular. Rather than investing large sums of money at one time, micro-investing focuses on investing small increments of money and building up a savings account or stock portfolio over time.
When comparing micro-investing to traditional investing, there really aren’t tremendously stark differences aside from the amount of money being initially invested. Micro-investing offers consumers at all economic levels the opportunity to grow their existing wealth and savings slowly and incrementally, rather than leaving the money to remain stagnant in a low-interest savings account.
Thanks to the growth in popularity of this kind of investing practice, more apps and platforms have popped up giving consumers a wide range of choices for investing money.
For instance, micro-investing apps used for trading stocks allow users to purchase partial shares of companies they wish to invest in. The ability to purchase partial shares enables users to spend less money to start investing.
Benefits of Micro-Investing
When looking at the benefits of micro-investing, it is important for banking and financial professionals to take a full inventory of the benefits. Micro-investing is just one of many new and innovative technologies that has helped the financial industry provide greater value to their customers.
The benefits of micro-investing for consumers include:
- Encouraging Better Spending Habits: Not only does micro-investing help more people save more money, but it also encourages smarter spending through placing a focus on the importance of investment. Rather than emergency funds being left and forgotten, they can instead contribute to market stimulation and generate more value over time.
- Providing Convenience: Investing takes a considerable amount of time and resources, but micro-investing removes a lot of the pressure and time-consuming aspects related to investing. With micro-investing apps and platforms, consumers can reach their money easily and conveniently.
- Highly Accessible: One of the major barriers to investment in years past has been the lack of accessibility to the stock market for every-day consumers. Nowadays, with the rise of apps such as WeBull and Robinhood, more consumers than ever are just a few clicks away from easily accessing many different forms of investment.
Embracing a Micro-Investing Platform
As banking and financial professionals work to keep up with changing consumer demands and increasingly advanced technologies, it is crucial to begin looking into and embracing a micro-investment platform.
A micro-investing platform should be designed around the following advantages: better spending, convenience, and accessibility. There are multiple functions that a micro-investing platform can utilize, depending on its purpose. These include:
- Offering Fractional Shares: One of the biggest advantages about micro-investing for consumers is the option to invest in fractional shares. The stock market itself does not sell shares of a stock in this manner, but micro-investing platforms have the capabilities to purchase entire shares and divide them up into fractional shares to sell to their own users.
- Rounding Up Purchases: Another popular function for micro-investing platforms is to connect a credit or debit card to the account and round up each purchase a user makes to the nearest dollar. For instance, if a purchase is made that costs $9.47 this would be rounded up to $10.00 and the additional $0.53 would be sent directly to a designated savings or investment account. If your financial institution already offers the credit or debit card in question, offering this as an additional service will make your account services more attractive.
- Lower Minimum Deposits: A major component of micro-investing that makes it more accessible – and thereby more successful in the long run – is that much lower deposits are required to begin investing; typically, $100 or less.
- Accessible Fee Structures: Another barrier to investment has been inaccessible fee structures. With the rise of micro-investing, small monthly subscription or proportional based fee structures have given a wider pool of investors the ability to invest without barriers. If implementing a micro-investing tool into your financial offerings is something you’re planning, it’s important to consider which fee structure you would like to implement; subscription, included or proportional.
These are just a few of the capabilities and functions that should be considered by financial professionals looking to create and utilize a micro-investing platform.
Leveraging FinTech to Stay Competitive
Financial technology, also known as FinTech, has rocked the financial industry and sector leaving many financial professionals and companies needing to consider new methods for business in order to keep up.
In truth, a financial institution’s ability to leverage FinTech is essential for a business or banks continued success as advanced technologies continue to become the norm.
Micro-investing fits under this FinTech umbrella as well. Financial business will require the proper software and expertise needed to create an effective micro-investing platform. The success of this type of platform will ultimately rely on the institution’s ability to optimize resource use for software development and platform implementation.
Refocusing a financial business model to be more tech-operated ultimately aides financial institutions in creating a workflow that allows them to focus more directly on their customers and their needs. It also provides greater value to customers by giving them the greatest amount of choice when it comes to their investments through strong investment advice and accessible technologies.
Evolving technologies are beginning to dominate the financial industry – and they are likely here to stay. The rise of micro-investing and its growing popularity is a clear demonstration on why it is more important than ever to provide the tools and resources needed for customers to become more involved in their savings and investments.
As the world of finance continues to shift towards digitization, it is as good a time as any for banks and financial professionals to start looking into the benefits that micro-investing can provide for both their business and customers.
Written by Martin Nymark, Board Director of CPQi, Chairman of Flex Funding, and CEO of Exact Invest A/S.