Warren Buffet once said that if you don’t find a way to make money while you sleep, you will continue working till you die. As a result, youth have become engrossed in finding different ways to make money without necessarily holding down a 9-5 job. With people stuck with their mobile devices and the pandemic limiting movement, firms in the fintech industry have decided to make trading easier by allowing investors to trade digitally. Consequently, traditional banking is being phased out, and Robo advisors are replacing bank advisors. The youth especially have taken up the new trend, resulting in the rise of more neobrokers taking advantage so they can avail options to potential investors. Therefore, as investors look for investments that offer instant liquidity, research reports, and access to favorable interest rates, brokerage is at an all-time high. Let’s tell you more about neobrokers, what they do, and if they have a future in the fintech industry.
OMR described neobrokers as finance apps that allow users to trade stocks without additional fees. They have been referred to as a new class of brokers aiming to revolutionize financial investments through innovative concepts. They aim to make the stock market accessible to everyone by democratizing it. Tech Crunch further explained that neobrokers are startups that are disrupting the investment industry because they offer a platform to a wider consumer base. They entice customers to be involved in the stock market by providing an easy mobile-based application and more incremental investment options.
Neobrokers have also taken up social networks to meet their objective in popularizing the stock market to different target groups. The brokers have their ears to the ground to take advantage of any upcoming trend since they have realized that before investors decide to invest their money anywhere, they always consult their friends. As a result, neobrokers are now moving from encouraging investors to consulting with experts in matters concerning their portfolios to permit them to interact with other investors casually on the platform.
Since their aim is also to create more value, neobrokers intend to create a social network allowing users to share trading tips. The real value of the startups can therefore be obtained by encouraging more interactions between users. The users get to earn money based on trading activities, and they stay updated on any trades they can make through alerts that will allow them to follow stocks that interest them.
What Neobrokers Do
Medium explains how neobrokers help to level the playing field. According to the article, retail investors are usually disadvantaged because they may have enough money to build their portfolio, but the high barriers to entry limit their access to different classes of assets. The author of the article goes ahead to clarify that an institutional investor has deeper pockets than retail investors, putting retail investors even further away from taking advantage of the many investment opportunities available. Due to the exorbitant fees, the retail investor with shallow pockets cannot compete with institutional investors; hence a neobroker becomes the only way to level the playing field.
Neobrokers offer access to all types of investment, be they gold, cryptocurrencies stocks, or ETFs, through a digital platform. Besides providing access, they offer simplicity because the digitized process makes it easy for anyone to trade. Most of all, it does not charge exorbitant fees, which further emphasize accessibility. Co-founders of Scalable Capital said that as neobrokers, they offer clients a fully managed globally diversified EFT portfolio and self-directed investment options. Their mission is to make everyone an investor by making the process simpler and improving accessibility. They even added that they are planning on launching the trading of derivatives next; in short, everyone will have their pick of investment available on the same app.
Is There a Future for Neobrokers?
Recently you must have noticed many firms in the fintech industry, especially those acting as neobrokers, choosing to raise more funds because the competition is stiff. For example, Bitpanda wants investors to have a wide array of options ranging from gold to other digital assets and established stocks. As a result, it raised $170 million in Series B funding that turned it into Austria’s first unicorn. Scalable Capital has not been left behind, and it raised $180 million in the Series E funding that also catapulted the valuation to $1.4 billion. Public.com, on the other hand, raised $220 million, resulting in a $1.2 billion valuation, while Gatsby got $10 million in its Series A financing round. All these firms can see that the future of neobrokers is bright, and they want to rush in and partake in a big market share before other companies start competing for their slice of the pie.
According to LinkedIn, the rush to be the best neobroker in the world is because such firms have already seen a shifting trend in how the youth are investing. In Europe, most youth no longer see the need to open a savings account, and high-interest rates are not the cause because the pandemic has seen the rates go down instead. Yorick Naeff, Bux CEO, explained that they researched to understand the shift, and the conclusion was that the young Europeans had been pushed to invest, and the stock market is currently the ideal option. Although youth are mistakenly known for taking on risky investments to cater to short-term needs, they have changed and want long-term investment; hence ETFs are the most preferable.
Additionally, the CEO cited that the youth are interested in making well-informed decisions. Therefore, besides looking for education regarding the stocks and digital assets, they want it to be incorporated in their lifestyles hence the rise of using social networking. Furthermore, the background research they carry out before settling on certain stocks is also to ensure their investments align with companies that drive positive change. Neobrokers, therefore, have their work cut out for them to capture this new generation of investors.