Acorns is a fintech company that provides Robo-investing and micro-investing services. The company generates revenue primarily through three subscription tiers: Lite ($1/month), which includes Acorns Invest, Personal ($3/month), which provides for Invest plus the Later (retirement) and Spend (personal checking account) suites of products, and Family ($5/month), which includes all of the features of the Lite and Personal plans plus Early.
Acorns Business Model enables individuals to engage in retirement savings by consistently saving small amounts of money, a practice known as micro-investing.
The website also offers low-cost, essential financial services. The business categorizes its services into three broad categories. The first one allows members to invest small amounts in exchange-traded funds (ETFs).
Second, customers can create and finance an IRA directly through the website, while third, customers can obtain a debit card issued by corporations such as Visa, Inc. (V).
Acorns charges a monthly subscription fee of $1, $3, or $5 for various services.
Table of Contents
- What is Acorns?
- How Does Acorns Work?
- How Does Acorns Make Money?
- What are the Features of Acorns?
- Success Story of Acorns
- What is the Future Growth Strategy of Acorns?
- What is the Revenue of Acorns?
- What is the Funding and Valuation of Acorns?
- Key Takeaways from Acorns Business Model
What is Acorns?
Acorns is a mobile-first investment platform that enables users to invest small amounts of cash. In addition, the company’s reward program offers the possibility of opening a savings account (for adults and children) as well as an IRA.
Acorns earn money by charging their customers a monthly subscription fee, referral commissions from its rewards program, and interest cash balances. It also charges an annual fee for any accounts valued at more than $5,000.
The company was established in 2012 and is based in Irvine, California. It has rapidly grown to become one of the most popular investment apps in the US and Canada. Acorns have raised $207 million to date, and its market capitalization is $860 million.
How Does Acorns Work?
Acorns is a FinTech company that provides investments, spending, and saving products and services.
The Invest account offers customers the opportunity to invest small sums of money. In addition, users can connect their credit cards and bank accounts directly to Acorns.
When a customer buys a cup of coffee for $3.50, for example, Acorns will automatically recommend adding a fraction of that price (in this case, $0.50) to their portfolio.
It takes users only a few clicks to build an investment portfolio. Then, according to the user’s investment plan (conservative, aggressive) (ETFs), Acorns invests the money in Exchange Traded Funds (ETFs). When an individual’s pool of change reaches $5, the firm will begin to invest on their behalf.
The company’s Individual Retirement Accounts (IRAs) are backed by Later, automatically saving a certain amount each month (starting at $5). In addition, portfolios can be customized to a user’s age and proximity to retirement, as well as personal preferences.
Customers will be able to deduct contributions to their IRA accounts from their taxes in the future (transfers are considered pre-tax income) and only have to pay income taxes on any earnings made upon retirement – meaning no capital gains tax will be payable.
The Spend account from Acorns offers a debit card along with the bank account. This account has several vital features, including:
- Spare change will be automatically invested in an existing ETF portfolio
- Users can set money aside automatically by using Smart Deposit
- Insurance coverage of up to $250,000 through the FDIC
… and a lot more. Users with this account have access to their checking, investment, and retirement accounts in one place.
Acorns and its Found Money partners create Earn as a joint venture. Acorns customers can earn cashback when they shop with these partners.
Among the companies that partner with Airbnb are Nike, Stitch Fix, and Walmart. You can use your credit card or the checking account of Acorns. Earn is now available as a Chrome extension.
Early allows parents to open investment accounts for their children. In addition, you can set up automatic deductions from your bank account for regular investments by your family.
Furthermore, the company has teamed up with CNBC to create financial literacy instructional materials.
Since Acorns is a mobile-first company, its majority of products are accessible via mobile applications. The Acorns app is available for Android and iOS.
How Does Acorns Make Money?
Acorns earns money by charging its customers’ subscription fees, referral fees, management fees for handling accounts, and interest on cash.
Let’s look at each of the three revenue streams in greater detail below.
Acorns offer to earn a variety of membership packages ranging from free to paid. In addition, there are three tiers: Lite, Personal, and Family.
Members can use Acorns Invest for $1 a month through Acorns Invest Lite. Invest automatically rounds up spare change and invests it in ETFs for users.
Moreover, Found Money users can earn an extra investment when dealing with one of its 350+ partners. A few of these include Sephora, Warby Parker, and Dollar Shave Club.
The Personal package costs $3 per month and consists of both Invest and Later features. The Later retirement account is a tax-advantaged retirement account that enables members to receive tax benefits.
Spend also offers the option to open a checking account. The account offers no account or ATM fees, 10% bonus investing, and an integrated investing account.
With the $5 a month package called Family, all the goods mentioned above are included and Early.
A parent can use Early to open an account for their children, set up automatic recurring investments, receive financial guidance, and realize possible tax savings.
Interest On Cash Balance
Acorns uses the money in user accounts to lend to other institutions, including other banks.
These institutions then pay them interest (also called Net Interest Margin). The net interest margin for all US banks in 2019 was 3.35 percent according to Statista.
Acorns charges a 0.25 percent yearly administration fee on accounts greater than $5,000. It includes the time and effort necessary to select the optimal investment option for each user.
A member who has less than $5,000 in their account is exempt from the maintenance fee. A user will instead pay a subscription fee for one of the rates listed above.
Acorns receives a referral fee whenever one of its 350+ Found Money partners purchases a product or service.
The referral fee varies depending on the partnership terms but is often a modest proportion of the total purchase volume.
The member then receives a portion of the referral revenue directly into their account or invests earns it on their behalf.
What are the Features of Acorns?
Acorns is a beginner-friendly automatic saving and micro-investing program. Many of us struggle with saving consistently or are fearful of investing.
However, time is critical when it comes to money accumulation. If you wait too long to invest, you will miss out on years of growth.
If you’ve never invested and are unsure where to begin, Acorns is worth a look.
For example, suppose you’re filling up with petrol, and your credit card is charged $24.34.
The program will round up to the nearest dollar and invest the difference ($0.66) on your behalf.
Acorns will build tailored investment portfolios based on your objectives and risk tolerance. The money can be used to fund a vacation, an emergency fund, or even retirement.
In addition, acorns can assist folks who would not save or invest on their own.
Acorns have evolved into an all-in-one financial wellness app over time. The remainder of the app’s features is listed below.
Here are the features of Acorns that help your money grow:
It makes it easy to invest spare change. Taxes apply to your investment income as long as your funds increase in value due to the stock market.
Direct deposit, mobile check deposits, online bill pay, and a metal debit card are included in this FDIC-insured checking account.
Provides retirement planning options, including Traditional IRAs, Roth IRAs, and SEP IRAs.
As you approach retirement age, the app automatically adjusts your investment portfolio to more conservative positions.
You can begin with a $5 minimum contribution to an IRA. However, round-ups are not permitted in IRA accounts. Therefore you should establish periodic contributions.
Start investing in your children’s future with $5. In addition, you may establish UTMA/UGMA custodial investment accounts in your child’s name.
You may withdraw funds from an Early account at any time without incurring a penalty if the funds are used for the kid’s benefit.
Acorns Earn (Found Money)
Shop at any of Acorns’ 350+ store partners and earn money.
Register your credit or debit card with your Acorns account and begin shopping.
A proportion of your purchase will be deposited into your investment account by the shop.
Success Story of Acorns
Walter and Jeff Cruttenden, father and son from Irvine, California, founded Acorns in 2012.
Walter’s father led E-transformation Trade to become an online investment platform with the launch of EOffering in the late 1990s.
Jeff’s father was a frequent speaker about investments at the family dinner table – and some of that rubbed off on him.
Jeff began discussing with his father the possibility of capitalizing on the growing popularity of cellphones in late 2011.
The goal was to make investing more appealing to the general public, especially during the Great Depression, when the public’s distrust of financial institutions was at an all-time high.
The result was that only 26 percent of what is considered the youngest generation owned stock.
Over 50% of these individuals lack the financial means to invest, while another 30% cite a lack of awareness about investing alternatives as a cause.
After settling into a secret mode for two years, the Cruttendens began developing the app.
Nobel Laureate and economist Harry Markowitz (a company’s board of directors) lent his expertise on diversifying investments to minimize risk while maximizing returns.
Acorns entered beta testing in March 2014. Acorns Invest was the company’s first product, which invested a user’s spare change in exchange for a small monthly fee.
The startup initially launched on Apple’s iOS store (and later on Android) and immediately captured customers’ attention.
In the first ten weeks of beta testing, Acorns acquired almost 10,000 customers investing, on average, $3 per day.
Noah Kerner was promoted to CEO simultaneously with the reorganization of the company’s leadership. Entrepreneurship was of interest to Kerner from an early age.
He began DJing at age 13 and worked at a Super Bowl after-party on The Tonight Show With Jay Leno and Jennifer Lopez on tour.
He was able to finance his studies at Cornell, where he studied economics and psychology. Kerner has founded three businesses by the age of 28.
OneLevel, an online marketplace for hip-hop culture, Soundproof, a music agency that handled artists such as Quincy Jones and Babyface, and Noise, a marketing agency.
The London-based Engine Group acquired noise in 2010. After that, Kerner advised several startups on branding and marketing, including WeWork and 305 Fitness.
Acorns were one of the companies he invested in.
A few months after his investment, the Cruttenden family invited him to become the new CEO. He accepted the offer immediately.
The company moved into Australia a year after it was launched (although the assets have been sold and are now called Raiz Invest).
One of the best years in recent years was certainly 2020. Due to the issuing of government stimulus checks, investment activity on the platform increased significantly.
The company also integrated with ZipRecruiter so their users could search for new opportunities (mainly if they were laid off).
Throughout 2021, the prognosis remained optimistic. As a result of the GameStop frenzy, online brokers like Robinhood suspended deals, leaving thousands of users unhappy.
Acorns are one of the personal financial applications they experiment with.
Almost 600,000 members signed up for Acorns in its first six weeks in 2021.
Acorns were able to buy several of its competitors due to its expansion, including Harvest Platform and Pillar Life.
As of 2021, Acorns serves more than 9 million members on its site, with approximately two-thirds of them subscribing to its different investment options.
Around 500 employees are employed by the company, which has offices in Irvine and New York.
What is the Future Growth Strategy of Acorns?
Several Acorns accounts generate only $12 in revenue each year, which is a pittance for the corporation.
The corporation has been working hard to increase sales recently. Acorns Later are designed to help consumers secure a nest egg early in their careers and assist them in accumulating one.
Furthermore, Acorns partnered with PayPal to grow its user base and have access to bank account services.
A B2B service is also being developed, according to recent acquisitions. Acorns’ competitor Stash has demonstrated that B2B services are a significant revenue stream.
What is the Revenue of Acorns?
Private companies like Acorns are not required to disclose their revenue. However, according to several reports, the company’s annual revenue is expected to be close to $100 million shortly.
What is the Funding and Valuation of Acorns?
Acorns has raised a total of $207 million in venture capital funding over 11 rounds, according to Crunchbase. Investors include Boeing, NBC Universal, Bain Capital Ventures, Jennifer Lopez, and PayPal.
Acorns was valued at $860 million post-money during its most recent Series E round, announced by the firm in January 2019.
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Key Takeaways from Acorns Business Model
Acorns is a fintech company based in the United States specializing in micro-investing and related financial services such as retirement planning and tuition investment accounts.
There is a management fee associated with each of Acorns’ investment subscription programs. Moreover, portfolios worth more than $5000 are charged a fixed fee of 0.25 percent.
Many Acorns users with small portfolios provide only a tiny amount of cash to the organization.
It has attempted to address this issue by focusing on retirement products and strategic alliances. Additionally, Acorns may penetrate the lucrative B2B industry.
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