Consumers are moving into investing to complement -- or in some cases, offset -- less favorable returns from things like traditional savings accounts with low interest rates or pensions, and today one of the bigger "neobrokers" in Europe helping to open up that opportunity is announcing a monster round of funding to fuel its growth.
Trade Republic, which lets people buy and sell shares, exchange-traded funds (ETFs), derivatives and (most recently) cryptocurrency by way of a mobile app that does not charge commissions (but does have a fee structure for various services), has raised $900 million in a Series C round of funding that values the Berlin startup at $5.3 billion, the startup confirmed.
The round has a very strong bench of investors behind it. It is being led by Sequoia, with new backers TCV and Thrive Capital, as well as previous backers Accel, Founders Fund, Creandum and Project A, also participating. Accel and Founders Fund co-led Trade Republic's Series B a year ago.
The investment catapults the Berlin-based startup into being one of the biggest privately-held fintech businesses in the region, and while Trade Republic is currently only active in Germany, Austria and France, Christian Hecker (who co-founded the company with Marco Cancellieri and Thomas Pischke) said the startup will be using the funds to expand to many more countries (which will include not just sorting out licenses to do so, but implementing larger regional operations, hence the large round of funding).
"It's our ambition to be present across the entire Eurozone in the next four months," he said in an interview with TechCrunch. That might logically start with the biggest markets in the region, which would mean Spain and Italy, followed by Benelux, Ireland and Finland.
Hecker's view is that what Trade Republic provides is a resource that everyone should be able to access. "It really hurts me to see that the those demographic or macroeconomic factors [that are impacting users in Germany, France and Austria] are basically burning all continental European countries. So I think that's really, really important we launch in all of those nations." The U.K. is also on the target list, he noted, but Brexit has definitely thrown a proverbial spanner into the works on sorting that one out.
The turning tides of consumer habits, and economic trends, are indeed playing in favor of apps like Trade Republic that are giving people a crack at investing, an area of financial services that has traditionally been reserved for wealthier individuals with large sums of money and access to brokers to help them manage that.
For more ordinary people in Europe, interest rates have been at an all-time low, making traditional savings a less-compelling way of growing money; and given the rate of inflation, there are concerns that state pensions -- Social Security, as it's known in the U.S. -- will not be enough for average consumers to live on in their later years without a supplement, while private pension plans are not widely used to supplement that already.
Enter "neobrokers" that are leveraging the ubiquity of smartphones and mobile apps, and a growing acceptance of carrying out financial services like payments or banking using them, to build a new approach to investing, one that is far more accessible to a wider pool of consumers by splitting the stock investing into increments or making way to invest in funds that are composites of many stocks; or indeed giving users a way of investing into alternative areas like cryptocurrency.
Or, as Hecker sums it up: "We have negative interest rates, and we have inflation, and we have a huge pension gap. All three factors demand that you need to do something for yourself."
This has meant a massive shift in stock trading that has led to the rise of a number of new players.
They include Robinhood in the U.S. (which has tried but has yet to make a move into Europe); eToro, which in March announced it was going public by way of a SPAC valuing it at $10 billion; Bux, which raised $80 million just last month; and neobank Revolut, which also provides stock trading services. It is also leading to the growth of completely new approaches to the concept, such as Rally creating a new market for investing in collectibles, and most recently NFTs to turn "everything" into an investible asset. Rally too raised $30 million led by Accel this week.
All those trends, and the wider rise of services to let you easily manage trades by smartphone app, has led to a huge boost for Trade Republic. Last year when announcing its Series B, Trade Republic said it had more than €1 billion under management. Now, that figure has ballooned to €6 billion, coming from just 1 million customers in the three markets where the startup is active: Germany, Austria and France.
Doing the math on that, customers on average are putting some €6,000 per account into Trade Republic, although in practice -- and as a mark of the "democratization" that the company touts as part of its mass-market appeal -- some are putting significantly less, and some significantly more, than that amount.
Hecker said that some users are earmarking as much as 20-30% of their salaries or savings on a monthly basis, and the idea is not so much about quick returns from quick trades, as it is about people looking longer-term gains.
"We’ve never been a trading platform," Hecker said, referring to the fact that many people treat their Trade Republic accounts as a savings plan. And for that reason, he wouldn't really be drawn out on what kind of returns people could expect from the investments except to say that they are in line with how the general market provides gains, and would depend on what you invest in.
"I think what's very exciting about being a savings plan is that it's not only bound to short-term returns," he said, noting that a recent customer survey found that 70% of Trade Republic's customers "are not looking for short-term gains, or investing with the sole purpose to benefit from the average buying effect." Users, he said, "believe in trends, like sustainability, or the ability of the U.S. technology industry to really grow for the next 10 to 30 years."
The funding and valuation, and the story that the company likes to tell about its potential to help the average consumer have a better financial outcome with what money they have to hand, certainly seem to set up the startup to begin positioning itself as a more permanent part of the financial fabric, although as we have unfortunately seen, that can be a slippery idea not just in the world of financial services, but in the world of startups, too.
This is one reason why the fact that the company has a banking license comes in handy: it means that customers get deposit insurance of up to €100,000 per account (similar to how the FDIC backs banks in the U.S.).
Sequoia has been a strong investor in fintechs, backing the likes of Klarna and Nubank, and this comes as the firm is expanding its reach in the region after opening its first European office, in London.
“The democratization of financial markets will be one of the most important consumer trends of the next decade," says Doug Leone, partner at Sequoia, in a statement. "Trade Republic is on the leading edge of this trend and has attracted an untapped generation of European savers who demand increased financial accessibility. We’re thrilled to partner with Christian, Thomas, Marco and their team as they deliver a product and experience that customers love."