PayPal Courts Millennials to Compete With WellsTrade, Ally Invest
Millennials are the next bastion of growth for online brokerage services, but players in that sector have to contend with technology companies – namely PayPal Holdings, Inc. (PYPL) – when courting younger investors to their platforms. This is particularly true for Ally Invest and WellsTrade, two online investment services that are aggressively going after those between the ages of 18 and 34.
Last week, the digital payments company PayPal made headlines when it announced that it would enable customers to invest via Acorns – the investment platform that automatically invests spare change – by using PayPal to fund their investment accounts. When announcing the new partnership, PayPal said that the feature is part of the company's focus to help consumers take better control of their financial planning and to build fiscal wellness.
With more than 2.3 million people in the U.S. investing via Acorns, PayPal said that it seemed logical to partner with the company. "Together, Acorns and PayPal are helping [to] democratize financial services and offering innovative solutions to the people typically underserved by the current system," said Joanna Lambert, PayPal's vice president of consumer financial services, in the blog post. "These new features are starting to roll out to select U.S. PayPal customers today and will be available for all U.S. customers by early 2018."
That partnership could be a formidable one and may pressure the likes of WellsTrade and Ally Invest, as well as other firms that are going after millennials and embracing technology to lure younger investors their way. For instance, earlier this month, Wells Fargo & Company (WFC) launched the Intuitive Investor platform, which is a robo-advisory service that combines digital access to investing with the option of hand holding by one of the company's financial advisors. When the San Francisco-based financial company first revealed plans for the new platform, it said it was going after existing millennial customers who may be looking to open their first investment account.
Meanwhile, Ally Invest, which was created with Ally Financial Inc.'s (ALLY) $275 million acquisition of TradeKing last April, is trying to become the fintech millennials want to do business with. Now that TradeKing is integrated, Ally believes that it can bring on more millennial customers to use its online investing platform as well as its mobile bank. "What's interesting is on the banking side, 55% of new customers are millennials. Our Ally Invest portfolio is over 25% millennial," said Rich Hagen, the former president of TradeKing who now heads up Ally Invest, in an interview earlier this fall. "When you think about things like speed and efficiency, a simple and easy to use and understandable platform, and value, these are all things that have become high priorities to that new millennial consumer."
Just like PayPal and Acorns, all the online brokerages have been courting millennials – and for good reason. Millennials are not only becoming the next millionaires as Baby Boomers age, they are also saving more and preparing for retirement, even if it is decades away. According to a recent survey by LendEDU of 502 millennials who are saving for retirement on an ongoing basis, 53.59% said they are not using a financial advisor to help them invest. That compares with 46.41% that are working with a financial advisor. While only 24.30% of survey respondents said that they are using robo-advisors, it is not for a lack of willingness. A majority – 61.58% – said that they have not used a robo-advisor because they did not know that this type of investing advice existed.