Integrating Freetrade and Monzo

Monzo will build its own offering on third party rails, no need to integrate with freetrade.

It doesn’t need to, third party investing APIs like drivewealth exist and are designed to do this out of the box. Integrating with freetrade would be much harder.

It’ll be ETFs and Funds in ISAs

Never gonna happen

We know from their hiring that they seem to actually be building their own investment product, rather than this.

They wouldn’t need the expensive folks they’ve hired just to plug into and show someone else’s product in the app.

1 Like

Yeah exactly, and building on banking / investing rails (which is now common in fintech) makes a lot of sense. Easy access to downstream services (brokerage, custody, access to capital markets) without needing to build them out internally, but the flexibility to build great UX on top of robust APIs.

Also, Freetrade is a few years from building out a white label option, I believe - and the only thing they have that’s valuable is users and AUM, but that’s likely to be lost to Monzo/Starling if they ever launch investment products Inside their apps anyway.

IMO Monzo + Starling was always a risk to Freetrade. Investing services have become commoditised, and the power of a financial control room app (revolut, monzo, starling) is greater than having assets across platforms.

Why would they pay 000000 for something like Freetrade when a) you’ll get their business anyway and b) you can pay for investing API access with likely a subscription fee that is wayyyy less.

Also, monzo doesn’t have the cash to pay for Freetrade, even as a fire sale. $500m is a lot, but it’s not enough to survive the downturn, invest, and acquire a prominent name.

1 Like

I suppose the question here is whether you want to own the rails or run on them. Project Imagine dumped the Dozens brand to focus on the platform. Starling seems to be doing both (focusing on end user banking in the UK and using that as an exemplar for it’s platform offering they’re selling elsewhere). Monzo saw strategic value in basically building the bank from scratch.

As you point out, the market has evolved. The question here then is twofold: a) would owning your own platform be financially or strategically beneficial in the longer term? b) if (big if) Monzo was working with Freetrade for its investment platform then there is there a strategic advantage in owning your supply chain, especially if there’s a danger it might go to a competitor?

Here’s my assessment of the broader questions that this raises from Freetrade: Free Share Trading - #1311 by Peter_G

So I think there are two (maybe three) primary pieces of value in Freetrade:

  • The direct connection to the London Stock Exchange. As I understand it most use an intermediary but Freetrade is direct (I think of this a bit like having a direct faster payments connection, or your own card processor).
  • The user base and assets under management.

From a Monzo perspective, the prize would be to reduce the cost of their investment platform through the Freetrade stack. They could also potentially monetise the customer base more efficiency, generate back office/tech savings and provide a more compelling paid offer.

I suppose the big strategic questions are:

  1. does Monzo want to do direct share trading (I’m assuming that their investment products will be more about funds or ETFs than individual shares)?
  2. does the cost of the acquisition/integration make commercial sense?
  3. does Freetrade’s international footprint (Sweden/Australia etc) help or hinder Monzo’s own expansion plans?
  4. would Freetrade integration be an unhelpful management distraction?

I suppose you’ve jumped ahead to answer my overriding question two by assessing strongly that no, it doesn’t make sense. I’m keen to test that: are you in the industry or involved somehow with Freetrade and/or Monzo? Can you give us any greater insight into what’s happening behind the scenes?

Ultimately, a lot of this rests of just how much trouble Freetrade is in and what their valuation might be: £50m might be irresistible for some potential suitors £300m much less so.

2 Likes

A few clarifying points to the above.

I have no idea what’s going on at Freetrade, but its headwinds seem obvious to me. Last year VCs went nuts for investing fintechs, which IMO was in part due to the nonsense around meme stocks and crypto hype flowing over into retail investing.

That party has ended → investing products are quite hard to monetise due to regulatory restrictions (PFOF is illegalish) and low trading fees. AUM is the name of the game, not trade volumes - and Freetrade doesn’t really have that much AUM. Its product has relatively little moat, competing against incumbents for boomer business, fintechs for millennial business (Gen-z has no money), and well-funded challenger banks launching their own products.

Building your own investing infrastructure is pretty knowledge-intensive, and expensive. BUT it’s also commoditised by companies like Drivewealth (which Freetrade uses anyway), Alpaca Markets, Upvest etc.

Even Robinhood initially launched on Apex Clearing’s infrastructure, but later spent a fortune building its own.

Freetrade won’t have as sophisticated infrastructure as those either, as it hasn’t continually invested in the same capacity and compounded the benefits of focus on infrastructure as those companies have.

Railsbank, Clear.Bank, Solarisbank etc have all turned a banking stack into a product, and even if Monzo were to launch again today it probably would consider building on those rails for the same reason.

The services required to build an investing offering include: brokerage, portfolio management (rebalancing, automating investing, ISA subscription management), custody (you need to be/use a custodian bank - Monzo can’t just custody its own assets), and more.

Using an API product (by design) enables you to bring innovative products to market, scale them securely, and it’s super affordable in comparison. Custody fees are % based, aligning with your own monetisation, trading fees passed on at cost probably.

Hope that helps!

P.S I truly wish you all the best if you’ve invested in Freetrade, it’s a great platform (which I use for ISA/SIPP) but we should all try to avoid confirmation bias.

P.P.S I hear Project Imagine / Dozens was wound up partly due to failures of Dozens + wasting money building convoluted infrastructure.

P.P.P.S I think Freetrade actually uses Drivewealth in its own stack, which kinda negates the whole conversation. It’d be white labelling another companies tech.

1 Like

I have a freetrade account, I opened it when there was the offer of free shares, I sold the ones I didn’t like, bought 1 Apple share and I don’t think I’ve looked at the app in months. I asked on here for some rough/basic (not investing) advice and then didn’t really do anything about it.

Can/will/would Monzo invest my round-up jar? Something simple like that would be great. I like to keep things in the same place, I like the visibility within Monzo, but I need/would like a hint as to what to do. Maybe they’ll never offer that advice, but having it all together might be the nudge I need to take a look myself.

Monzo won’t offer you advice, as it requires regulatory permissions they likely don’t want to go for. If you want to invest with advice, check out platforms that offer advice.

From what I’ve experienced, roundups are good, but tbh it’s not the most sustainable behaviour change. Over the longer term, there are a few ways to invest in way that is more likely to help you be successful:

  1. use tax-efficient accounts (like an ISA in the UK)

  2. when you get paid :point_down:

  3. cover all of your life costs first

  4. pay your debts before investing

  5. from what’s left, decide on an investment amount and spend the other half on fun / a rainy day fund.

  6. buy diversified ETFs inside of your ISA in a simple way like:

25% in SWDA (global fund, low risk + boring)
15% in SMT (USA/China-focused growth fund, with 100 year track record)
15% in SPY (SP500 fund)
15% in DJP (commodities fund)
15% in GLD (Gold fund)
15% on the most chaotic meme stocks / crypto you can find, and be prepared to lose it all

Rinse and repeat forever. If you’re lucky it’ll grow bigger, at worst it’ll probably outperform inflation over the long term (especially if you do it routinely).

Turn investing into a (controlled risk) game, enjoy “spending” your money on investments - it helps!

3 Likes

So Project Imagine is still a thing. They shuttered Dozens, the consumer offering, and instead are looking at banking as a service. It’s difficult, though, to see the value proposition: effectively they’re white labelling Clear Bank, Visa and another company (whose name I’ve forgotten)'s services. So you’d only be paying for orchestration and a rebranded Dozens app. There might be money there, but I dunno.

I think this is kinda where things started to go wrong. They made a big deal about having a direct connection to the LSE and that they were uniquely placed for things like fractional shares. But then they partnered with Drive Wealth for the US and other markets. So one model is gonna be wrong.

Let’s not write them off yet, but Freetrade has been (I think) slow to iterate, and never had a particularly strong tech strategy. If they were API native and they had a plan to provide wholesale services to themselves and to others then I think that would have been great. But instead I’ve found the pace of development glacial and they’ve been outpaced by the T212s of this world. I suspect a Monzo launch (even if it’s just preprepared funds like Vanguard life strategies) would probably mop up much of the market.

Sad times. Let’s hope something good comes of it.

1 Like

So here’s a moan about regulation. I get the regulations on “advice” - it comes from a good place.

But the word has become over regulated and policed, I think.

I suspect that when @Revels talks about advice it’s more not knowing where to start. Whereas regulatory advice is (I think) more about telling someone your circumstances and them recommending products to you.

I think there’s therefore a slight phobia from banks/investment companies in giving sensible, generic “advice” (like this post by @Lampran - the sort of which is all over the internet). I’m not sure whether that because it’s because the regulations are over interpreted and there’s a general fear of anything approaching advice, or whether the regulation is a bit too all encompassing.

Ideally, I’d like to see a situation where an app (like Monzo) could nudge you in a positive direction by suggesting some (approved somehow?) generic templates for your wealth (x% in easy access savings, y% in longer term investments etc) and nudging you if you’re off course or imbalanced. But that might require regulatory change. At least letting me put in my own goals/wealth mix and having the app nudge me would be a good first start…

But I digress!

2 Likes

Apologies I’ve probably missed this but has anyone got a link to this?

1 Like

There was a job ad around January time (?) for an exec to lead the investments business. Let me have a search…

Edit:. This topic has some insight and links to previous sightings:

2 Likes

Thank you

1 Like

I completely agree, and much of the wealthtech sector agrees so hopefully innovation will push the regulator to change. Its about serving people, and currently the rules around advice don’t do that.

1 Like