Here’s what Adam, Freetrade CEO, said:
We’re anti-intermediation at Freetrade. Intermediaries, or middle-men, just drive up the price for the end customers. The fintech ‘marketplaces’, aggregators and the like are simply intermediaries that need to get paid (or disappear).
We’d love to partner with a company like Monzo, to offer a Freetrade pot, for example. But we wouldn’t pay for it.
The interesting point is about the assumption that Monzo would require a fee. They’re not in this for charity, but it’d be interesting to unpack this a bit more and see what would be mutually beneficial.
I wrote a bit about platforms and this exact case. This is what I had to say - I think it still stands:
Why would Freetrade sign up to the Monzo marketplace if they were asked to pay referral fees? They have their own app, so what’s in it for them?
The answer (I think) is threefold:
- At scale, a platform would connect more customers and suppliers than would otherwise find each other natively. This would have the effect of growing the market for everyone and giving Freetrade a broader ready-made market.
- If Monzo were able and willing to provide identity services – by which I mean somehow pass to Freetrade the identity checks that were carried out when you joined Monzo, then both the cost to Free trade and barriers to entry for the user would be reduced.
- Not relevant to Freetrade perhaps (a share trading app is likely to be sophisticated if hopefully not complex), but the platform could potentially evolve to providing the user interface for some standard types of account – or provide a simple way for third parties to run apps within the app (think of Farmville on Facebook). This opens the potential for the financial services market to reconfigure itself – imagine a smaller savings and mortgage provider deciding not to spend money on their own app (why would they when there are companies like Monzo that could do it for them?) focusing instead on their core business and competitive rates.
But what about that pesky referrals fee point? I think, oddly, money is a red herring. Scale is everything when it comes to platforms. Platforms need to grow – and grow fast. While Monzo might need referral fees in the short term to break even, the Freetrade comment is instructive – a different model might be needed to bring as many folk onto the platform as smoothly and as quickly as possible. These things only work when they’re big!