'We’ve flipped the script on pricing': Q&A with In|Vest speaker, Stash CEO Brandon Krieg
What makes Stash Invest different from a regular bank?
BRANDON KRIEG: In the last 10 years, companies or startups wanted to deconstruct a bank. ‘Unbundle’ a bank was the big word that everyone used. But the more recent movement is to re-bundle a bank. We think a lot about this. In our view, if you’re going to take a blueprint of an existing bank and use that for your re-bundling, then it’s not going to work. So we’re building a re-bundling — just the components of financial services, with the customer at the dead center. Everything is about the customer.
Talking about re-bundling, the idea is to be your client's educator. You're not just saying to them, ‘Hey, you’re going to do this thing.’ Instead you say, ‘Hey, you’re going to do this thing and here’s why you’re doing it. Here’s an education around why you’re doing it. Here’s how it helps you. Here are the fees, because it’s super transparent. And we’re going to stay with you on that journey; you’re not just going to do it and you’re on your own. We’re going to be with you the whole way through.’ Such advice and education are big components of the Stash way.
How does Stash make money?
In most cases, people don’t have a lot of money. So we decided that the best way to do it was to make it a subscription service. When you open an account and invest on Stash, it costs you one dollar a month and that includes all trading fees, all the education, moving money and all the services. That’s for accounts below $5,000. When a customer crosses over $5,000, we charge 25 basis points annually. The retirement account, we charge two dollars a month as a subscription fee; everything’s included, including all the tax reporting. The one difference is that if you’re under 25, we don’t charge you for the retirement account; it’s free. Because we want people to start saving toward retirement. (30% of Stash users are under the age of 25.)
Our customers are with us for a long, long time. People don’t come to Stash, open an account and leave. Most customers stay with Stash. We’re not trading up. We’re not here to get you to buy and sell really quickly. We want you to build long-term wealth. And we want to help you across your financial life — if that just means retirement, great. If that means just investing in a regular account, great. One of the other products we’ve added is custodial accounts for kids. Starting at an early age really helps them when they get ready to go to college. It’s nice to have a little nest egg when you hit 18.
Are these customers low-hanging fruit, since the rest of the industry has ignored this demographic?
Even now, the big banks do not focus on the non-rich, the non-wealthy. When you think about our customers, our customer base looks like America. They’re nurses and teachers; they work for Amazon, they work for the military, they’re gig employees. They’re just not your typical customer that the bank is focused on. They don’t have a lot of money but they live great lives. Banks are very focused on fees and different types of financial products that our clients, in most cases, either don’t understand or they have been excluded from. We think it’s more than 100 million in the country that fit in this bucket. They make less than $100,000 a year.
How do small accounts keep you growing and healthy over the long-term?
That answer is coming from someone who thinks about AUM. And we don’t think about it that way, because we’re building a business meant for people who don’t have a lot of money. But they are 90% of America, and so you have to change the script. You can’t build a business that thinks about small accounts or big accounts. Quite frankly, we don’t have a lot of big accounts and I don’t target the rich. We don’t market to the rich, we didn’t build this for the rich. Stash is a subscription business and that model works. People in asset management go, ‘Wait — you don’t have $50 billion and you’re not charging some percentage?’ I’m like, no, we don’t. Fundamentally, we’ve flipped the script in the way we think about pricing and building this type of company from mass market America.
Do you see that model changing at Stash over time?
I can’t see a world where Stash becomes opaque and significantly changes our mission of putting the client first. You can still run a profitable financial company and keep the client first and be transparent about everything that you do. I don’t believe an opaque financial services company will exist in the future. I think that the winds of change are here; it’s going take a long time for it to truly change [the industry] and we’re leading that change. I don’t see that we’ll re-pivot or change our model, because our business is working. We didn’t build Stash to be a flip. If I wanted that, I could have done that already. This company was built to be a freestanding financial services platform.
What was the idea behind Stash?
The idea for Stash really came about because [co-founder Ed Robinson] and I were speaking to people in the street about money; just asking them questions about money and investing and savings. The answers were pretty amazing. People would say to us, ‘You know, I really want to save, I really want to invest — but I really don’t understand it. I can’t relate to it. I’ve never learned about it in school. No one taught me.’ It’s not the craziest thing to just think, what if we could build something for this massive population that actually makes them say, ‘I’m going to do it now, I can afford it and I can build a nest egg up for myself. And I can understand my finances and live better financially.’
I want to add that 86% of Stashers are first-time investors or beginners. So my customers, when it comes to investing, they’re not with some big financial company. They’re not with E-Trade, they’re not with Schwab; they’re not doing it at all. We started with investing and then we rolled out the retirement program, to help our clients start saving for retirement in a Roth or Traditional IRA, with five dollars as a minimum. It’s been wildly successful, with hundreds of people every day opening up retirement accounts. We’ve had over 150,000 people on Stash in a short period of time. They’re saving for retirement now, and they didn’t before.
How has Stash grown its appeal?
A lot of our growth comes from word of mouth. The act of gaining financial independence is a very powerful thing for our clients. Think about the fact that 80% of Americans live paycheck-to-paycheck, and I think about 60% of Americans can’t come up with $500 for medical emergency. Our customers really quickly get ahead of those stats. Just making investing and financial services understandable and relatable is something you have to work really hard at, because it’s really easy to make things really hard and complicated — and it’s really hard to keep things simple.
People in this country do not, in most cases, trust the incumbent. There are many factors that go into that. For instance, as we began building our partnership with Green Dot Bank and rolling out banking services to our clients, we started looking at the type of banking fees our customers were paying. Our clients would say no, we don’t pay banking fees. We went back to them and said, actually 30% of our customers are paying $70 a month in banking fees, but they don’t even know about it. A typical overdraft fee at a bank is about $35 right now. In some cases it’s higher. If you have money, you can call up your bank; in a lot of cases they’ll waive that fee. But in most cases, for everyone else, they don’t. And it’s really troubling to us.
Can you talk about Stash’s banking offering?
Around the middle of November we’ll start rolling it out to clients. We’ve got a waiting list of 70,000 people. But they have not just joined a waiting list, they pre-funded some money so that when the bank comes, their bank account gets opened with the money. They’ve committed money by being on the list to get this banking product.
We looked for a banking partner that shared very similar values to Stash and Green Dot was amazing. We can now get that custom bank solution out to our clients, centered around them, around advice and education, with no fees. There’s no overdraft fees, there’s no monthly fee, there’s no minimum fee and the ATMs have no fees. (Out-of-network ATMs will cost a Stash customer $2.50 to use, in addition to that bank’s fees.) These are really big deals for our clients, because of the fees that our clients are paying and Americans are paying. We want to help get rid of them. We want to put the money back into their pockets, so that they can use it for retirement or whatever they need it for; it’s their money, not the banks.