Raiz Invest is helping hundreds of thousands of Australians prepare for their financial future

By downloading the Sydney-based company’s app, customers then attach their credit or debit card details and apply an algorithm that allows purchases

Technology company Raiz Invest (ASX:RIZ) is helping hundreds of thousands of Australians prepare for a more sturdy financial future with its virtual coin jar.

Customers download the Sydney-based company’s app, attach their credit or debit card details and apply an algorithm that allows purchases to be rounded up to as much as $3.

The extra sum is then deposited into an investment portfolio that can be allocated to a defined package made up of shares, ETFs, residential property or Bitcoin.

It sounds simple – and so is its genesis.

Back in 2012, United States finance sector identity Jeff Cruttenden – whose father Walter founded the investment banking unit of the Morgan Stanley-owned online broker E*Trade – was lamenting not having enough money to quench a thirst.

“He was sitting there one day in the pub and they couldn’t afford a beer,” Raiz managing director Brendan Malone told Bulls N’ Bears.

“So, he came up with a solution, his dad helped him take the concept to reality and Acorns was born. It’s all about small amounts over time because small amounts consistently over time add up.”

Acorns is an American financial technology and services company that Raiz joined in an Australian joint venture (JV) in 2015, forming the basis for the latter’s build to currently some 308,000 active customers.

By enticing a raft of high-profile celebrities including entertainment icon Jennifer Lopez, baseball great Alex Rodriguez and U2 frontman Bono to invest in Acorns, the company has taken an exponential growth path, with more than nine million users and US$15 billion (AU$23 billion) invested through its platforms.

Piggy-backing on that success – and with an enduring and perpetual licence covering the world, excluding the United States – the Raiz Invest app was launched in 2016 as a 50:50 JV with Acorns and new investors.

The company then floated on the ASX in 2018, initially providing online micro-investment and superannuation services to its customers in Australia, Malaysia and Indonesia.

The foray into Asia, however, proved a bridge too far and with costs spiralling, the company reluctantly beat a retreat in late 2022 to drive cost reductions and set a sole focus on the Australian market.

The move proved seminal, with a quarter-on-quarter drop in operating cash burn of 88 per cent and although customers numbers effectively dropped by 50 per cent at the time to 287,000, the company has since increased funds under management by 40 per cent to $1.4 billion.

Furthermore, the company’s recent financial results show that quarterly revenue is growing strongly – up 28 per cent on the previous corresponding period to $5.5 million.

Management says the business has now delivered four consecutive quarters of positive operating cashflow and is expected to keep the momentum growing in the first half of the current financial year.

According to Malone, part of what is driving growth is a strong tailwind from customers who are increasingly looking at savings strategies to combat the global cost-of-living crisis.

“In the end, I want to have a whole cradle-to-grave type of mentality where the Raiz kids move into their late teens and early 20s and there is a superannuation product to take them through their accumulation phase,” Malone said.

“And we hope to build a pension or retirement income strategy so the accumulation phase can roll into the pension phase.”

As a software as a service (SaaS), Raiz’s business model includes a $4.5 fee per month for technical maintenance, an account management fee for balances of more than $20,000, advertising revenue from a unique Raiz Rewards cashback program and a netting fee.

Once the company – which is operating under a general advice license from the Australian Securities & Investments Commission (ASIC) - receives funds from a new customer, it presents a selection of nine diverse exchange-traded funds (ETFs).

The ETFs span a range from conservative to aggressive, catering to various risk profiles.

After the customer decides what their preferences are, money is automatically drawn from their nominated bank account with each purchase and allocated to the chosen portfolio once daily.

But possibly the most interesting part of Raiz’s business model is its connection to retail brands and their loyalty programs.

Throughout the years, loyalty programs offered by retailers have ranged from points – think Woolworths with its “Everyday Rewards” or Coles with its “Flybuys” scheme – to discounts on future purchases with privilege cards that progressively offer higher discounts the more a customer spends … and everything in between.

Raiz, on the other hand, offers its customers the opportunity to transfer that loyalty into cash, which it then invests on their behalf in their portfolio.

Typically, retail brands offer a discount