Acorns’ purchase of kid-focused neobank GoHenry signals the fintech has its eyes on the next generation of consumers, a demographic expected to inherit one of the largest wealth transfers in history.
The investing fintech, headquartered in Irvine, California announced on Monday that it had acquired the U.K.-based neobank for an undisclosed sum.
The all-stock deal will help Acorns accelerate its roadmap and “deliver financial wellness to the whole family through all of life’s stages,” CEO Noah Kerner said in a statement on Monday.
The two firms, which said they share a common goal to help families better manage their financial wellness, claim the combined company has nearly 6 million customers.
In linking up with GoHenry, which offers financial services through an app that can be accessed and monitored by parents, Acorns is further laying the groundwork to reach the next generation of consumers, said Nikhil Sharma, managing principal at consulting firm Capco.
“They’re setting up relationships very early,” he said. “This seems to be a play where they want to become the go-to for finances so that when these teenagers get their jobs, they know who to go to. Down the road, if Acorns wants to go into full service advisory, then they already have a captive audience who has been loyal to them. They can potentially cross sell to and provide them more services and just become a one-stop shop.”
Sharma noted that Acorns’ move is not unlike what other wealth management firms have done in recent years.
For example, in 2021, Fidelity announced plans to issue debit cards and offer investing and savings accounts to 13- to 17-year-olds as part of its new Youth Account.
The account allows teens to buy and sell U.S. stocks, Fidelity mutual funds and many exchange-traded funds, according to The Wall Street Journal.
“The rationale for [Fidelity’s Youth Account] seems very similar to what Acorns is doing here,” said Sharma, noting the firms are likely eyeing the $70 trillion wealth transfer that is expected to take place over the next several decades. “[Fidelity] had a lot of these folks who are now starting to be high net worth, and they have kids.”
Acorns, which launched in 2012, has made inroads to the youth market in the past.
The fintech launched Acorns Early in 2020, an investment product that lets parents, guardians, family and friends transfer funds into an account held by a child.
Children and teens are a particularly valuable demographic for Acorns, said Kristiane Mandraki, vice president of growth at fintech product agency Praxent.
Since most parents won’t allow their children to take out the money until they turn 18, children have a longer-term investing horizon, she said.
“Acorns relies on algorithms and passive investment strategies that perform better over longer periods,” she said. “By targeting younger demographics, robo-investing platforms can attract clients with a longer time horizon, leading to more stable and predictable revenue streams.”
A growing emphasis on financial literacy and education in schools, also means younger generations are becoming more financially savvy, Mandraki said.
“As a result, they are more likely to understand the benefits of using robo-investing platforms to manage their investments and build wealth,” she said.
The deal presents several benefits for GoHenry as well.
“Banking is where you make money, but where you make relationships sticky is investing,” Sharma said. “I think it's a good business case for [GoHenry]. In order for someone to become a one-stop shop, it is much better to join hands with a firm that serves a broader segment of the audience.”
The deal could also signal that the option to be acquired is becoming more favorable for neobanks looking to scale in a challenging market, said Lisa Gold Schier, chief strategy officer at Asa Technologies, a firm that connects financial institutions with fintechs.
“Neobanks are niche players serving needed markets. However, financial services is a tough space and navigating it alone has its challenges,” she said. “The industry has transitioned from bundling to unbundling and we’ll see it move back towards smart bundling.”
While many neobanks have seen success in customer adoption, many have also struggled with profitability, Mandraki said.
“As such, given the reduced funding available, there may be more neobanks open to acquisition, and they present good opportunities for the acquirers to purchase a captive audience,” she added.
Access to Europe
GoHenry provides Acorns with a European presence. In addition to the U.K., the fintech operates in France, Italy and Spain. The company also embarked on an expansion to the U.S. in 2020.
The deal allows Acorns to enter the European market without having to develop a new business arm, while also diversifying its product offering, Gold Schier said.
As inflation and rising interest rates have hammered the fintech sector over the past several months, the result has been a buyers’ market for firms looking to expand through inorganic growth, said Sharma.
“The markets are choppy and a lot of startups are under pressure because there is no additional funding coming in,” Sharma said. “Using this forum to scale not only their customers, but scale their capabilities as well, seems to be a logical move. Why build something in house when it's commoditized and available outside?”
